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Why Isn’t What’s Good For Microsoft Good For The Country?

2015 April 8
by Greg Satell

It used to be said that what was good for General Motors was good for the country.  The thinking was that by supporting the engines of prosperity, we’re all be better off. Yet it would also seem that, in many cases at least, what makes industry successful can also improve the public sector.

If private, profit-seeking organizations see value in making investments, then it’s likely that making similar public investments could improve the country as a whole.  So it is curious, to say the least, that American businesses are increasing capital investment while our public infrastructure is crumbling.

The situation is even more marked in basic science, which has become a convenient punching bag for many politicians, while at the same time firms like Microsoft are increasing their commitment to making new discoveries.  If we’re going to win the future, we have to invest in it.  Or, put another way, why isn’t what’s good for Microsoft good for the country?

The American Century

At the turn of the 20th century, the United States was still mostly a backwater nation. Although an emerging industrial power (much like China today), American universities were considered somewhat less than world class.  Promising young students often travelled to Europe to get advanced degrees, especially in the sciences.

That all changed in the early 1930’s, when Louis Bamberger, along with with his sister Caroline Bamberger Fuld, established the Institute for Advanced Study (IAS) at Princeton University.  The combination of high salaries, unparalleled working conditions and the plight of Jewish scholars in Europe proved a powerful draw.

The impact was enormous.  In almost one fell swoop, American was on the way to becoming the epicenter of the scientific world.  Top European minds like Albert Einstein, John von Neumann and Kurt Gödel soon came and helped to catalyze science in the US.  By the time World War II broke out, America had some of the best scientific talent on the planet.

That brain power was put to good use by Vannevar Bush, who as head of the OSRD organized the wartime scientific effort.  Later his report, Science, The Endless Frontier developed the blueprint for government support of basic scientific research and led to the establishment of the NSF, DARPA, the NIH and other agencies.

The War On Science

The scientific architecture that Bush designed has been an unparalleled success and the envy of the world.  The Internet, GPS, and the Human Genome Project—just to name a few—are the direct result of publicly funded research.  Surely, our lives would be a lot different without it.  Even from a purely financial standpoint, returns have been estimated at 25%-40%.

You would think that we would want to build on this legacy, but the opposite seems to be true.  In fact, there is a veritable war on science, with politicians eagerly pandering by questioning the age of the earth, crusading to cut scientific budgets and calling evolution and the Big Bang  lies from the pit of hell.

Part of the problem is that scientists work on our behalf in the background.  Retailers use genetic algorithms to run their logistics, but that doesn’t make the “attention Wal-Mart shoppers announcements.”  People enjoy the low prices they help create anyway.  Who cares about the quantum physics behind smartphones as long as they can Instagram and tweet?.

Yet while politicians may see advantage in kicking science to the curb, many of our best companies are increasing their commitment to research and innovation.  While not alone, Microsoft stands out in this area.

How Microsoft Invents The Future

Microsoft created it’s research division in 1991 to explore horizons 5, 10 and 20 years out.  It currently employs 1000 PhD level researchers, including some who’ve won Turing awards, Fields Medals and Macarthur Fellowships.  So it’s no ordinary engineering factory, but much like IAS, a place where great minds can work on problems that interest them.

One of the things that makes Microsoft different than most corporate R&D operations is its commitment to basic research, which outside experts estimate to be about 5% of its total R&D budget of $11.3 billion (about the same as NASA spends on research).  What’s more, many are not computer scientists, but experts in a variety of fields, including social sciences.

Much like public research, Microsoft sees healthy returns from its research budget (which is probably why, unlike the government, they continue to increase it).  To ensure that return, they have an extensive technology transfer program, including a dedicated liaison team. Kinect, Cortana, Azure and Skype Translator have all benefited from Microsoft Research.

And, while many don’t consider Microsoft has to be a great performer, as I pointed out a while back, it is, in fact, extremely successful.  The company currently achieves 30% operating margins on $86 billion in revenue and is today the world’s second most valuable company.  Unlike Apple, it has never had an unprofitable quarter as a public company.

That’s not just a good business.  That’s a fantastic business.  And Microsoft’s commitment to exploring new frontiers is a big reason why the company has been so successful over such a long period.

