Face-To-Face: Walker Digital's Jay Walker
Four years ago Jay Walker founded Walker Digital, an intellectual-property laboratory where 25 people--inventors, marketers, and lawyers--labor to create patentable business models that they can license, spin off into new companies, or exploit in ways as yet unfathomed. The company, which recently received $20 million in venture capital from General Atlantic Partners, has filed close to 200 patents since 1995. (The priceline.com patent, which the company spent more than $2.5 million pursuing, is the first to be issued.)
In August, Walker signaled his intent to spend more time in the idea kitchens of Walker Digital when he handed the reins of priceline.com over to Richard Braddock, former president of Citicorp. (Walker will remain as priceline.com's vice-chairman.) "I don't believe for a minute that I am an operator of a company, although I have built many," Walker explains. "I think the invention part is the thing I may be good at."
Inc. senior editor Leigh Buchanan spoke with Walker about the company's business strategy.
Inc.: Why is Walker Digital pursuing patents so aggressively?
Walker: Because we believe we can benefit our shareholders by building a portfolio of protectable intellectual property that other companies can use to grow their businesses. Fundamentally, our business model is no different than any business model that says, "Hey, I can create ideas that others can use that will be profitable for both of us."
We're like a person who says, "I know theater owners all across the country are going to need movies to show in their theaters. I'll go out and make a movie and we'll both do well because they'll get people into their theaters and I'll make money by renting a movie to them."
Inc.: So the primary goal is licensing?
Walker: We have two goals. First, we want to prevent others from ripping off our property. The Internet is known for its copying capability, and we have no objection to people copying other people when things are in the public domain. But we have invested and raised a total of $50 million in capital to build and launch priceline.com, and we don't think it's fair or reasonable for others to copy us because they felt like it.
Our second goal is to create a licensing revenue stream from companies that want to use the buyer-driven commerce model that we build in their businesses. We have absolutely no objection to finding smart partners.
Inc.: Would you license to a direct competitor?
Walker: Under the right circumstances, if we felt that having a smaller piece of a larger pie was significantly better than having a bigger piece of a smaller pie. If a big player comes along and says, "Look, we'd like to license," then we're faced with this wonderful opportunity of saying, "You know, this guy could probably triple the size of this market, and I'd rather own a smaller piece of a much bigger market." Generally speaking, cooperation is almost always going to work better than competition when your opponent is very large.
Inc.: What do you say to the argument that issuing patents on business models could eventually have a chilling effect on start-up companies?
Walker: You're going to have a hard time finding cases in the history of innovation in the United States where patent holders actually slowed things down. When inventors realize they can be rewarded for their risk, the consumer is always the winner. Someone invented the microprocessor and patented it. Someone invented the laser and patented it. And those people led to enormous rounds of innovation, as opposed to someone who said, "Wow, imagine if we gave a patent to the guy who invented the laser! What next?"
Inc.: But doesn't patenting a business model potentially close off more avenues than patenting a technology?
Walker: That potential exists, but patenting a fundamental technology is a big deal. If you had invented the laser--lasers are everywhere. There's a laser in every CD player. There's a laser assisting every telephone call. Business methods aren't broader than fundamental technologies.
If we chose to sit on our business model and practice it ourselves, we would be suboptimizing returns to our shareholders, because the law of increasing returns tells you that in the Internet age you're way better off licensing and getting a penny from everybody than you are holding it to yourself and building a proprietary model. A proprietary platform isn't a winner in this day and age. You want the biggest number of people adopting your platform.
Are there abuses in the process? There could be. There are people who might get patents on things they aren't entitled to, or who want to be parasites and see how much money they can extort from other companies that had no idea these guys had "invented it first." But I wouldn't look at abuses first when I looked at the whole patent debate.
I think the point Nat [Goldhaber, CEO of CyberGold] made is a good one, which is "Hey, what are you, crazy? I'm not going to charge a lot of money. I'm going to do well because I invented this thing and everybody's going to pay a very small tax and let's move on."
Market forces are very powerfully aligned not only to prevent monopolization but to encourage rapid investment, innovation, and risk by real inventors who develop new things and know that they can't simply be ripped off. But if they choose to be piggish they're going to get very little.
