value insights

How PARC Saved Xerox- Valutrics

Xerox AltoXerox invented the core technology that made personal computing easy and fun—the mouse, the graphical user interface and the ethernet—but it was Steve Jobs who built the Macintosh and profited.  By now, the story has become so well known that it’s almost a cliche.

The story resonates because it ties into two recurring themes:  The wily entrepreneur outmaneuvering the bloated corporate behemoth and the primacy of business acumen over the development of core technology.  Yet there’s a lot more to it than that.

PARC—Xerox’s legendary Palo Alto Research Center—was vastly more than a mere collection of tinkering eggheads.  In fact, it was an investment that paid handsome returns and generated profits long after the decline of the core copier business.  To see why, you only have to know the story of Gary Starkweather and the invention of the laser printer.

An Engineering Marvel, But Not A Great Business

In the early sixties, Xerox was working on a new technology called “long distance xerography,” which was basically like a big industrial version of a fax machine. It was great for specific jobs—railroads would use it to transmit bills of lading—but overall, it was limited. It could only transmit 3-4 pages per minute at low resolutions.

Starkweather, who had recently gotten his Masters degree in Optics at the University of Rochester, was assigned to improve the technology and had an idea about how to do it. Instead of using a cathode ray tube (the same technology used in old fashioned TV’s), it seemed obvious to him that lasers were just the right tool for the job.

He met with some resistance—lasers were a new, mostly untested technology at the time—but he persevered and eventually succeeded. He was able to make a machine that could print out 60 pages a minute, which eventually led to one that printed at 120 pages a minute.  For the time, it was an engineering marvel.

Yet, the fax system never became a great business. So Starkweather started thinking about other applications for his system and that’s what landed him in hot water.

A Firing Offense?

By the late sixties, Starkweather didn’t see much point in improving his machine so that it could send more and more fax copies.  Xerox’s business model at the time was based on how many copies customers printed out and it became clear that long range xerography didn’t have the potential to generate enough volume.

He did, however, see that his technology could make a great printer for computers.  The only problem was that his division wasn’t working on computers.  His boss, perhaps not surprisingly, wanted Starkweather to improve his business, not someone elses.  He was, in fact, so hostile to the idea that he threatened to fire anyone who worked on the project.

Eventually, things came to a head and Starkweather went over his boss’s head.  He walked into the Senior Vice President’s office and threatened, “Do you want me to do this for you or for someone else?” In the stuffy corporate culture of Xerox, it was almost unheard of behavior, but he was so convinced in the potential of his idea that he was willing to lose his job over it.

Fate, however, soon intervened.  Word of Starkweather’s apostasy and his idea had travelled across the country, to PARC, Xerox’s research center in California, and they were excited by the concept.  Unlike the corporate types back east, they were very much interested in computers and invited Starkweather out for a presentation.

A Breakout Success

For the researchers at PARC, Starkweather’s work was a revelation.  They had been working for years to build a personal computer.  In fact, one of the technologies they were working on was bitmapping.  It’s something that we take for granted today, but it was revolutionary at the time.  Still, they had no way to print the bitmapped images out.  Now, before their eyes, was the answer to their problem!

Starkweather was transferred to PARC and got to work making a functional version of his printer.  At first, they just attached his invention to an old Xerox 7000 copier and used it internally.  Amazingly, that year PARC itself printed out more than 4 million copies that year on his his first version, which was coupled with an image generator built by Dr. Ron Rider.

Knowing they had a winner, they created a commercial version based on the Xerox 9200 copier and dubbed it the Xerox 9700 Laser Printer, which could print out two pages page per second at 300 dpi—about 40% less than printers today, but this was 35 years ago!  And, unlike long distance xerography, it was an immediate business success.

Banks used it to print out millions of bank statements a month.  Insurance companies used it to customize documents (like larger type for older customers).  Within a few years it became a multi-billion dollar product and soon outgrew the copier business.  Starkweather’s radical idea had become a staple of the same stuffy corporate world that had first rejected it.

Platforms And Ecosystems

The laser printer was not, by a longshot, the only revolutionary technology platform to arise out of PARC.  I already mentioned the transformative user interface technologies that ended up in the Macintosh (and Microsoft Windows too, for that matter).  The ethernet, the technology that allows computers in our office to work together, was also a PARC invention.

Although some technologies were not incorporated into Xerox’s core business, the company profited from them as well.  Many were spun off into new companies, such as Adobe and 3Com, with an equity stake going to Xerox.  Even Steve Jobs’s famous pilching of the mouse and the GUI was made possible only because he allowed Xerox to buy stock before the IPO.

So while it’s tempting to see PARC as a technological success, but a business failure, that’s not quite right.  The breakthrough in laser printing alone would probably justify the investment.  The important lesson to learn from Xerox and PARC is that technology does not succeed or fail in a vacuum.  Every platform needs an ecosystem to survive.

An enterprise is vastly more than a collection of departments and operations.  In a very real sense, it is an ecosystem that embeds itself in other ecosystems, such as supplier networks, talent pools, specific customer segments and so on.  A platform that succeeds in one ecosystem might very well fail in another and vice versa.

So while Starkweather’s idea landed on fallow ground in the corporate ecosystem back east, it thrived in the Northern California, home to many defense contractors working on computer technology.  Spin-offs like Adobe and 3Com, untethered to Xerox’s particular ecosystem, were free to find more fertile ground and succeeded fabulously.

Which Is The Real Xerox?

So which is the “real” Xerox.  The bloated bureaucracy that nearly fired Gary Starkweather or the visionary company that invented the future at PARC?  Obviously, the it was both of those things.  On several occasions, it failed to successfully exploit breakthrough inventions of its own making, while at the same time it had the foresight to develop them in the first place.

In the final analysis, Xerox’s later problems had nothing to do with PARC, but its inability to make crucial shifts in thinking about its core business.  As I noted in a previous post, it was, in fact, Xerox’s success that bred its later failures.  Having developed an innovative new business model, it continued to hone it long after it had ceased to be successful.

Thomas Kuhn, in the The Structure of Scientific Revolutions, explains why this happens. When we discover a new solution, we tend to stick with it.  After a while, we find areas where that solution doesn’t apply, but regard these as “special cases.”  As the special cases pile up, the pioneer of the model is usually the last to realize that its time has passed.

And that’s the true lesson of Xerox and PARC.  We tend to see a successful business model as an integral part of company culture, but that’s not really true.  In reality, culture is the way that an organization values its mission.  It has nothing to do with a particular business model, process or procedure.  To believe otherwise is just lazy thinking.

In an age of disruption, the only viable strategy is to adapt and the ability to make shifts in platforms and ecosystems is becoming a core business skill.

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Greg SatellGreg Satell is a US based business consultant. You can find his blog at Digital Tonto and you can follow him on Twitter.