this week, the future of big corporate labs in a tech world focused on the quick buck, does pure research still matter? palo alto research center director steve hoover my guest this morning. and later, a clever way to get your co-workers to pay up. our reporters. from "forbes," eric savitz. and farhad manjoo, columnist for "slate" and "fast company," this week on "press: here." >> good morning, everyone. i'm scott mcgrew. corporate labs. hp labs, bell labs, parc, palo alto research center, are behind

some of history's biggest developments, everything from the discovery of the expanding universe to the pocket calculator. but what have they done for you lately? parc, for instance, created the laser printer and ethernet and is most famous for developing the alto computer, the first true personal computer. and famous for showing that computer to a young steve jobs, and the rest is history there. but it's ancient history, 1979. in the years since parc and other corporate labs, bell, hp, have continued to create. here's a parc scientist working on water purification. but corporate labs have lost some of the gee whiz of decades past. now, make no mistake. discoveries are being made, and many of those discoveries quietly find their way into other companies' products. >> this is the new macbook air.

>> but in a world where the game "draw something" is worth a billion dollars and a photo app worth another billion more, corporate labs find themselves competing for both attention and talent. dr. steven hoover is head of palo alto research center, or parc. just celebrated his first year at the helm. parc will celebrate ten years as an independent company later this month, spun off from xerox. joined by farhad manjoo of "fast company" and "slate" and eric savitz of "forbes." so if one of your scientists had created draw something, you could have booked a billion dollars in revenue. none of your scientists i assume are working on draw something. was it a bit disheartening to see some of the small companies in silicon valley that are getting these enormous valuations when you guys are working so hard on things that are so much harder to describe to the public? >> well, it's not disheartening. i mean, i wish -- >> it's a billion dollars.

>> and god bless them. and i hope they make many more. they're really drawing -- companies like that are drawing on the underlying technologies that we've helped to create and innovate, and that creates the basis, the background for all of that innovation. and we've got a pretty interesting business model ourselves these days as an independent subsidiary where we're in the business of innovation. so we have a chance to participate in that model in a very different way. and that's really what we're celebrating with with our tenth anniversary. >> but are you still doing the kind of pure research that people think about, you know, guys in white lab coats thinking big stuff, kind of creating new stuff? i think -- i mean, parc is really still doing a little more applied research that works for some of the other businesses that are owned by sxexerox, rig? it's a little different model. >> it's a different model in a couple of ways. let me try to address a couple of things you raised there, eric. one is today our business model is we're in the business of

breakthroughs. so we do innovation for a variety of companies. we still do -- we are a subsidiary wholly owned by xerox. we still do a lot of innovation work for xerox, but it's less than half of what we do. over half of what we do is actually work for other customers or fundamental research that is funded by both the government and xerox and our own gross profits. we're in the business of innovation. so we invest our own gross profit back into some of the fundamental -- >> how does fundamental research -- you decide, i come to you and say, steve, i'd like to figure out why the planet venus does whatever. there's no profit in that. >> yeah. >> i mean, nobody's ever going to make any money in that. but that's still something that you'd be willing perhaps to say yeah, go ahead and take a year and see what you can find? >> well, we would certainly be willing to engage in that with customers. the reality is most of our commercial customers -- >> don't want to do that either. >> -- aren't coming to do that. but the reality is it is

important, that kind of mental science. parc's built around entrepreneurial science. at the base of that pyramid is fundamental technical excellence, fundamental scientific excellence. so where the funding for that comes from is, again, the government actually still funds a fair amount of fundamental work. and so we get government funding. and again, our profits that we reinvest into our business, some of that goes into fundamental areas. and also to bridge the gap. i mean, the fundamental science is great, but it takes more than fundamental science. it took -- you know, it took a few people at fairchild, you know, to figure out how to take the fundamental science that created the possibility for the transistor to, you know, make it a business. so the model has to have a mixture. you've got to have the fundamental work. you've got to have people who really are very driven to not only create new knowledge but to make things that people use in the world. and that's a big part -- >> you were saying, though, you talk about the profits that are

generated by this business. and the idea that it is a business i think is -- in some ways makes it stand out from, say, microsoft research or -- >> absolutely. >> -- bell labs or other places that are looked as -- >> they say don't call it a center, call it a company. >> an arm of a company that it's not their mission to generate profits. but you're operating as a stand-alone business. >> that's correct. that's correct. so we are -- peer a p & l. i'm the ceo because we have a p & l. this is very different. this is the thing we're celebrating this year, the tenth anniversary of that model. i think we're really innovating in the process of innovation. because if you look at what has transpired with bell labs, you know, that model, it's not clear that it's surviving very well. and so ten years ago xerox said let's do this differently. before open innovation was a buzzword, let's really set up the center as being in the business of open innovation. and that's what happened ten years ago.

