I.T.'s Top 81 R&D Spenders

By Robert Hertzberg  |  Posted 04-17-2007 Print Email

A burst of investing in 2006 was mostly aimed at shoring up existing product lines and was concentrated among the biggest firms, like Microsoft, Intel and Google.

The biggest technology companies have been pouring resources into product development, but don't look for a burst of innovative new business applications anytime soon.

A lot of the industry's recent R&D spending has been on consumer products—things such as games and Internet services. To the extent that companies are developing business applications, their focus is more on enhancing existing products than introducing new ones.

Adobe is a good example. The software maker typically spends 90% of its R&D budget enhancing products like Acrobat, Photoshop and Illustrator that have been around for a decade or more.

"Some of our products are Version 12 or whatever," says Leslie Bixel, director of technology programs at Adobe, which spent $540 million on R&D last year. "It really requires that we challenge ourselves to innovate and make sure we're close to the customer to deliver new value." Overall, R&D spending in the technology industry jumped 17% last year, according to a Baselinesurvey. The survey looked at 81 U.S. companies, more than half of them in the software business (see chart below). In a sign of how concentrated R&D is, the top 10 companies on our list invested $32.5 billion in product development in their 2006 fiscal years. That was almost seven in every 10 R&D dollars spent among the companies.

The biggest spender was Microsoft, with $6.58 billion. The software giant was an exception in that a lot of its R&D spending was devoted to new products aimed at businesses, including Office 2007 and the Vista operating system. But Redmond, Washington-based Microsoft also plowed significant sums into its Xbox 360 gaming console and Internet search.

That field is still dominated by Google, which more than doubled its R&D spending in 2006. Google's $1.23 billion investment made it No. 9 on Baseline's list, far ahead of competitors like No. 13 Yahoo ($833 million) and No. 21 EBay ($495 million). But even with its rapid growth in R&D last year, Google was able to devote just 11.6% of its revenue to R&D. The median R&D expenditure among all the companies we looked at was 15%.

When they're growing quickly, companies usually have to invest development dollars just to fine-tune the products their customers are using. To some extent, this is a matter of protecting the cash cow—the iPod at Apple, printers at Hewlett-Packard, desktop applications at Microsoft. "If you're a technology innovator, the moment you get ahead of the pack you have no option but to do research," says Arvind, a professor at the Massachusetts Institute of Technology who goes by that single name and is an expert in research. That's how "you make sure nobody can catch up to you."

Technology products that become popular often require investments unrelated to the improvement of core features. For instance, years ago it was common for software companies to invest money in "platform extensions"—taking programs originally written for the Macintosh, say, and re-writing them for Windows or Unix. Nowadays, R&D dollars are flowing into other aspects of the technology "plumbing," including stress tests of how an online service will perform when it's being accessed by thousands or millions of users.

Even if companies wanted to risk all their R&D dollars on potential breakthrough products, or on developing enhancements to the most popular products they already have, they probably couldn't do it, R&D executives say. For one thing, they couldn't hire enough engineers.

"I don't believe you can just throw a bunch of people at a single code line," says Parker Harris, executive vice president of technology and products at Salesforce.com. "Oracle is not adding thousands of people to work on their core database; Google is not adding thousands of people to work on their core search technology. We're not doing that either." Instead, Salesforce—-a fast-growing vendor that about doubled its R&D spending in its last fiscal year—-is adding technicians to test the performance of new features as engineers create them.

The San Francisco-based company uses the Internet to deliver its customer relationship management software as a service, and is also using the Web to keep its expanding R&D program on-target. Last October, Salesforce launched something called the Idea Exchange, a variation on the consumer site Digg.com, that lets Salesforce's customers vote on new features the company is considering developing.

Other companies have their own approaches to making sure the best ideas have a shot of getting funded. Much of the R&D effort at San Jose, California-based Adobe, for instance, is built around the familiar "stage-gate" discipline of reviewing early-stage products at regular intervals, with some getting killed and others continuing to get funded. But Adobe, now a $2.6 billion company, didn't want to take the chance that some good ideas weren't getting a hearing. So it created a position for an "idea mentor," whose job is to make sure the creative sparks that fly around the company's software labs don't get extinguished prematurely.

The idea mentor is very popular, says Adobe executive Bixel. "He has a good sense of business—but that doesn't really matter. His assignment is to encourage the engineers no matter what, and to make sure they get heard. As the company has grown in size, that's one of the biggest challenges."

