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Potato Heads: Silicon Valley's Content
Leaders Keep Basic Research a Priority |
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31 October 2005 |
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Basic research is at the heart of many of the companies in
Silicon Valley that are driving the value in publishing
today. When the revenue and margin leaders in electronic
publishing are plunking down 10 percent of their budgets on
R&D it's hard to imagine how traditional publishers and
aggregators are going to wheel and deal their way to a
superior position against these competitors any time soon.
When robust R&D is at the heart of your company's culture,
innovations that surface as highly profitable products just
seem to follow naturally. It takes more than R&D types to
understand today's publishing environment, but if you're
not attracting the best and the brightest of them you've
got to wonder what tomorrow will bring to your bottom line. |
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Legend has it that the first
transistor was a potato. In the process of doing basic research
into voltage amplification in the 1940s some scientists at
Bell
Laboratories poked a few electrodes into a spud and noticed
the
semiconductor effect of voltage amplification for the first
time. At least that's what I heard more than once when I worked
there. Bell Labs had its brilliant pure research scientists -
the kind that had to be told to get out of their pajamas and go
home on major holidays - and they had folks like me who took
great ideas from basic research and turned them into products.
Through Bell Labs AT&T funded many basic scientific
breakthroughs - all thanks to the "potato heads" who were paid
to think deep thoughts.
Bell Labs still exists today as the research core of
Lucent, a
spinoff of AT&T that still does a lot of fundamental research:
more than 10 percent of Lucent's revenues are spent on R&D.
That's about the same percentage as Google, the content giant
whose revenues and earnings have soared beyond its competitors
in recent months. Yahoo also chips in about 10 percent of their
budget to R&D, but the "potato heads" working on basic research
that can morph into viable content technologies seem to
leverage the geekish Google culture more easily to bring truly
innovative approaches to content to the marketplace. Google R&D
gives us such features as Google Base, an
accidentally previewed online database platform that is a
breakthrough for people wanting to provide structured online
content without dealing with the ugly bits of database
technology. Basic stuff - huge potential impact.
Compare and contrast this approach with most major
publishers and aggregators, which are largely consumers of
content technology. While there are R&D efforts of sorts at
these companies they are very tactical generally and represent
half or less of what a Google or Yahoo would spend. Today most
content companies do not bother to break out R&D from other
expenses in their reported financials - including Thomson
Corp., which is contemplating what to do with excess cash on
hand after last year's acquisition spree,
as noted by the Globe and Mail. With companies like Google
and Yahoo not afraid to spend such reserves on R&D, it's rather
amazing that the question should come up at all. While
publishers and aggregators benefit greatly from funding and
acquiring startups with hot technology, waiting for others to
come up with these hot ideas has developed into a bad habit for
these companies. Acquisitions will take a company only so far
in this environment: eventually only the innovators will have
the cash to survive.
In this R&D-fed publishing environment, there are a few
concepts for publishers and aggregators to consider - and to
come to accept:
- Freeway 101 is the new Fleet Street. Fleet
Street's publishing culture in London died when its printing
presses were shipped out to cheaper neighborhoods. A parallel
migration has occurred in the U.S. as content technology
companies in the San Francisco Bay area have become the
foundries for the technologies that drive publishing. While
U.S. publishing's power remains on the East Coast the
industry's future has shifted inexorably to where the
technology advances driving publishing live: in the Freeway
101 corridor. Having a data center or some developers in
Silicon Valley is not the same as having your company's soul
dipped in the advanced thinking that's driving the content
industry to new heights of power and prosperity. Similar
mergings of content and technology cultures can be seen
forming in India and China as well. R&D funds have fused yet
again the culture of content production and editorial
capabilities into a new generation's bustling Fleet Street.
- Remember your roots. It was not so long ago that
publishers and aggregators really tried to push the limits of
technology envelopes to service their clients. Eccentric
machines from LexisNexis, Quotron and Bloomberg and other
minicomputer delights from the 1970s and 1980s were truly
innovative approaches to content creation and delivery that
gave way to cheaper industry-standard implementations. Yet
industry standards cannot drive innovation in and of
themselves: the companies that learn most quickly how to
exploit them and to drive standards for new product
development are going to control content creation and
licensing in today's markets. Just ask Apple's Steve Jobs,
who now
appears to be in a position to dictate pricing for music
on his innovative iPods.
- Dealmakers await their Indiana Jones moment. In
the movie
Raiders of the Lost Ark a villainous swordsman grins as
he twirls his scimitar in anticipation of a swordfight with
hero Indiana Jones - only to be plugged by a bullet from an
annoyed Jones moments later. This year's pirouetting of deals
by major magazine publishers seemed to be about as effective
for addressing the long-term needs of content producers more
focused on perfecting old forms of combat than on tooling up
for truly innovative technologies and products. Some are
pushing hard to get the right new community- and
technology-driven products in their stables, but the majority
of today's publishing dealmakers have just spent a year
preparing an expensive coffin for their industry's hopes.
Upping R&D budgets to the levels that technology-driven
publishers and aggregators like Google and Yahoo maintain would
be seen as folly by many a content company CEO trying to
benchmark their performance against similar companies for stock
analysts and shareholders. Better to fund advancements through
well-targeted technology acquisitions than to deal with the
trickiness of trying to nurture a vibrant R&D culture in a
publishing company, they would maintain. Perhaps they are right
for now, but at some point the benchmark of what constitutes a
successful content company in the eyes of analysts and
shareholders is going to look a lot more like those companies
willing to manage much stronger R&D components of their own.
That may be a culture shift too radical for many of today's
publishing entities to manage easily. The "potato heads" may
not fit in with the seersucker and gin-and-tonic publishing
crowd very well, but they may be the ones picking up their bar
tabs for some time to come.
-
John Blossom
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