HP got a bargain and they failed to understand it and evaluate it ...
It is fairly well know that Dr Mike Lynch did his PhD thesis on Bayes’ Theorem and in 1996 set up a business with Richard Gaunt that eventually became Autonomy. Along the way in 2004 Richard Gaunt on behalf of Autonomy filed a provisional patent application for “Methods and apparatuses to generate links from content in an active window” which later became a full patent filed by Dr Mike Lynch and two other Autonomy staff that was granted - Method and apparatus to link to a related document
This granted patent is one of what is believed to be around 170 patents owned by Autonomy in countries around the world which cover all sorts of core technologies which are going to lock up this area for the next twelve to fifteen years. US Patent 7272594 makes reference to Bayes’s Theorem (how you make choices as data becomes available) and Claude Shannon's principles of information theory (mathematical limits of certainty). This patent, in my view. is a fundamental building block for all technology in this sphere of activity. No rival company (Google, Microsoft, IBM, Amazon etc) could afford to enter this field with any cloud service offerings because Autonomy's patents will enable them to be injuncted with dire consequences for all of them - billions in damages etc. This is not technology where it can be claimed the consumer is being denied rights because of a lack of a competitive market in the patents through licensing - Autonomy is a business to business offering whose technology falls full square within the lawful monopoly for patents permitted under the US Constitution - a monopoly right which is respected across the world. Rivals who choose to try and compete with Autonomy are likely to suffer the same fate as Kodak did when it tried to produce an instant print camera in breach of Polaroid’s patent portfolio - global injunctions and heavy damages.
So why are these rights so valuable even if Autonomy is not yet fully enforcing its patents? The issue is one of stickiness. Around the time of the takeover by HP Autonomy had 20,000 clients, with management contracts for giants such as Citigate and Shell. Autonomy also drives the UK police's Holmes 2 system, which can tie together fingerprints, witness statements and police reports. It can sift emails, documents and even phone calls and elucidate the meaning inherent in them. It allows customers to search and categorise unstructured information - such as e-mails, phone call logs, pictures, film clips, anything that has not been organised into a database. It has been heavily used by banks and other large corporations preparing for class action lawsuits, helping them find all the documents needed for trial. Société Générale, for example, installed the software to trace the actions of rogue trader Jérôme Kerviel. Any company which is hit by a "litigation hold" notice had better turn to using Autonomy's software or face the consequences.
Once a company starts using Autonomy's software it cannot stop - the cost of leaving is too great. Even if someone could lawfully design around Autonomy’s patents it will not be able to capture an existing Autonomy customer because if the customer wishes to move to a rival supplier the cost of doing would be prohibitive. If your business depends upon having a computing network running 24/7 (which today covers all financial and insurance services) and you have purchased an indexing package from a company which you have run for some time - then you may never be able to move. This is because of what Donn Parker of SRI International called MTBU - maximum time to belly up. The move to a rival supplier would cause you to be without computing services for a protracted period of time during which time your business would automatically fail because for it to survive it needs to keep running 24/7. No business which uses e-mail in its day to day operations could afford to move. It is like being told that you could switch electricity suppliers if you were prepared to live without electricity for 3 months - not many households would be prepared to do so.
But the opportunities and benefits which arise from using Autonomy’s software outweigh the risks - imagine compliance departments running Autonomy's software to stop another financial collapse, another Barings or UBS case. Autonomy was not holding its clients to ransom with its sales contracts but it was able to use a very aggressive way of estimating the value of each customer - to take account of the fact that every customer Autonomy acquires will never leave - i.e. there will be no churn. This is what HP present management team has failed to understand. And this is why HP may have got a bargain in paying just $11.1 Billion for Autonomy.
Biting the hand that feeds IT
