How to reinvent an industry

Given the intense press focus on patent litigation in recent years, it is hardly surprising that many people no longer associate patents with invention. But when I was growing up, the patented discoveries at Bell Labs and the Thomas J Watson Research Centre inspired a whole generation of inventors like me. When I went to work for IBM, I became their top inventor at the time, earning more than 100 patents and another 150 enabled publication inventions.

IBM thought I was so proficient at inventing that they asked me to set up a patenting programme, which I called the ‘IBM patent factory’. I ran it for roughly eight years, helping Big Blue to become the world’s number one patent holder, not only in terms of numbers of patents – up 500% during my tenure – but also in terms of the quality of the visionary inventions for which Big Blue is now famous.

Today, of course, my company has access to much higher-quality information sources, analytics, forecasting capabilities and subject-matter expertise regarding industries undergoing rapid technological disruption than was ever available previously. This helps us to meet the challenges of invention in the first-to-file environment that began in March 2013 after implementation of the America Invents Act.

So how does one carry out disruptive invention in an industry? Let me illustrate by taking an industry with which almost everyone has direct experience – an industry that is filled with frustrations for customers, yet is relatively unfettered by strong patent positions and therefore ripe for disruption. Let us look at the rental car industry.

The first thing to do is to draw a landscape of the industry’s entire value chain on a white board. In some cases, you may discover that value-chain analysis does not work as well as other frameworks for analysis, depending on the industry. There are dozens of different frameworks for analysing innovation opportunities; but for now let us stick with the value-chain approach.

In the rental car industry, the key segments of the value chain that directly affect consumers are:

• getting a rental car;
• using a rental car; and
• returning a rental car.

So draw these three boxes left to right across the top of the white board. However, each of these value-chain segments contains a number of discrete sub-categories of customer interaction. So under the heading of “Getting a rental car”, for example, draw out little boxes for the sub-categories: “Order and compare”, “Making the transaction” and “Picking up the car” (see Figure 1).

Already, the white board is starting to look like a map, with the principal components of the industry’s value chain listed west to east and their various sub-categories listed north to south (or top to bottom) beneath them. Later, this will become a three-dimensional map populated not only by the inventions created in this exercise, but also by the patent holdings of other players in this space.

So let us start with “Order and compare”. There is likely to be a lucrative opportunity for anyone who can reinvent this part of the value chain because the current process of comparing cars and prices is filled with frustration and uncertainty. Indeed, a great deal of the information most critical to making an informed choice is simply not available to customers.

Figure 1. Brainstorming the industry landscape

For every problem, an invention

Consider, for example, that if you want to rent a sport utility vehicle (SUV), you will find a wide range of prices for different SUVs and mini-SUVs. Yet some of the data most meaningful to customers is missing from the comparisons. Does the SUV have a third seat and is this foldable or removable so I can fit my skis in? Does it have a trailer hitch? These two data points alone can make a material difference to the renter of an SUV, but they are nowhere to be found in today’s order and compare process.

Even with a supposedly easy-to-quantify factor such as price, the data provided does not necessarily give customers the information they need to choose the best value. If you have ever reserved a car in San Francisco, for example, you may have noticed that the prices at Fox Rental are $15 per day lower than those at Hertz. Same cars, lower prices – for a two-day rental, that is a saving of $30. Only when you slog your way over to the off-airport rental car facility do you discover that the line waiting at Fox Rental’s counter is usually much longer than the line at Hertz. If you are like me, you would happily pay someone $30 just to avoid standing in a long line.

If my experience is typical – and I use rental cars all the time – then there is likely to be a great deal of value to be gained in innovating the whole order and compare process. So let us draw a little box on our white board called “Hidden costs” underneath “Order and compare” and target this area for innovation. Our landscape is now becoming more detailed.

The next part of this process is to use invention tools to come up with patentable solutions to this “Hidden costs” conundrum (understanding, of course, that we will later draw additional boxes for other elements of the “Order and compare” process as well).