Technology's Top R&D Spenders

RANK COMPANY BUSINESS R&D SPENDING IN 2006 (millions)
1 MICROSOFT Software $6,584
2 IBM Computers $6,107
3 INTEL CORP Semiconductors $5,873
4 HEWLETT PACKARD Computers $3,591
5 TEXAS INSTRUMENTS INC Semiconductors $2,195
6 SUN MICROSYSTEMS INC Computers $2,046
7 ORACLE CORP Software $1,872
8 SAP Software $1,781
9 GOOGLE INC Software $1,228
10 ADVANCED MICRO DEVICES Semiconductors $1,205
11 BROADCOM CORP Semiconductors $1,117
12 SYMANTEC CORP Software $950
13 YAHOO INC Internet Services $833
14 CA INC Software $715
15 APPLE INC Consumer $715
16 MICRON TECHNOLOGY INC Semiconductors $656
17 NVIDIA CORP* Semiconductors $554
18 CADENCE DESIGN SYSTEMS Software $549
19 ADOBE SYSTEMS INC Software $540
20 ANALOG DEVICES Semiconductors $537
21 EBAY INC Internet Services $495
22 DELL INC Computers $463
23 LSI LOGIC CORP Semiconductors $413
24 INTUIT INC Software $399
25 SPANSION INC Semiconductors $348
26 NATIONAL SEMICONDUCTOR CORP Semiconductors $327
27 AUTODESK INC Software $302
28 CONEXANT SYSTEMS INC Semiconductors $270
29 BMC SOFTWARE INC Software $213
30 NOVELL INC Software $186
31 BEA SYSTEMS INC Software $182
32 RF MICRO DEVICES INC Semiconductors $169
33 SKYWORKS SOLUTIONS INC Semiconductors $164
34 CITRIX SYSTEMS INC Software $153
35 SYBASE INC Software $150
36 PARAMETRIC TECHNOLOGY CORP Software $147
37 PALM INC Mobile Services $136
38 INTEGRATED DEVICE TECH INC Semiconductors $130
39 HYPERION SOLUTIONS CORP Software $116
40 COGNOS INC Software $115
41 FAIRCHILD SEMICONDUCTOR INTL Semiconductors $108
42 QLOGIC CORP Semiconductors $100
43 MICROCHIP TECHNOLOGY INC Semiconductors $95
44 OPENWAVE SYSTEMS INC Software $88
45 TIBCO SOFTWARE INC Software $86
46 REALNETWORKS INC Software $77
47 PROGRESS SOFTWARE CORP Software $77
48 BORLAND SOFTWARE CORP Software $70
49 WIND RIVER SYSTEMS INC Software $66
50 CHECK POINT SOFTWARE TECHN Software $62
51 LAWSON SOFTWARE INC Software $61
52 OPEN TEXT CORP Software $59
53 NUANCE COMMUNICATIONS INC Software $59
54 KRONOS INC Software $58
55 JDA SOFTWARE GROUP INC Software $56
56 INFORMATICA CORP Software $55
57 WEBEX COMMUNICATIONS INC Internet Services $54
58 SPSS INC Software $52
59 ARIBA INC Software $50
60 ANSYS INC Software $49
61 INFOSPACE INC Internet Services $46
62 ALTIRIS INC Software $46
63 SALESFORCE.COM INC* Software $44
64 ASPEN TECHNOLOGY INC Software $44
65 MSC SOFTWARE CORP Software $43
66 TRIZETTO GROUP INC Software $43
67 RED HAT INC Software $41
68 WEBMETHODS INC Software $40
69 SYNAPTICS INC Software $35
70 I2 TECHNOLOGIES INC Software $35
71 ADVENT SOFTWARE INC Software $35
72 MICROSTRATEGY INC Software $34
73 EPICOR SOFTWARE CORP Software $34
74 VIGNETTE CORP Software $34
75 MOVE INC Internet Services $34
76 AKAMAI TECHNOLOGIES INC Internet Services $33
77 VALUECLICK INC Internet Services $33
78 QAD INC Software $33
79 CRAY INC Computers $29
80 COREL CORP Software $26
81 BLACKBAUD INC Software $23
Total $46,670

*For fiscal years ended in January 2007
Sources: Yahoo Finance, company reports



 

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