Xerox PARC: On the Money Trail

Xerox's Palo Alto Research Center in California is where much of the personal computer was invented. But now the famed research lab is faced with a new challenge: re-inventing itself.

After more than 30 years marked with famous breakthroughs that have shaped the high-tech world, PARC is at a new stage in its history. In January, Xerox, struggling in recent years and streamlining its research efforts, spun off the Palo Alto center to be a separate financial entity. That means PARC must now seek its own revenues through patents, licensing its technology and finding new high-tech backers.

And with an annual budget in 2001 of $65 million, the famed research center is no nickel-and-dime operation, either. Thus PARC, once the purest of pure technology research labs, has added a business development team and even has interns now from Harvard Business School. And yet some of the same economic problems that have hurt Xerox figure to weigh down PARC as it strikes out on its own.

"The recession is in full force here," says Mark Bernstein, interim CEO of Xerox PARC, noting the prevalence of empty office space within walking distance of PARC's campus in Palo Alto.

So, in a way, PARC is undertaking a new experiment: Can a research institution churn out enough good ideas to make money? And can it do so in a bad business climate?

Where the PC Came to Life

If any other research lab were faced with a similar predicament, observers might simply shrug. But PARC isn't any old research lab. It's the place where, in a few short years in the 1970s, an all-star cast of computer scientists and researchers either dreamed up or put into action many of the things you're using to read this piece on your computer.

The very concept of what-you-see-is-what-you-get computing came from Xerox PARC, along with many of the specific elements of the graphical user interface (GUI) we're all used to, including icons, pop-up menus and multiple windows on the computer screen. Other PARC advances from the same time, like the ethernet and object-oriented programming, have become staples of our wired world. For good measure, PARC scientists of the 1970s also developed the laser copier and pushed color imaging further than it had ever gone.

That rich history of innovation comes with a twist, however: Xerox was notoriously slow to recognize the potential of the gadgets being developed at PARC. To be sure, the company made billions from the laser copier — certainly enough to call its investment in PARC a success — but failed to cash in on any of the research center's personal-computer innovations.

Did Start-Ups Usurp the Labs?

Scientists at Xerox PARC have continued to do respected work in an expanding variety of fields though the 1980s and 1990s, from computer science to nanotechnology. But the speeded-up pace of the business product development cycle, and the rising pressure on companies to show increasing returns on investment — especially in the 1990s — has made many firms, including Xerox, more reluctant to spend money on long-term research.

Then too, the abundance of venture capital for smaller firms in the 1990s meant that, in the world of high-tech innovation, "start-ups were like monkeys at typewriters," as Geoffrey Nunberg, a former Xerox PARC researcher, put it in an essay about the center this year in Perspective magazine. "With hundreds of them working on every problem, corporations didn't have to make major investments in basic research."

Thus Xerox is only one of several companies to scale back its pure research efforts. The famous Bell Labs in New Jersey, now owned by telecom equipment provider Lucent, has also seen its influence wane despite some well-regarded work in recent years.

But perhaps the best recent example of the decline in status of these institutions comes from Interval Research, an ambitious Palo Alto-based think tank bankrolled by Microsoft co-founder Paul Allen. Widely regarded as an attempt to re-create the magic of Xerox PARC upon its founding in 1992, Interval shut its doors eight years and $100 million later, with virtually no products to show for its efforts.

"We worked in areas where we found that commercialization has been very hard," said David Liddle, Interval's director, during the group's final months.

PARC: Going Mobile

And yet no area of research is easy to commercialize. Thus PARC is trying a variety of strategies: examining patents, licensing technologies, looking to partner with firms in areas where PARC's expertise can help a company bring a product into existence. Essentially, the research center is looking for "more direct funding of research by the business groups themselves."

The tech slump of the last two-plus years has made matters difficult, however. Bernstein, who began at PARC in 1979, thinks the economic climate for tech firms is worse than at any other time since he joined the lab — and has gotten worse even in the short time since Xerox and PARC went their separate ways.

"I've been in the [Silicon] Valley for 20, 25 years and I think I have to go back to 1976 to see something this significant," observes Bernstein. "The companies in the [Silicon] Valley that have interest are fewer in number than when we started talking with folks last year."

Still, Bernstein says PARC has been talking about deals to a variety of large-scale technology companies involving a variety of projects. Some involve chip-making advances; another project of interest is Speakeasy, PARC's ambitious attempt to connect mobile devices to networks. Then there are software tools PARC is developing, like InformationScent, which analyzes the way Internet surfers use Web sites — and which Bernstein says is also attracting attention from potential clients.

"We're out actively engaging the Web community," says Bernstein. "This has to do with one of the core competencies of PARC, which is user interfaces."

‘Vision of the Horizon’ Still Needed

And while PARC's researchers of the 1970s seemed to thrive while freed from the pressures of commercialization, Bernstein proposes that their successors can be more stimulated and creative by thinking explicitly of the commercial opportunities for their ideas.

"The researchers love that," says Bernstein. "Rather than having to force-fit their ideas into the application that best suits the Xerox business model, they can find the sweet spot for it."

Nonetheless, PARC is maintaining a relationship with Xerox, which will still provide funding for the center and shape its work to an extent.

"We will continue to work with them to define research directions that are in the best interests of Xerox," says Herve Gallaire, the chief technology officer of Xerox and president of its research department, the Xerox Innovation Group. Among other things, PARC technologists still work on Xerox's color engine — the main color imaging system Xerox uses in all its products, from color copiers to scanners.

"We deliver software code directly from this building that drives Xerox's latest high-speed color engine," says Bernstein, who says a "high-performance team of five or six people" at PARC tend to the project. For the moment, that gives PARC stability.

And while the center attempts to gain its short-term bearings, there is always the chance that, once again, a PARC project could be years ahead of its time.

"We still look at PARC as giving us a vision of the horizon," says Gallaire. "We want them to continue doing that."