BusinessWeek has an essay about the lack of innovation at the major telephone companies (yet another installment in the “I care about this stuff; no reason for you to” series). Mind-blowing quote:
One way in which these companies are very different from the old phone monopoly is that while the original AT&T had a world-class research operation, its successors don’t. One of the signal facts of the communications revolution is that virtually all the new technologies that made it possible were developed outside the phone world. Last year, Verizon’s revenue came in at nearly $80 billion. AT&T (without BellSouth or Cingular) had revenue of $44 billion. And yet while Intel Corp. spent $5.1 billion last year on research and development, AT&T spent just $130 million. The word “research” doesn’t even appear in Verizon’s annual report.
Now, in the pharma industry, there’s a lot of talk about “rethinking R&D,” as major companies learned that simply pumping more dollars into the process doesn’t necessarily yield results. When I compiled this year’s Top Pharma Companies report, I noticed that plenty of big guns have reduced their R&D budgets — not drastically, but it was certainly a change from past double-digit increases. And these annual R&D figures were at least $1 billion for the top 17 companies on the list.
Obviously, the drug industry is keyed by development of new products; patent terms dictate that every product has a brief lifespan. When the R&D pipeline falls short, companies turn to in-licensing new drugs. In my many Yankees = Pfizer comments, this equates to buying free agents when the farm system isn’t producing good players.
Turns out that this is the main model for the telcos.
There is something to be said for “buying it elsewhere.” If the big telcos built everything themselves, there would be no Cisco and no Motorola. But years of buying it elsewhere has yielded a culture distrustful of technology — and of progress: It’s impossible to imagine Microsoft developing a big new product and having the lead engineer shift from foot to foot in the corner pretending to be just another customer. It has meant, as with AT&T’s Lightspeed, that telcos are likely to offer services that only match, but not surpass, those available from others. And increasingly their approach has put the telcos on the wrong side of technological innovation, leaving them in the position of protecting their investments in their networks from the encroachments of new ideas.
Anyway, I’m fascinated by the ways major industries function, and this essay provides some neat insights into what it’s like to be an $80 billion player with razr-thin (ha-ha) profit margins. So give it a read.