so we are, again, driven to create fundamental breakthroughs and then find partners who can actually take those to market. you mentioned a billion dollars for photo sharing. actually, a fair amount of our commercial partners are start-ups. so we work with probably last year about 30% -- >> do folks come to you and say we're stuck on something? >> so a great example is we can talk about this one because it's history. was a company called power set you that may or may not be familiar with that microsoft bought as the broungtd for their semantic search. power set had a lot of technology in the semantic representation part but not so much in natural language processing. we have 30 years of trying to understand human language and interpret it. so we were able to work with them, transfer that technology, and able to have them have a product that they could show investors and got them --

>> i could come to you and hire you and say i need you to figure out this. >> and we find each other in interesting ways. you know, technical conferences. again, a lot of start-ups are built around interesting technology. they find our scientists at conferences. they know we're in the business. and we have complementary technology. and the beauty also, parc, because of our history as an industrial research lab, we're not only good at the fundamental science, writing the algorithms that you put in the paper that allow you to get published in the paper, but how do you implement that on a bank of servers that scales to meet a million users. that's more than the science. >> what's the model? do you take a stake in a company like power set and startup and then do you get a payoff when they get acquired or -- >> so the model is what works. and we're pretty flexible because there's different situations. what we tend to see is -- there's three possibilities in all three components we use. one is there is an exchange of cash for the work. another is royalty.

we have background i.p. and knowledge. and that's shared risk-reward and equity is the third way. frankly, we tend to like to see some cash in the deal because it is a level of commitment -- how serious are you? let's really validate -- i don't want to work with somebody -- it's a waste of my time and your time if we work to transfer a lot of technology with usn't really going to keep you on your path to your mvp, keep you on your path to funding. >> now, if i get technology from you, you and i can work out a deal where it's my technology or our technology but not eric's. >> everything's available for a price. >> okay. >> and so you know, obviously, if you want full exclusivity on background i.p. that i created before you partnered with me and i think that's pretty valuable technology, i think that's going to be fairly pricey. can we kruk a narrow field of use, you know, we give you

exclusivity in a field of use that really -- you know, that's a little cheaper. on the other hand, if you're willing to really -- you know, a lot of times the value -- the i.p. has real value but execution coupled with the i.p. is what creates value. so if you're pretty good at execution, maybe you don't want to pay as much for what i.p. and we'll partner and take a license on it, royalty if you succeed we win. if not then we're not locked off from somebody else. >> steve hoover, we're going to take a quick break for a commercial but we'll be back with the head of palo alto research center when "press: here" continues.

steve hoover is the head of parc, palo alto research center. we're talking with farhad manjoo and eric savitz. do you do venture capital? i mean, why not fund small companies and have them do things for you and then take some of that equity as well? does it work both ways? we were talking earlier about it

working small to big. >> so there's a lot of people who do venture capital, and there's a whole set of skills there and training. you know, you need to understand how to invest, how to be an investor. right? and we could go and do that and raise money and do that. but frankly, there's a lot of people who do that today. some well, some not so well. but there's not a lot of people who do what we do. >> right. >> which is create the fundamental inventions and then be in the business of finding the right partner to transfer it. so there's a real value of being able to focus on who you are and what you're good at and staying at the cutting edge -- >> the history of parc, i don't call it a legend because it's not necessarily a positive thing. lots of great technology, the piece you did in the beginning. the mouse. laser printer, ethernet. all kinds of amazing technology. but that xerox didn't capitalize on it. that's been the knock for a long time. i wonder if the approach that

you're taking is in part a response to that, to the idea we've let some amazing things get away to apple and to others. >> so a couple of things. so the first is that myth is it was a deal. so xerox actually got preipo apple stock in exchange for sharing that technology with steve. now, they sold it a little early. i wish they'd still had it. you know, we'd all be a little happier. so that's the first piece. the second is eric, there's a part of what you're saying is right in this sense. any good research center -- if you're a good research center and you're working for a company, then you are always exploring ideas that they will never capitalize on. that's your job. you've got to push the boundaries. and just like what's the hit rate for a good v.c.? 10% of their portfolio creates the return. same's true. there's a lot of reasons. now, so the issue is the other 90%, did they fail because

they're bad or did they just not fit the corporate strategy? if they failed because they're bad, then kill them fast and move on. but if it's the corporate strategy and somebody else could monetize them, now, that's a waste, right? that's manpower, brain power, womanpower gone to waste. so this model in 2002 that xerox started said yeah, let's not waste that and let's keep the benefit, though, of having a broad and vibrant competency in areas that can help the company. because if you stop -- you know, if you want a way to stop that and you see some of the labs like bell labs, they just stop doing the work, then you also lose the 10% benefit. so xerox created this very different model. >> let farhad get a word in here. >> one of the things we've seen recently is kidnap that have the biggest r&d budgets aren't necessarily the most successful companies. can you comment on that apparent disconnect, the value of research? like apple doesn't and microsoft.

