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Microsoft, Nokia, and RIM's wasted R&D billions

Put the lab coats away

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Open...and Shut Over the past few decades, governments have decreased their investments in original research, with corporations taking on a greater role. There are plenty of problems with scientific research funded by private, shareholder-driven companies.

Perhaps the worst, however, is that corporate R&D, at least in the technology market, doesn't appear to work.

Some of the biggest funders of corporate R&D, including Nokia (R&D equals 14.4 per cent of sales), Microsoft (13.9 per cent) and Research in Motion (6.8 per cent), have virtually nothing to show for it. Nothing that is, except declining market share, compared to their more parsimonious peer: Apple (2.7 per cent). No wonder The Wall Street Journal declares, "[T]here's little apparent connection between R&D expenditures and successful product launches."

To put this into even sharper contrast, Microsoft spent more in R&D in 2010 than Apple spent in the last decade. Whose growth trajectory would you rather have?

Google, for its part, spends in the same neighborhood as Microsoft as a percentage of sales (12.8 per cent), but arguably its success stems not from its R&D, but rather from its early stroke of genius in advertising. Other products that yield many users, if not a comparative mountain of revenue, came through acquisition.

Nor is Google alone in this. Microsoft continues to mint money from Office, but even Office's roots extend to acquisition with Forethought.

Perhaps Microsoft and its underperforming-but-R&D-spending peers would do better to save their billions in R&D and instead invest them in M&A?

No, M&A isn't a panacea for poor performance or product development. But when it works, it helps big companies overcome their institutional inertia and bring "new" products to market. For example, high-profile venture capitalist Bill Gurley points to Android as a "freight train" that is both unstoppable and a key to Google's advertising revenue growth in mobile. But Google didn't develop Android. Google bought it.

M&A may not be the best R&D, but looking at the track record of so many tech giants' R&D spending...it can't really be much worse.

Maybe it's time to pack up the white lab coats of the corporate scientists and instead fund the corporate development executives with an eye for innovative startups. Hunch's Chris Dixon insists that "big companies...aren't nearly as successful as startups at creating new products," and urges more VC money be poured into them. Google's Ted T'so counters that startups don't actually innovate technology, but rather how to sell/distribute technology.

Perhaps. But the past decade seems to suggest that Dixon may be right or, at least, that the greater innovation returns lie with startups, rather than corporate R&D.

It's not that R&D nets the giants nothing at all. Microsoft, after all, came up with Kinect somewhere in the middle of its hefty R&D spend. But it's not clear that fat R&D budgets pay for themselves, and wouldn't be better spent snapping up startups.

Nokia has nearly 19,000 R&D employees, as Businessweek points out. That equates to nearly 5,000 four-person startups, at least one of which could probably have come up with a better idea than dumping R&D money down the Symbian rat hole and then capitulating to a Microsoft Windows Phone 7 strategy. Probably a lot more than than one.

Matt Asay is senior vice president of business development at Strobe, a startup that offers an open source framework for building mobile apps. He was formerly chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfreso's general manager for the Americas and vice president of business development, and he helped put Novell on its open-source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears twice a week on The Register.

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