B.Lab

On January 9th, 2010, I was one of the fortunate McGill MBA Japan students to hear entrepreneur, venture capitalist and activist Joi Ito talk about “open innovation”. He spoke eloquently on a variety of topics including attitudes in venture capital in the US and Japan, open innovation and the non-profit Creative Commons.

He started the presentation sharing his viewpoint on venture capital driven innovation for the web, comparing US and Japanese attitudes about venture capital. Joi’s experience was that VC’s and other investors in Japan tended to be risk averse and only willing to invest in a venture if a great amount of time and money was spent to research the “feasibility” of the business, sometimes 10′s of millions of dollars. His point was that the “cost of failure” becomes so high that the number of ventures invested in is limited and innovation is stagnant. While the Silicon Valley style of VC tends to invest in a larger number of potential good ideas which have higher risks of failing but are cheap initially to fund (say an initial $1M) and have relatively “low costs of failure”. Then, when a Google rises to the surface, the non-performing startups are eventually dropped (switching the VC’s shares from convertible to common stock) and more money and time is spent developing the winning Googles. According to him, with this trial and error style of venture capital, if you are smart and know your startup’s business well, it tends to be more profitable as well as produce more innovation on the web. From this MBA student’s and future entrepreneur’s point of view, Joi’s lesson in funding and launching web businesses was inspiring as it sends the message that one mainly needs to try a variety of good ideas without too much fear of failure until something pans out. Keeping things cheap and “scrappy” at first reduces the cost of failure and gives you the chance to explore the potential of new ventures. Sign me up.

Joi then talked about the growing trend of open innovation on the web and in open source technology. While this is a topic many Web 2.0 users are fully aware of, the thing he really nailed was WHY openness is needed for web businesses to begin with. His point was that in past times intellectual property was mainly controlled by big media, software and other corporations. But with the intervention of Web 2.0 and the ability of users to share photos, videos, texts and code which is at times the IP of other authors and corporations, legal risk has grown larger and larger (think YouTube) even as the cost to distribute this media has shrunk and become easier. So a fresh new startup can launch the next great idea for sharing content among users while at the same time the threat that those entrepreneurs will be hit by a barrage of lawsuits increases. With this thought in mind, Joi has helped start and acts as CEO for Creative Commons (CC) in order to provide “tools to give everyone from individual creators to large companies and institutions a simple, standardized way to grant copyright permissions to their creative work” (from the CC website). While it is not clear to me how CC will help ALL Web 2.0 businesses reduce their risk of IP lawsuits, I can see Joi’s point about the need to give people and organizations a way to share IP in a legitimate way. He also further explained that having multiple licensing standards such as CC, Wikipedia and GPL (“General Public License” generally used for open source software like Linux), could make it harder to fully make IP open unless these standards are compatible with one another. To me that begged the question of how one should decide which standard license or non-profit should be the “winner”. CC has the advantage of active promotion and organization which could mean that it will rise to the surface, if it already hasn’t.

In the Q&A session, I asked Joi about an opinion column last week in in the FT about the current competition the new Google NexusOne smartphone has created with Apple’s iPhone. I wanted to know what Joi thought about the FT columnist’s opinion that Google is seen as open and Apple as closed companies but that Google uses open source web services to attract users to its closed, proprietary ad engine while Apple introduces the open App Store. Joi’s response was that Apple is the company that bothers him in that they continue to succeed with the old model of being primarily closed with their technology and design. He did believe that open businesses would win out, like Microsoft did with its OS in the 80s and Google will most likely do with the mobile web. At the same time, he said that he thinks its a good thing that Google has come with their new phone as it pushes Apple to innovate to compete. But if Google gets too big and dominates the mobile web as it does the PC web, innovation could stagnate as competitors get forced out of the arena.

Overall, I believe Joi Ito brought a great deal of insight and innovative ideas to two classes of executive MBA students who were more used to CEOs of Fortune 500s talking about managing businesses in Japan. He is clearly a skilled public speaker but his ability as an educator on how to launch new businesses and his non-profit activity to keep the web vital and open were the greatest value to myself and the rest of the MBA program. Thank you, Joi Ito!

Learn more about Joi Ito through his blog.

Also, thanks goes out to fellow MBA classmate and Kakaku.com COO Mikihiro Yasuda for setting up the event.

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