- A Business Method Laboratory
- Inventing from Value and Extending Value
- Walker Digital's Big Idea
- Learning from Walker Digital's Practices
This chapter is from the book
This chapter is from the book
This chapter is from the book
Inventing from Value and Extending Value
One of the key ideas at Walker Digital—an idea that other companies might usefully emulate (it's not patented)—involves focusing on the value of inventions. There are two parts to this idea. The first has to do with where ideas come from. The second has to do with how the ideas grow and extend.
For many companies the value is centered in the technology. Stac Electronics, discussed in the preceding chapter, is a good example of how this works. Stac invented a nice, fast compression algorithm. Stac's managers are astute businesspeople and so they have been diligent in finding new markets for compression technology, starting with tape backup, extending to real-time disk compression, and most recently moving into network support systems. But the applications have emerged from the technology. It is as if Stac has an answer, and the answer is real-time compression, and the company has spent the last decade looking for questions to which it can apply this answer.
Walker Digital reverses this process. It begins by looking for things that seem broken or wrong. Sold-out candy bars when a vending machine is still full of other brands of candy bars looks wrong. Starting with the business problem, Walker begins its research to find whether a solution to the problem looks protectable, whether good solutions are likely to exist, and whether there is enough value in the solution to provide Walker with property on Park Avenue rather than property in Montana. In short, Walker has identified the value and potential licensees even before it reduces the invention to practice.
Even so, inventions at Walker Digital are not rifle shots; when someone is thinking about a business problem, one thing leads to another. That is what happened with Dan Tedesco. Working with the rest of the Walker team, he filed the patent application for his vending machine invention, titled "Method and apparatus for dynamically managing vending machine inventory prices." But once he began seeing the retail inventory problem in vending machines, he began seeing it everywhere. That is one of the important functions of the brainstorming and inventing sessions at Walker Digital—important business insights often reveal other opportunities to create value.
For example, Tedesco's vending machine work came together with other work on revenue management at Walker Digital to extend the thinking about revenue management from vending machines to fast foods. As Jay Walker describes it, a typical fast food franchise might have profits of around $300K per year. But that same franchise will give millions of dollars in change back to customers. Why? Do the customers want all of those quarters, dimes, and nickels? Walker's bet is that they don't. They'd rather have fries, or maybe a cookie for dessert.
The Walker Digital team saw a convergence of several problems and opportunities. In the simplest case, suppose a customer has 43 cents of change due. If the order did not include fries, the customer might find the offer of a bag of fries that normally sells for 79 cents to be an attractive alternative to receiving the change. If the actual cost of fries to the vendor is only 22 cents, the proposition makes sense for the vendor, too.
Things are more complicated if the restaurant has a policy of discarding fries after they have been on the hot table for more than 20 minutes. If the fries are 18 minutes into their shelf life, it might make sense to the vendor to offer them to a customer in return for change even when the amount of change is only 15 cents. The customer gets a great deal, and the vendor avoids losing the entire value of the product.
The problem with such complicated offers is that the cashier, who is the point of contact with the customer, could not possibly keep track of all the offers and revenue enhancement possibilities without assistance. So, the Walker Digital team devised a system using databases, order information, and information from timers used for quality control to dynamically calculate the most interesting offers and opportunities for revenue enhancement. The system then turns these opportunities into prompts that the cashiers can read from the point-of-sale terminals. "I see that you have 43 cents in change coming back to you. We have a special promotion where I can offer you our 79-cent fries in place of that 43 cents. Would you like the fries?" The result is an invention that was awarded patent number 6,119,099, titled "Method and system for processing supplementary product sales at a point-of-sale terminal." A prototype is in use in the Burger King across from Walker Digital's offices.
What is interesting about this invention from a patent processing point of view is that Walker applied for this new patent by making use of a U.S. Patent Office procedure called "continuation-in-part" (CIP). A CIP is filed while an original, parent patent is still pending. Here is the reference to the parent and applications presented in the '099 patent:
Notice that the earlier patent is still pending. The CIP provides Walker with a way of mixing old claims with new ones. Here is an even more dramatic example of use of the CIP procedure—this one is from patent 6,138,105, an invention that represents more of Dan Tedesco's work on vending machines and related revenue management ideas (don't worry about the details here—just skim this to get a quick sense of what is going on—the sequence of "begats" is almost worthy of the Old Testament Book of Genesis):
Notice that both the '099 patent and the '105 patent start from the same root on the "family tree," a March 1997 patent application dealing with lottery tickets. The CIP procedure gives Walker a way to associate earlier dates with patents, making them easier to defend: even though the '105 patent was not filed until May 1998, it has, in part, claims that go back more than a year earlier. Even more important, notice how the CIP provides Walker Digital with a way to organize its patents that actually reflects its internal process of continual development, refinement, and extension.
As Jay Walker learned during his first years at Cornell, the way to win at Monopoly is to keep improving your properties, adding value so that they are worth even more when another player lands on them.