>> i think it's very true. frankly, you step back and think about anything in life. just having more money and spending more money on something doesn't mean you're better at it. >> mm-hmm. >> but if you don't spend any money on it, right? then you can't be very good at it. so more money doesn't solve the problem, but there's a minimum you've got to get to. the second thing-s and this is actually one of the things that is very different about parc today than ten years ago, is if you look at what drives people's success with that is do they really understand their customers and the business models that new technology -- >> companies themselves would understand their customer because the companies -- indeed "thor" own customer. >> the problem is technology -- henry ford famously said if i asked my customers what they wanted they would have said a faster horse. so if understanding your customer means you go out and do focus groups and that's all it means, that's good, but that's

not going to get you to the new place. so that's where we actually have -- we hire social scientists, not only physical scientists and computer scientists. anthropologists. e ethnographers to go out and understand the jobs people-v what are the opportunities? that's what steve jobs was good at personal liu doing. the question is if you're not steve jobs, how do you go out and invest in the innovation process of understanding the latent unmet needs? >> dr. steve hoover, head of parc, thanks for being with us this morning. >> thank you. >> an entrepreneur who set out to feed the hungry and accidentally made it easier to rent a party bus. when "press: here" continues.

welcome back to "press: here." you've no doubt heard of crowd funding. washington's been all abuzz about it lately. but that's crowd funding in the stock market sense. my next guest is thinking about crowd funding more in the party

bus sense. here's how it works. you and i decide it would be a great idea to rent a bus and take some of our friends out for some kind of celebration. so we post the idea to crowdtilt. everybody has to chip in, say, $50. now, nobody's credit card will be charged until the fund-raising goal is reached. projects can be private like the party bus or public. neighbors in dallas raised enough money to repair a street full of potholes. james beshara says he hopes his company crowdtilt will change the world, but for now he'll take what he can get, so parties and tailgates are okay too. joined by farhad manjoo and eric savitz. you had originally set out and your history is in microfunding for charities and things. >> right. so i kind of fell backwards into technology. my background is actually in development economics.

and while i was working down in south africa right after college began building out this platform for charities to group fund or crowd fund objectives. >> right. >> and when we actually started testing it with users, i saw in the first few weeks -- >> the party bus. >> -- friends using it for much more trivial things instead. and at the end of the day you have to go where the users take you. >> we've seen a number of these, similar sites. tell me how this dprifrz something like kickstarter. >> sure. kickstarter, awesome site. i actually just used it last week. what we've basically done is taken our favorite elements from those sites, from crowd-funding sites, and provided them for groups of friends. >> sort of more flexible and smaller. >> you can use it for anything. and it's for smaller private campaigns. >> and we've all been there, right? hey, i'll rent the ski lodge, and you guys each give me 200 bucks. and then somebody doesn't and i'm down for $400 all of a

sudden. >> it's like buying a gift for someone at work. >> yeah. >> anytime that we pool money offline, there wasn't a good alternative. we actually had to rationalize, figure out why users were take to it so much -- >> if you're the organizer you're going to pay. >> it's being used mostly for events like we're going to rent a bus or -- >> the best way we can put it is for experiences. so instead of just a project or an artistic creation like kickstarter or other crowdfunding sites, ours are for experiences. a party bus to napa or a renting out a bar down in austin for south by southwest. it's been used for all this and everything in between. even in denver it was used for a wedding last week. so yeah, it's actually been all over the place. >> when you really look at how well it works, you start to look back at facebook and say why doesn't facebook work this way? at some point they'd

experimented with you can buy movie tickets together. but there's this weird irony that all of my friends are here, but we can't do anything together. >> that's kind of indicative of the internet as the whole. for the past 15 years it's created a really, really amazing way to collaborate and share information and communication. but payment, that's where it's kind of stopped. it's always been -- the terms payments and easy online, simple, have never really gone together. >> do you run into any kind of banking regulations with the fact that you are taking in payments, et cetera? >> so we outsource payments to a company here in palo alto as well but we still spend about 15% of our time on compliance, regulation. it's not as simple to -- >> there is a barrier to entry. >> it's not just plugging in paypal and i can -- >> no, we don't use paypal, actually. my generation cringes when you say paypal. >> you're making me feel old.

