Xerox sharpens strategy for Silicon Valley research center

Financial Times

May 12, 2006

Amy Yee on the Palo Alto Research Centre, which invented landmark technology

Founded in 1970 before the dawn of personal computing, Palo Alto Research Center (Parc) has a venerable role in the annals of Silicon Valley. A research centre of US copier maker Xerox, Parc is credited with inventing the mouse, Ethernet, the laser printer and other landmark technology.

Those milestones are proudly chronicled on a wall exhibit within Parc’s offices in Palo Alto in the hills near Stanford University.

Yet the exhibit, complete with timeline and mounted gadgets, also reflects a track record of missed business opportunities.

Parc has been criticised for failing to commercialise its innovations, letting them flounder or fizzle. Much to Parc’s chagrin, others have gone on to create wildly successful businesses based on similar technology a few years later.

The now extinct “ParcTab” predated the Palm Pilot by eight years. Apple Macintosh’s graphical user interface, which marked a sea change for personal computers, was heavily inspired by Parc’s innovations.

Now Parc is trying to prove it can launch technology that can thrive outside its walls and not just hang decoratively on them.

“In the past, creating new knowledge was enough,” said Mark Bernstein, president and director of Parc. “Now, it’s ‘How can my work matter to the business?'”

Parc began overlaying a sharper business strategy on to research when Xerox spun off the centre as a wholly-owned subsidiary in 2002.

Now Parc is generating revenue by forming partnerships with corporate sponsors, government and research institutions, as well as incubating businesses and leveraging intellectual property.

The move is part of Xerox’s larger strategy to expand beyond the boxes – printers and copiers – that its brand is synonymous with as it pushes into technology services.

The corporate overhaul also applied to Parc, which has cast a wider net for innovative research. New partnerships includes a collaboration with biomedical centre Scripps Research Institute in San Diego to develop ways to identify cancer cells using laser scanning technology similar to that found in Xerox printers.

This year Parc teamed up with with SolFocus, maker of low-cost solar energy systems. SolFocus is a start-up with just a handful of employees, but the alliance harnesses resources for research in the hot area of energy efficiency.

Parc has cultivated government partnerships, such as a subcontract with US space agency NASA to develop robots for space exploration. It has also signed multi-year contracts with research sponsors such as Japanese IT company Fujitsu to develop “ubiquitous computing” sensors for use in retail, health care and transportation.

Parc’s shift was spurred by Anne Mulcahy, who became chief executive of Xerox in 2001.

Ms Mulcahy has pulled Xerox back from the brink of bankruptcy, slashed jobs and restructured operations to return Xerox to profitability. A revamp of Parc was part of the company’s turnround plan.

Parc’s revenues from sponsor contracts were virtually non-existent a few years ago but now generate about Dollars 30m annually.

Parc’s new partnerships offer a chance to innovate beyond Xerox’s traditional realm of office equipment, but ties to its parent remain firm.

Although Xerox has aggressively cut costs as part of its turnaround, it spends about Dollars 940m annually on research, or about 6 per cent of total revenue, in several global development centres. More than Dollars 50m of Parc’s budget comes from Xerox.

Parc contends that Xerox’s legacy of understanding how technology is used by customers differentiates it from academic research centres.

Critics say that in the past, Parc spun off businesses prematurely without fully understanding the markets they entered.

Now Parc is in discussions with venture capitalists about how to push projects forward. Sometimes “venturing is the most efficient way to get technology into the world”, says Mr Bernstein.

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