IBM spends over $1.5B every quarter in research and development (R&D) expenses. SAP? Closer to $700M. Oracle? Assuming we don't count the tens of billions it spends buying other companies, its actual quarterly R&D budget comes in just over $1B - around $900M. Microsoft, which has printed billions of dollars in profit each quarter for eons, spends more than them all, topping $10B each year.
And yet not one of these companies is responsible for the biggest advances in enterprise technology in the past decade. Cloud computing, Big Data, mobile... they're all being invented elsewhere, not by the enterprise behemoths.
Maybe they're doing it wrong?
Lots Of R, Little D
Take the cloud, for example. Microsoft claims to invest 90% of its R&D budget on cloud computing, but it is Amazon, Microsoft's penny-pinching, book-retailing neighbor, that sets the terms for innovation in cloud computing. Amazon launched EC2 back in 2006, when it was spending a measly $132M or so each quarter on R&D.
Even if we dismiss Amazon, where else are we seeing other cool advances in cloud computing? Netflix, for one, which just released Janitor Monkey to help Amazon Web Services (AWS) users dispose of their unused AWS resources, and the video company previously released Chaos Monkey, which helps enterprises plan for and architect around cloud failure.
Notice the word I used? "Released." It means these tools were open sourced, not put out for sale. That's how innovation seems to happen in the 21st Century.
In large part innovation comes with an open-source license because it's a by-product of businesses that heavily rely on technology, but don't actually sell technology. It's 'trickle-down innovation' from the web business community.
VMware's Brad Hedlund spotlighted this trend back in 2011, when the enterprise awoke to discover it had problems that the web giants had already solved:
As properties such as Yahoo!, Google, Facebook, Amazon became great successes, their architects and software engineers realized that they had moved mountains...The tremendous problems of efficiently running large scale applications on low cost infrastructure had been solved... At the very same time, enterprise IT begins to encounter some of the very same problems solved by the large web provider, such as scalable data warehousing and analytics (so called “Big Data”). Additionally, the software driven distributed systems that solve problems of infrastructure efficiency and management at very large scale could also be applied to infrastructure at a smaller enterprise IT scale (why not?). And finally, the cost savings of an application infrastructure designed to operate on low cost commodity hardware can be realized at any scale, large web or enterprise IT.
Filling The R&D Gap
Companies like Cloudera, DataStax and others stepped into this gap, taking the open source (or, in the case of some of Google's research, open knowledge) projects from the web and applying them to the enterprise in the form of Hadoop, Storm, NoSQL databases, etc. All of it developed at a comparative pittance to enterprise incumbents' R&D budgets. All of it available free of charge on commodity hardware.
As an industry, we're richer for such open source innovation. Ironically, so are the enterprise IT vendors, who are investing tens to hundreds of millions of dollars in Hadoop and other open source data and cloud innovations, even as they continue to sink tens of billions of dollars into their homegrown R&D. Maybe it's time for them to reevaluate how they do R&D. Maybe, like Facebook or Twitter, they should release their R&D on GitHub as open-source code. At the least they could, like Google, centralize their research on the web, making it easily available to all.
Maybe, just maybe, they'd realize that it doesn't actually matter how much money a company spends on R&D. What matters is whether it can execute and turn ideas into winning products, as Brad Reed argues, and whether it can help foster community around promising open source efforts.
This is what new enterprise IT - Facebook, Twitter, Google and Yahoo - demonstrates. It remains to be seen if IBM, Microsoft and other traditional IT vendors are paying attention. Unless they do, they'll lose relevance as a new breed of innovative startups emerge to claim the strategic largesse of CIOs' budgets.