>> when you say my generation -- >> no, no. apologies. >> we're not sure about farhad, which side of the table he's on. >> i use paypal. >> we don't use paypal. we use a company here in palo alto that's doing amazing things in payments on the back end that allows us to do the amazing things on the front end called poundpay. >> but what do you offer that a group of people couldn't do with paypal, just kind of collaboratively? >> so the payment services online -- that's a good question. the payment services online today are really good about sending, receiving, and collecting individual payments for your group. but to pool money online, to pool money as a group, the four of us putting in $200, that becomes -- it's a very different animal. >> well, because it works both ways, right? if i tell each of you $200 each, there's no -- i could just keep the money. i mean, 200, 200, and 200. and i -- >> or one of us could send you money, the other two actually

back out. then you've got to send the money back to me on paypal and you've paid 7% for nothing. >> that's true. in this one it just cancels. >> if we decide we're going to rent a bus and go skiing, do you create an account? >> you create a campaign. and it takes about ten seconds. we have obsessive -- we've been very obsessive about making it simple as possible. you start a campaign by making a title, description and amount, send it out to your friends. instead of the old way of gauging interest with e-mails and then collecting checks or using paypal or, god forbid, people trying to bring cash, now you get to just create a campaign in about ten seconds, engage the interest that way, with actual -- with their -- >> where does the money go? >> sought money is actually -- so once the objective is researched, the credit cards are charged, and it's sent to you next day direct deposit.

you can send it to your -- >> until it quote unquote tilts. >> do you either stay up late at night worrying facebook is going to do this or do you stay up at night thinking facebook's going to buy us. >> why would you worry about that? >> it could still keep you up at night. one of the two things should happen, going back to my original complaint about facebook, and that is we all get together and look at each other and then nobody collaborates on anything. >> right. and that's something that's been a big compliment to us is people use the site and they say why hasn't this been invented before. >> right. >> and yeah, i'd say there's a healthy amount of paranoia that keeps us going pretty fast. we all live in a house in palo alto, five of us -- six of us. so five friends and i. we work pretty tirelessly to try to outmaneuver. yeah. but that is a constant concern.

>> this doesn't seem to me like something that facebook would do. i mean, i think they're all about sort of building the platform. >> and let those guys come in -- >> i guess facebook is just an example of someone coming and doing this. >> with our generation, james, it was microsoft. >> that is actually, we're not worried about microsoft. >> you're not going to do that? >> no, no, i'm kidding. >> how do you make money? >> we take a cut if you're successful. so it is free to use if your objective isn't met, if your objective doesn't tilt, you why vacation doesn't happen. but if it does happen we take 2.5%. >> james beshara, we have to leave it there. thank you for being with us. >> thank you. >> "press: here" will be back in just a moment.

welcome back to "press: here." we're talking with farhad manjoo and eric savitz. farhad, the next issue of "fast company" you'll be talking about google ventures. what is google ventures? >> google ventures is google's venture capital arm.

but they're different from normal corporate ventures where the company kind of dictates what they invest in. here they're completely separate from google and they have quietly amassed this huge v.c. fund. i mean, they invest $200 million a year. >> is it just another v.c. fund? i mean-d the world need another v.c. fund? >> they're doing some things that are different. like you'd expect from google, they're relying a lot on data. so they have this data -- this quantitative arm that tries to predict based on past performance what to invest in, which seems like it might work but it's also kind of -- >> what's totally different than say intel capital which is a venture capital arm of intel but it's all about let's drive more microprocessors. >> yeah. >> google is a stand-alone business. >> they're doing things in all kinds of start-ups, in life scientist firms. >> a lot of green. >> yeah, green tech. and also just social networking stuff that would be important to google and stuff that it would be completely -- >> and eric in the next version of "forbes" you've got

distressed stocks you should buy. you've got a couple of seconds. give me a stock. and we'll read the article, we promise. >> it's about distressed stocks, the cheapest -- >> which are? >> there's only two left. western digital -- >> eric savitz. buy a copy of "fortune" -- >> "forbes." >> "forbes." and "fast company" as well. that's our show for this week. thanks to my guests, james hoover of parc, james beshara of crowdtilt. we're back to a regular schedule so, we will see you back here next week. i'm scott mcgrew. thank you for making us part of your sunday morning.