Tech in­cu­ba­tor PARC is still look­ing ahead af­ter 40 years

Los Angeles Times - - Business - MICHAEL HILTZIK

In­sti­tu­tions, like hu­man be­ings, of­ten treat their 40th birth­days as oc­ca­sions for midlife stock­tak­ing. So it’s not sur­pris­ing that the 40th an­niver­sary cel­e­bra­tion at Xerox PARClast week was de­voted as much to look­ing ahead to the fu­ture as to look­ing back at its fa­bled his­tory.

Xerox’s Palo Alto Re­search Cen­ter was founded in 1970, when the com­pany was still flush with cash from the copier busi­ness but un­easy that new tech­nolo­gies might emerge to un­der­cut its dom­i­nant po­si­tion.

Over the next dozen years, the young sci­en­tists and en­gi­neers who came to­gether on a hill­top over­look­ing what would soon be dubbed Sil­i­con Val­ley in­vented the per­sonal com­puter, Eth­er­net, the laser printer and Win­dows-style com­puter dis­plays, among many other ad­vances.

These were such dis-

rup­tive tech­nolo­gies that Xerox had trou­ble com­mer­cial­iz­ing them (al­though it made bil­lions from the laser printer, among other prod­ucts).

I’ve been a close ob­server ofPARC for more than a decade. That’s not only be­cause it’s been that long since I wrote “Deal­ers of Light­ning,” a book about the place, but be­cause PARC has been an ev­ere­volv­ing les­son in how cor­po­ra­tions can and should man­age R&D — not only the in­no­va­tions that play to their core mar­kets, but those they can’t ex­ploit them­selves.

It was that lat­ter con­di­tion that pro­vided the first les­son from PARC — a neg­a­tive one. Xerox was un­able to shift gears from the copier busi­ness to the PC mar­ket in part be­cause in the 1970s there was no PC mar­ket to serve as a model. IBM even­tu­ally suc­ceeded where Xerox failed, but it was a com­puter com­pany, and even so shunted its PC busi­ness off to a small sub­sidiary, which hap­pened to cap­ture the zeit­geist.

Xerox watched PARC’s first gen­er­a­tion of sci­en­tists and en­gi­neers walk out the door and seed pi­o­neer­ing projects at fledg­ling com­pa­nies such as Mi­crosoft (where PARC alum­nus Charles Si­monyi brought the what-you-see-is-whatyou-get word pro­cess­ing pro­gram that be­came Mi­crosoft Word, in the process mak­ing a per­sonal for­tune suf­fi­cient to pay for two pri­vate voy­ages into space) and Ap­ple (where Larry Tesler helped fos­ter devel­op­ment of the Lisa and Macin­tosh).

It took years for Xerox to come around to a new busi­ness model, through which it would ei­ther ab­sorb PARC in­no­va­tions in its own prod­uct lines or al­low PARC to shop them to out­side cus­tomers or spin them off into joint ven­tures.

That process in­ten­si­fied af­ter 2002, when Xerox con­verted PARC to a wholly owned sub­sidiary and en­cour­aged its re­searchers to get in­volved in com­mer­cial­iz­ing their work. (The cen­ter is now for­mally known as “PARC Inc.”)

“We brought in busi­ness devel­op­ment ex­per­tise and in­te­grated it with the lab­o­ra­tory com­mu­nity,” PARC’s cur­rent chief ex­ec­u­tive, Mark Bern­stein, told me. “The left brain is now com­ple­mented by right-brain think­ing about what our technology is re­ally use­ful for.”

Bern­stein ac­knowl­edges that in con­trast to the found­ing era, when staffers thought they could fol­low their in­stincts wher­ever they led, some projects are shelved if they can’t at­tract a com­mer­cial part­ner. “Some­times we say, ‘That’s a great idea, but we can only take it to this stage for the time be­ing.’ ”

Re­sults from that process were on dis­play last week dur­ing a day­long se­ries of demos and panel dis­cus­sions tied to the an­niver­sary.

One PARC spinoff, Pow­er­set Inc., was formed to make use of nat­u­ral lan­guage tech­nolo­gies to al­low users to do Web searches based on phrases, not just key­words. Xerox re­tained an eq­uity stake and cashed it in when Pow­er­set was bought for more than $100 mil­lion in 2008 by Mi­crosoft, which in­cor­po­rates the technology in its Bing search en­gine.

Other spinoffs and com­pa­nies still be­ing in­cu­bated are work­ing with PARC in­no­va­tions in so­lar technology, wa­ter treat­ment and net­work­ing.

