Thursday, May 18, 2006

Another Source of New Companies for the Pittsburgh Region

Most discussions of technology transfer focus on creating startup companies out of university research. But new companies can spin out of corporate research labs as well as universities. In fact, creating a startup company may be essential to the successful commercialization of some of the most significant corporate research innovations.

Xerox PARC (Palo Alto Research Center) is a case in point. It was established by Xerox in 1970 to develop the innovations needed to maintain the company's leading position in the office copier/equipment market.

As a research center, it was a dramatic success. Many of the most significant innovations in computer equipment and software were originally developed at PARC, such as the graphical user interface that was the foundation for the Apple Macintosh and Microsoft Windows, the word processing software that was the predecessor to Microsoft Word, the local area networking protocols that are used by most businesses today, and the methods of using different fonts for computer printing.

As a business strategy for Xerox, PARC had only modest success. It did develop innovations that helped advance Xerox's copier and printer businesses. But the most significant innovations developed at PARC could only be successfully commercialized using a different business model than Xerox used for its copier business. Like most large businesses, Xerox was primarily interested in new and improved products to use within its existing business model, and it had great difficulty creating a new business model for completely new technologies.

In several cases, researchers who developed new technologies at PARC left Xerox (with Xerox's blessing) and started new spinoff companies to commercialize the technologies. Two of these companies were 3Com and Adobe. 3Com was started in 1979 by Robert Metcalfe, who invented the Ethernet Local Area Network (LAN) technology at Xerox, which is now the most commonly used approach to networking personal computers. (If you are using high-speed internet service to read this article, you are most likely using an Ethernet connection of some kind.) Adobe Systems was founded in 1983 by Charles Geschke and John Warnock, who developed the PostScript page-description language at PARC. (If you download pdf documents from the Internet, you are using Acrobat, an Adobe product.)

At the end of 2001, the market value of Adobe Systems was approximately equal to that of Xerox, and the market value of 3Com was about 1/3 that of Xerox. In other words, two decades later, these two spinout companies together were bigger than the company from which they had been born.

The Pittsburgh Region has the good fortune to have a significant base of corporate R&D facilities. PPG's Chemicals, Coatings, and Glass Research Centers are all located here. Alcoa's Technical Center - the largest light metals research facility in the world - is located here. Crucible Materials Corporation's Research Facility, with the largest titanium gas atomizer in the world, is located here. Bayer's Material Science division is located here. U.S. Steel's Research Center is located here. The Heinz Global Innovation and Quality Center is located here. Seagate's Research Center is located here. Mine Safety Appliances has its Research Center located here. Sunoco has a Research Center here. The list goes on and on.

Not only do these corporate R&D centers provide thousands of highly-paid jobs for the region, they hold the potential for creating new startup companies for the region. While many of the innovations developed in these R&D Centers will be utilized by their parent corporations to improve the cost or quality of existing products or to introduce new products consistent with the corporation's business strategy, other innovations may produce their greatest value through a new startup company. And those startup companies, if they are successful, will create more new jobs for their home region.

Encouraging and facilitating the creation of these corporate R&D spinout companies, as well as retaining and attracting new corporate R&D centers, should be a key element of the Pittsburgh Region's economic development strategy.


Blogger Proud Pittsburgh said...

It seems that the region would benefit if there was some coordination between all of these research facilities and between the corporate R&D facilities and the Universities. Does this occur? How can the region encourage this kind of cooperation?

11:31 AM  
Blogger Harold D. Miller said...

Coordination among the R&D facilities wouldn't necessarily result in more spinout companies. Collaborative research efforts can and do result in more innovations, but that still leaves open the issue of whether they are commercialized. The Technology Collaborative has some excellent programs for fostering collaborative research efforts between corporations and universities and between corporations and startups. And the new Pennsylvania Nanomaterials Commercialization Center (based here in Pittsburgh) was formed through a partnership of Alcoa, Bayer, PPG, and U.S. Steel, with Carnegie Mellon, Pitt, and Penn State actively participating.

5:13 PM  

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