Let us begin by inventing a new user interface that provides much more useful information to customers – possibly in the form of graphs or histograms – that helps them to make decisions that better suit their needs. It could provide data such as:

• average time waiting for a shuttle or tram;
• average time in minutes it takes to get to the rental facility;
• average time spent in line at the rental facility;
• slowest and fastest days of the week;
• cheapest and most expensive days to rent; and
• user ratings of their experience with the rental company.

Some of the data will deal with waiting, some with frustration, some with price or convenience or service.

At the bottom of this interface, we will put a “Compare now” button, which when clicked or touched gives customers much more useful data for choosing the best deal. All of the data in this new interface is already known, or at least readily available. Therefore, we will create device-enabled systems and methods that make it useful to customers and then file patents on these inventions.

However, why not also enhance this new customer-centric information with real-time data? You could place a camera on the rental car counter or actually measure transactions completed at the point of purchase, tie this into your computerised reservation systems and let users see exactly how long the line is. Let it count how many people per hour are being processed to get their cars or the average number of minutes it takes each person to conduct the transaction and pick up their car. You already have the computers there; you just need the camera (and you will not even need those if you can tie in a feed from the security cameras).

This is only one means of adding real-time feedback to the process, but it could represent a substantial competitive advantage to a rental car company. Indeed, if you were Hertz – or some other customer-focused rental car company that wanted to win more business and customer loyalty – you would definitely want to look at this. Even if your prices are a little higher than those at Fox Rental, business travellers will most certainly pay for enhanced comparison shopping information, improved service and reduced frustration.

To be sure, the data collected at Hertz would be used only by Hertz, with no real-time data available for other rental car companies. However, we could still put real-time feedback to use in our “Hidden costs” sub-category of “Order and compare” by implementing the algorithm to compare Hertz’s times against industry averages. This data could then be made available on the Hertz website or through its app, showing customers how much more efficient Hertz is at easing customer waiting times (not to mention managing costs). This could well prompt competitors to do something similar, introducing a whole new customer-centric metric to the industry.

It is likely that Hertz does not know about this invention yet, as I just invented it. This innovation would likely lead to several new patent filings. However, before I spend money on this or any other patent filing, I would crowdsource the prior art to make sure the invention had not been previously disclosed. I would also review any patent filings in light of the Supreme Court’s recent ruling in Alice v CLS Bank and the new US Patent and Trademark Office guidelines that preclude patenting human processes that merely use a computer to facilitate them. Finally, I would use industry-sizing methods to ensure that the invention had value – that is, if implemented, it would make money.

The process creates a large number of new ideas like these, some of which may be clear winners and some of which may not have much value after all. However, already we have something to show from innovating in just one area of only one segment of the industry’s value chain.

Inventing better service

Let us move on to the next stage of the car rental process and draw another little box for “Picking up the car” on the white board.

If you were an executive at a rental car company, what is one of the main things you could do for business travellers that would reduce the hassles involved in renting a car? Once again, we go back to the invention process and come up with a way to avoid the hassles of the shuttle or tram slog to the rental lot. Why not valet the car to the customer?

Obviously, you cannot patent a valet service; but you may be able to patent a way to deliver it, via an Uber-style facilitation. Any practical (and patentable) valet service for rental car customers would require them to order ahead via a device-enabled system and method that employs a computer with a user interface, a region of which is devoted to costing out and ordering a valet car pick-up. That innovation will result in at least one patent filing and more likely several.

In fact, you could also have a push-driven impromptu valet service, which would become available to the user when his or her flight was delayed by more than 30 minutes (or at whatever setting the user sets in the rental car app on his or her phone). Your smartphone’s GPS would be linked to your reservation and if your flight is late in arriving at your destination, you will receive an alert on your lock screen asking if you wish to have a valet bring your car round to the front of baggage claim in 10 minutes – for an additional $20 fee (free to elite members of the rental company’s loyalty programme) – rather than have to schlep half an hour to the lot to pick up your car.

Why don’t car companies do this?

Now let us move to the next segment of the value chain – “Using the rental car.” Once again, inventing tools can be used to develop a solution to one of the most frustrating aspects of the rental car business today: customers never know whether it makes more sense to pay the inflated price that rental companies charge for petrol for not returning the tank full or to try to find a petrol station in an unfamiliar city near the airport. People hate to deal with that conundrum, especially if they are running late for a flight.