PARC re­searchers say the process of seek­ing out cus­tomers for their work is oddly lib­er­at­ing.

“At first, we had one cus­tomer [Xerox] and one goal,” said Danny Bo­brow, an ar­ti­fi­cial in­tel­li­gence pi­o­neer who got to PARC in 1972 and is still there as a re­search fel­low. “Now, I can look around for spon­sor­ship, and Xerox sup­ports that.”

Yet it’s an ar­ti­cle of faith at PARC that the in­sti­tu­tion is still unique as a wellspring of ba­sic re­search owned by a cor­po­ra­tion.

“Cor­po­rate re­search is past its glory days,” said Wil­liam J. Spencer, who as PARC’s di­rec­tor in the mid-1980s es­tab­lished the model of spin­ning off its tech­nolo­gies as in­de­pen­dent com­pa­nies or with out­side part­ners. “You don’t have mo­nop­o­lies like Xerox and AT&T had, so it’s hard to jus­tify set­ting aside 2, 3 or 5% of rev­enues for ba­sic re­search.”

I asked Spencer, who had worked at Bell Labs and San­dia Na­tional Lab­o­ra­tory be­fore join­ing Xerox, how the coun­try could take up the slack left by the re­fo­cus­ing of cor­po­rate re­search.

“I don’t think we’ve ad­dressed that prob­lem,”

‘We brought in busi­ness devel­op­ment ex­per­tise and in­te­grated it with the lab­o­ra­tory com­mu­nity. The left brain is now com­ple­mented by right-brain think­ing.’

—Mark Bern­stein,

PARC’s chief ex­ec­u­tive

he replied. “We’ve rel­e­gated ba­sic re­search to the uni­ver­si­ties, but they’re be­gin­ning to fo­cus on short-term projects too — fac­ulty mem­bers are ask­ing, ‘How do I get ten­ure?’ ”

Yet the land­scape of nei­ther cor­po­rate rev­enue nor cor­po­rate re­search is mono­lithic. Al­though Hewlett-Packard, to men­tion one technology gi­ant, cut its re­search and devel­op­ment spend­ing un­der the re­cently de­parted CEO Mark Hurd to 2.5% of rev­enue last year from 6% in 2002, IBM is still spend­ing 6% ($5.8 bil­lion de­voted to R&D last year).

Some com­pa­nies to­day dom­i­nate their mar­kets nearly as de­ci­sively as Xerox and Ma Bell did back when. They just aren’t mak­ing the same com­mit­ment to broad re­search.

In 1970, the year Xerox con­ceived PARC, it recorded sales of $1.7 bil­lion and net in­come of $188 mil­lion — that’s a profit of $1.1bil­lion in to­day’s dol­lars.

For com­par­i­son’s sake, Google earned a $6.5-bil­lion profit on $24 bil­lion in sales last year. The com­pany’s R&D spend­ing of $2.8 bil­lion is 12% of its rev­enue, al­though there’s a bit of a cheat there — about 25% of that spend­ing is “stock­based com­pen­sa­tion” for the re­searchers, which isn’t the same as a cash out­lay.

While Google Labs turns out some ter­rific ideas, I’m not sure that any­one would claim that its re­searchers are point­ing the way to­ward an en­tirely novel mar­ket, as did PARC’s found­ing gen­er­a­tion.

It may be un­fair to to­day’s cor­po­rate be­he­moths to paint the Xerox of the ’70s as an al­tru­is­tic backer of ran­dom in­no­va­tion. The com­pany founded PARC with the di­rec­tive to de­velop the “of­fice of the fu­ture,” which Xerox hoped to ex­ploit as a core mar­ket. The con­cept just hap­pened to ac­com­mo­date al­most any­thing that could be con­ceived of in elec­tri­cal en­gi­neer­ing or the em­bry­onic field of com­puter sci­ence in that era.

The one thing that hasn’t changed about PARC in 40 years is that it trusts that in­no­va­tion will al­ways find cus­tomers, even if not within Xerox. It’s al­most al­ways the case that “you can find some­one who has an in­ter­est in what you’re do­ing,” Bo­brow told me. And if not?

“The won­der­ful thing about the world,” he said, “is that it’s rich in ideas and there are lot of things to pur­sue.”

Paul Sakuma

RE­SEARCHER: Ed Chi wears an eye-track­ing de­vice as he looks at Web pages at PARC in 2001.

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