Taking A Cue From The Private Sector

It’s become fashionable to say that government should work more like the private sector.  We privatize basic functions like prisons and schools.  Many like to say that we should run the federal budget like a household budget (which would actually be a very bad idea).  Yet when it comes to scientific research, government fails to do what business has shown to be profitable.

Microsoft, for one, has shown that a commitment to basic research makes financial sense over the long haul, but politicians use it to take cheap potshots.  Google sets its sights on moonshots, but the federal government cuts NASA’s budget.  IBM breaks new ground in solar energy, but politicians deny climate change.

Many would say, “fine, let the private sector take up the slack,” but as I noted in Harvard Business Review, that’s a red herring.  Private and public research play vastly different roles and few companies other than Microsoft have the footprint to benefit from broad based discovery.  There are certain things that only the federal government can do well at scale.

So the question remains:  Why isn’t what’s good for Microsoft good for the country?  If a successful, profit driven company can see the value in scientific investment, why can’t the rest of us.  Why can’t we be as wise in our public lives as we are in our private industry?

– Greg

4 Responses leave one →
  1. April 10, 2015

    Greg,

    Thanks for the insightful post.

    For policy makers to see the association between useless innovation (as you call it) and future benefits is as hard as it is for an average Joe to see the connection between out daily actions and impact on climate over the long range.

    This is the reason, visionaries are required, who can try and percieve the connection and take strategic actions aligned with strategic insights.

    Best

    Rohit

    [Reply]

    Greg Reply:

    Thanks Rohit. Although I’m not sure we need a visionary. The architecture set up by Vannevar Bush after World War II has been extremely successful. So we already have a model that works.

    – Greg

    [Reply]

  2. Eli Cummings permalink
    April 18, 2015

    Microsoft is facing what Apple is going to face, lack of a follow up act to what got them to where they are. With Microsoft it’s a dominant desktop operating system and Office. With Apple its a device that can impact their bottom line as much as the iphone. Smart phones have eliminated two other products, cameras and music players. Android has 80% of the global market. Apple’s products are first world products and beyond the current communication, picture/video taking, sound and video streaming internet connected all in one device in our pocket, I can’t imagine anything else on the horizon that will have that much impact.

    Technology is primarily a game of vendor lock in. The increased importance of patent portfolios suggests it is less about product than using legal means to prevent others from invading one’s turf because ultimately all technology becomes a commodity very fast.

    Society itself has given up on its governing structure to provide anything. This is the major conceptual impact of the end of the Cold War.

    Government has primarily turned into little more than an enforcement arm.

    I heard an interview the other day with the lady who was in charge of the National Park system discussing the budget cuts and the 18 billion dollars of back logged maintenance. How has this been addressed ? By getting corporations that specialize in outdoor products to provide funds for programs. Retailers like REI and product makers like Camelbak are funding programs in order to raise awareness of the national park system which includes countless locales beyond the star names of Yellowstone and Grand Canyon.

    If anyone remembers the original and remake of the movie Rollerball, it’s easy to see the parallels. Corporate sponsorship for all aspects of life.

    The interdependence you noted regarding Ford and the other car companies is spot on but it draws too narrow a lesson. We don’t realize how interconnect we have become until there is the threat of a disconnection. This interconnected state is bigger than any one corporation or government. It is a system that is largely beyond human understanding of all the variables and connections and so largely beyond human control.

    Such a system does not lend itself to a clear vision of a future because it is impossible to get one’s head around all the components and their interactions. Our modern system is built up by specialists. There is no generalist who can possibly understand it. The parallel is that of a computer operating system comprising millions of lines of code none of which can fit inside anybody’s head. Groups work on sub components with only the knowledge of what impacts there components.

    In some sense, we are all living in the past holding onto concepts that have ceased to be viable but continue through traditional inertia.

    If there is any one element that can characterize modernism it is that it destroys the past and even though the past has never been an indicator of future events the past has always given us some level of deluded comfort.

    Our species is barreling down a wide road in the dark with only a very small flashlight to guide the way. This is the large picture which impacts everything and to a great degree is why we sense as we do on a roller coaster that we are on the verge of going off the tracks. The difference is there is no slow down into a disembarkation area. There is only increased speed.

    [Reply]

    Greg Reply:

    Thanks for sharing your thoughts Eli.

    – Greg

    [Reply]

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