If I were inventing for Hertz, I would probably want to invent a system that uses the company’s NeverLost GPS device to help you to fill up the car more cheaply and efficiently. I would link it to my petrol gauge, so that the Hertz NeverLost would know how much petrol I had left. In addition, I would add a new region to my Hertz NeverLost device interface so that when you put the system into ‘return car’ mode, it would guide you to the most convenient petrol station nearest the airport and easiest to find.

It is quite possible, of course, that Hertz does not want you to have this capability, because it prefers to charge you $3 more per gallon than the regular price of petrol. But it may make sense to invent it and patent it anyway. It would be a negative patent that will help to preclude Hertz’s competitors from rolling out a similar system themselves.

On the other hand, if Hertz decides that this invention could generate more than enough new business and customer loyalty to outweigh the loss of revenue from no longer charging inflated petrol prices, then it has the patent and can deploy it as a competitive advantage. Then a year or two later, it can generate additional revenue by licensing it throughout the industry.

Here is another innovation in “Using the rental car.” One of the problems faced by frequent rental customers is not knowing how to operate unfamiliar vehicles. On which side of the car is the petrol cap located? Where is the petrol cap release lever? How do you set and use cruise control on this model? How do you open the boot or set the climate control? There are probably seven or eight basic questions people commonly have about operating an unfamiliar car.

You could make all of this information available to customers, in the form of visual diagrams of the car’s exterior and interior on Hertz’s NeverLost screen. You could have a button on the NeverLost interface that says “Show me how”. When the customer taps it, the system could bring up a visual of “Release petrol cap” or “Set cruise control” or whatever the customer wants to know about operating this particular vehicle.

In addition, Hertz could make these same visual diagrams available to its customers via a series of drop-down “Show me how” menu items on their smartphone app, which of course could be customised to each customer’s individual rental car profile.

There are a great many other opportunities for innovation in the “Using the rental car” segment of the industry’s value chain as well. Indeed, as I wrote in a 2012 article in trade publication Auto Rental News: “Connectivity developments such as in-car Wi-Fi access and cloud-based services are likely in the near-term future.” In fact, this year automakers such as General Motors, Audi and Chrysler began offering their first models with in-car Wi-Fi access.

Let us move on to the third major value-chain segment in the rental car industry – “Returning the car.” Hertz led one major innovation in this area years ago, which was the introduction of portable wireless printers at car rental returns. Instead of having to stand in line at the return counter, customers could get a receipt from those handheld printers and leave.

This saved people a lot of time and since speed is everything in the rental car industry, the patent rights to that wireless printer were probably worth a lot of money to Hertz. The company has since improved upon those printers with its new ‘return and go’ paperless e-receipts, which appear in your email within 30 minutes of dropping off the car.

Nonetheless, a great deal more innovation is needed in this segment of the value chain. Improvements to speed and service include new approaches to returning the car to a valet at the terminal and using smartphones for payment and receipts.

When innovation becomes disruptive

So far, we have created a number of innovations which are likely to be patentable. However, the output of this invention process ranges from modest improvements all the way to truly disruptive inventions. So here is an example of at least one potentially disruptive innovation in the rental car industry.

To grasp its significance, first ask yourself why there appears to be comparatively little innovation in the car rental industry as opposed to other sectors of the economy? It is because start-ups and other new entrants are unable to break into the business with disruptive new ways of doing things because they physically cannot get into the airport. Just as there are no more gates available to airlines, there are no more spaces available for giant lots full of rental cars and no places left in the terminals to put a car rental counter. The same applies to rental car counters in large hotels.

So what would be a paradigm buster for this lock on the physical space? It would have to be a fundamental shift in the way that people rent cars at airports.

Near term, that means more valet services, where you drop off your rental car not at the rental lot but to a valet standing right at the terminal, who then takes it back to the lot and completes the transaction. Companies will cut parking lot deals and try to disrupt the rental industry by getting in front of the incumbents with a whole new level of speed and service.

