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As head of Xerox’s Palo Alto Research Center (Parc) throughout the 1990s, John Seely Brown was in charge of one of Silicon Valley’s most creative research labs.
Parc had invented many of the technologies that defined the personal computer era, such as the graphical user interface. It was where Steve Jobs, on a visit in 1979, picked up the ideas that inspired what was to become the Macintosh.
According to Walter Isaacson’s biography of Jobs, the Apple co-founder had no trouble understanding the significance of what he was seeing that day. His reaction to the Parc breakthroughs: “You’re sitting on a goldmine. I can’t believe Xerox is not taking advantage of this.”
The width of a continent away, at Xerox’s east coast headquarters, it was not so obvious. According to Seely Brown, the new ideas emerging from the Silicon Valley lab were rejected by the managers responsible for maintaining the company’s established business — what he calls its “core”.
“When we pushed them into the core, the immune system of the core ate them up,” he says.
Xerox’s failure to capitalise on its own in-house inventions has become one of the tech industry’s most notorious examples of missed opportunity. It did not prove fatal: Xerox is still very much alive, passing its first century nine years ago. But it missed the chance to become a leader of the new personal computing industry and has played only a marginal role in the digital revolution ever since.
Old tech companies sometimes survive a surprisingly long time. Very few, though, manage to stay at the forefront through successive generations of technology, says Sir Michael Moritz, a partner at venture capitalist Sequoia and early backer of companies including Yahoo and Google. “It’s easier to survive than to continue leading,” he says.
The seismic shifts that have reverberated through the tech world over the past half century have turned out to be disruptive to all but a small handful of companies either flexible or lucky enough to adapt. The moves from mainframe computing, first to mini-computers then PCs, the internet and smartphones, have brought successive waves of new companies to the fore.
For the incumbents, running a successful business while anticipating the next upheaval presents a challenge that is acute in tech. “Unlike a ketchup or a soft drink brand, it’s much harder to run your business when you have to spend an enormous of time and effort on research and development,” says Sir Michael.
Even tech companies that see the future clearly often have a hard time adapting to technologies that require an entirely different business approach.
Eastman Kodak, unlike Xerox, was keenly aware of how digital technology would overtake the analogue products on which its fortune was based. Already 85 years old at the time, it was far-thinking enough to develop the world’s first digital camera, in 1975.
But Kodak failed to follow through. It was overtaken by faster-moving rivals with lower costs and the freedom to reimagine how people would want to capture and share pictures in a connected world.
Together, the Xerox and Kodak cases are symptomatic of a wider problem in the tech world. Both companies rode their founders’ original inventions for decades and became synonymous with 20th-century American capitalism. But when the technology foundations on which their fortunes had been built began to shift, they failed to adapt.
The shortening of corporate life expectancy caused by the digital revolution is not limited to the tech industry. Fast-moving start-ups, using the low-cost and flexible technologies of cloud computing, along with the global reach of the internet, pose a serious threat to all companies trying to maintain leadership in their industries, says Seely Brown.
He quotes figures from Richard Foster, co-author of Creative Destruction, to make his point. In 1958, the average US company in the S&P 500 had been in the index for 61 years: by 2012, that had fallen to just 18 years. No company is now safe. But the periodic shifts in computing have made the tech world a particularly difficult place to operate.
As a result, the sector’s rare long-term survival stories stand out. But it is hard to find a common explanation for their success.
Apple, currently the world’s most valuable company, is rare in having been a pioneer in two different eras, first personal computing and then, after a brush with bankruptcy, in smartphones.
“It’s a company that got started twice by the same man, that’s the difference,” says Sir Michael who, as a journalist, followed Apple’s early years closely.
Like many in Silicon Valley, Sir Michael links success closely to the personal involvement of company founders, and has little time for later generations of hired managers. In this view, the golden age of tech start-ups seldom outlasts their creators — and few founders have the personal longevity to keep their companies at the forefront for a protracted period, like a Rupert Murdoch or a Warren Buffet. On this reading, tech companies are never built to last.
Yet a handful have defied the odds. Most notable has been IBM, which went through a near-death experience a quarter of a century ago after the rise of personal computing threatened its mainframe-centric business. Thanks to the long-term nature of corporate information technology investments — the huge costs in existing systems that tie customers to the same suppliers for long periods — companies like this still have a chance to adapt, provided they can rebuild their products and services to suit new buying habits.
But even the biggest are now facing disruption from cloud computing, as customers turn away from buying technology to run in their own datacentres and instead outsource their IT needs to companies such as Amazon Web Services.
“IBM is struggling, even though it looked like they’d reinvented themselves,” says Tim O’Reilly, a US tech publisher and commentator. “I think a lot of the traditional tech companies are really troubled.”
As a result, massive upheaval has been sweeping through industry, carrying away older companies through a series of big mergers that has spread from chip makers into IT systems.
Some, like Dell, which is planning the tech industry’s biggest acquisition with the purchase of storage maker EMC, hope to position themselves as the consolidators. Others, like Hewlett-Packard— which itself tried to grow bigger through acquisition — have reversed course and are breaking up.
In the shadow of what is fast turning into one of the tech industry’s biggest upheavals, a new generation of companies is now trying to prove that it will have more staying power. Yet even for these companies, there is little breathing room.
Facebook, born in the desktop computing world, has already been forced to adapt. Founder Mark Zuckerberg used the acquisitions of mobile apps Instagram and WhatsApp to reposition itself for the smartphone era, and with the purchase of virtual reality company Oculus the company has made a conscious attempt to put itself at the forefront of what could be the computing industry’s next big wave, based on virtual reality.
“Mark Zuckerberg was masterful in making sure he wasn’t outflanked by the move to mobile,” says Sir Michael.
Google, which failed to break into social networking, has also been grappling with the mobile transition. But its founders have their own idea of how to transcend their internet search origins and defy corporate mortality. By relaunching as holding company Alphabet, they hope to turn Google into the first company capable of pursuing a range of giant, unrelated technology bets.
It is an ambition that its chief executive Larry Page hopes will also make it the world’s first trillion-dollar corporation. History suggests, though, that even for a company as rich and brainy as Google, it will not be easy to break free from the tech industry’s cycle of creative destruction.
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