What's the Buzz at the Innovation Factory?

Walter Bender, executive director of MIT's Media Lab, discusses how the demands on research change during tough economic times

As a kid, Walter Bender hawked souvenirs outside Boston's Fenway Park. Although his office today is only a few miles from the ballpark, the executive director of the Media Lab at the Massachusetts Institute of Technology may as well be on another planet. He now oversees 300 research projects into such advances as wearable computers and artificial intelligence.

Lately, the research hub has been feeling economic pressure. Last year, Bender laid off some staff and cut salaries to make his $45 million budget. He recently spoke with BusinessWeek Online's Brian Hindo about the challenges the Media Lab faces in a tough economic environment. Edited excerpts of their conversation follow:

Q: Has the landscape of emerging technologies changed over the past couple of years -- after the tech bubble burst?


Certainly. Beginning maybe five years ago, there was a shift by industry in terms of research. A lot of the well-established research labs for big multinational companies took a hit.

Investment by corporations shifted to the venture-capital area. It was a different way to place bets, to manage your risk. In a sense, the Media Lab was competing [for funding] against the VC world. But now, with venture capital drying up, companies feel more of a need to look at the academic engine for ideas.

Q: Five years ago, when industry started shifting funding to venture capital, what drove that?


They were thinking about IPOs [and making lots of money, fast].

Q: Are you seeing a difference now in the types of research that companies are interested in?


Everybody and their cousin is working on biotech these days. And nanotech. These fads come and go. I don't want to characterize biotech as a fad: It's fundamental and will have an enormous impact. But all of a sudden, everbody's doing that.

Q: What dibs do corporations that fund the Media Lab have on what the lab discovers? What happens if competitors in the same industry happen to invest?


The lab works like a club. You join, and then you have membership privileges. You have royalty-free, nonexclusive access to anything going on at the lab. A lot of companies join with some fairly narrow idea of what they want, but I think it's inevitable, and usual, that they end up finding things they hadn't anticipated that have real value for them.

How do we deal with the issue of competitiveness? The Media Lab does research. We don't do development. There's the old 90/10 rule, which is: The last 10% of the work is 90% of the work. That last 10% happens in industry. It doesn't happen in the lab. It's in the 10% where you get the leg up on the competition.

Q: So the lab doesn't commercialize research?


Certainly, we try to facilitate that process. The coin of the realm here is graduate students. The extent to which sponsors use that resource is largely correlated to the degree to which they derive value from the laboratory. A number of companies have been very aggressive about hiring our graduates.

Second, a lot of students start companies. Almost every time, the angels of those companies are sponsors. They've got the inside track into what these kids are doing. Faculty also do consulting for sponsors on specific technologies.

Q: What tangible effect has the downturn had on your budget?


Believe it or not, we had a record revenue year last year, in part because of more emphasis on government funding. On the other hand, we also spent more than ever, because we were in a growth cycle. Our revenues for fiscal year '01 were $40 million, and for fiscal year '02 they were $45 million. Our expenses for '02 were $45 million, and would have been more if not for the layoffs.

Q: So you really haven't felt a fall-off in funding?


The growth in industrial funding flattened last year because the economy tanked and September 11 happened. We more than compensated for that with an increase in [funding from] government programs.

We have taken some hit in terms of industrial sponsorship. There's a tiered model of sponsorship at the lab, and a lot of companies pulled back, dropped down a tier instead of disappearing.

Q: As you prepare next year's budget, are things looking up?


I've got a very crude economic indicator: How many visits we get to the lab. The indicator suggests things are starting to turn around. We used to calculate 3.5 visits on average from industry per day. Post-September 11, for a variety of reasons, that went down to 3.5 a week. Now, we're probably averaging about 4 visits per day.

Q: Looking down your list of sponsors, you have a lot of tech and telecom companies, but also a lot of Old Economy companies like McDonald's and J.C. Penney. What do they see as benefits of Media Lab sponsorship?


J.C. Penney's image might be Old Economy, but if you look behind the scenes, it is quite a high-tech company. It uses every available means to foster communication between company headquarters in Plano, Tex., and its buyers and its stores. Some of it is maybe more showmanship than efficiency -- they have robots that deliver the mail inside of J.C. Penney -- but they take internal communications very seriously, more so than many high-tech companies.

Q: What types of research do they use?


A fun example is a collaboration we did with them around interactive television trials. It's 100% product-placement television. We went down to J.C. Penney and shot a soap opera in their TV studios. Every single thing in the soap opera was from the J.C. Penney catalog.

We had developed the technology to do image segmentation, so that while you're sitting watching television, you could use your laser pointer or a mouse to click on anything you saw on screen, and it would automatically jump off to the catalog.

Q: The can-do attitude from industry during the late '90s must have been a boon to innovation. Has that changed at all in tough times?


It has been a tough year for everybody -- industry, academia, governments. On the other hand, we believe in what we're doing. There's an infectious optimism associated with that. One could argue that industry needs innovation the most during hard times, not good times.

Q: Can you quantify how much of your research ends up in products that make it to market?


That's a tough one, because it happens in so many different ways. There are some clear things. Lego Mindstorms [programmable robots] is a descendant of a project done here. [Others include] the MPEG-4 audio standard and cascading style sheets on the Internet.

But there are less tangible ones. We showed digital video down in Boca Raton, Fla., where IBM was doing PC work, and didn't get much of a response. Then John Sculley [at the time, CEO of Apple Computer] saw it, and even though there's not a single line of code from the Media Lab in Quicktime, that's where Quicktime came from.

When we develop something that doesn't work, we learn from that, too. We encourage students to take risks and break things. It's not our job to be incremental.

Q: Does the majority of research fall into the category of the Lego Mindstorms or Quicktime?


I'd say the majority falls [into the Lego category]. There have been about 50-odd startups that have come out of the lab, so each one of them represents a product that would have gone out into the marketplace. It's a hard thing to quantify.

One of the companies we work with has a strategy board. It has identified seven areas as part of its strategic direction. Four of those came from discussions with us. There's not a product associated with any of those, but there is a strategy.

Q: Has there been increased emphasis or pressure from companies you work with to do more direct-to-market product research?


There has been pressure to deliver more concrete value. When times are tough, everybody asks that question. Certainly, we're being asked that question more than we would have been a couple years ago.

Q: Has it been harder to justify risk-taking?


I can't recall a single instance of one of our sponsors coming in and asking us to be less ambitious. That doesn't happen.

Q: How big is your sponsors list -- and how has it grown?


It's around 140 companies or so. It has risen compared with 10 years ago, but corporate growth has flattened. That's more due to the times than anything else.

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