However, over the longer term (ie, five to seven years) you could disrupt this lock on physical space even more with autonomous vehicles. Imagine that an autonomous vehicle meets you outside baggage claim, whereupon you switch it to manual driving mode and go about your business. When it is time to return the rental, you drive it to the terminal and grab your bags, whereupon the vehicle then drives itself back to the lot and checks itself in.

The result of such an innovation would be that the actual location of the rental car lot would no longer be nearly as important as it is today. This would represent a disruptive change for the industry and we would likely file for a family of patents on autonomous vehicles used as rentals.

So far, we have barely scratched the surface of the innovations possible in “Renting the car,” “Using the car” and “Returning the car.” As I noted in that Auto Rental News article: “The general connectivity between the different parties and parts of the car rental process is likely to increase dramatically. As this happens, it is likely that mobile devices will be used in even more aspects of the car rental process.”

In addition, there are many other opportunities for innovation in segments of the value chain that do not directly involve customer interaction, such as fleet management, supply, customisation, and post-rental sales.

Already, however, it is clear that we have a number of patentable inventions on our IP landscape map (see Figure 2). If we were to continue this process to completion, past experience suggests that we would develop somewhere around 100-plus patents across various segments of the industry’s value chain and have them filed within 90 days.

Figure 2. As the landscape develops, potentially patentable ideas emerge

We might have 35 patents in the “Getting the rental car” segment – broken down with varying numbers in this segment’s subcategories. We would also likely have between 30 and 35 patents each in the “Using the car” and “Returning the car” segments.

To be sure, not every patent would be a game changer. But taken as a whole, they could provide either Hertz or some other player with a valuable high-ground position in the rental car industry of tomorrow.

As for any game changers in the group, these may not be immediately apparent. The OnStar system, for example, was born in 1995 out of a collaboration between GM, Electronic Data Systems and Hughes Electronics. The original idea was to develop a remote diagnostics system that could alert dealers and owners when a car needed maintenance. Only later did they realise that by adding a radio and GPS, OnStar could also provide hands-free communications, navigation, vehicle tracking and security, and automated accident response as well. OnStar paved the way for a whole new world of in-car communications possibilities.

By itself, of course, the landscape map of my 100 patents across the value chain of the car rental industry is incomplete. We also need to know who else has intellectual property in this industry, how strong this is and in what areas of the value chain each has been concentrating.

Figure 4. Rental car-related patent filings 1994-present

Figure 5. Classification of rental car-related patent filings

Figure 6. Patent mapping by family - value chain concentrations by assignee families

Figure 7. Patent mapping by filings – value chain concentrations by assignee filings

Once we fill in the map with this information, we discover that although the industry is still rather lightly patented, the number of rental car-related patent filings have been increasing dramatically in the last decade (see Figures 3 and 4). The shaded areas for 2013 and 2014 in Figure 4 merely reflect the incomplete data resulting from the US Patent and Trademark Office’s 18-month delay in publishing patent applications rather than an actual drop-off in filings.

Readers may be surprised that the patent counts shown in Figure 3 indicate that 75%of rental car-related patents are held by entities other than rental-car companies. This makes rental car companies susceptible to IP threats from non-industry competitors, and decreases the likelihood of collaborative cross-licensing arrangements among the patent holders.

Among rental car companies that do hold patents, however, Enterprise led the pack in 2014, with 109 patent filings, followed by Hertz and Zipcar with 13 known filings each. As you can see in Figures 6 and 7, Hertz’s patent filings appeared to be most concentrated in the “Returning the car” portion of the value chain, with a few others covering its new kiosks in the “Getting the car” segment and its NeverLost navigation system in the “Using the car” sector of the value chain, as well as in fleet management. This is useful information.

In practice, you would populate the industry’s IP innovation map with the patent holdings and filings of others before beginning to invent new solutions. You would develop a three-dimensional plot of where all the existing intellectual property was – as well as its strength and ownership – in order to help reveal which areas in the value chain contained the most valuable ‘white-space’ patenting opportunities.