From Big Blue to NYU

On the eve of his departure for academia, IBM Research's Paul Horn talks about Blue Gene, open-source technology, and the strategy behind sharing patents

With a roster of 3,400 scientists, IBM Research is one of the largest corporate research outfits in the U.S. Paul Horn, the man who has been running it since 1996, recently announced his retirement—ending a 28-year career at IBM (IBM). He will be replaced by John Kelly, another longtime IBMer. Horn, 60, is becoming a Distinguished Scientist in Residence at New York University. He was only the sixth lab director since IBM set up the organization in 1945.

During his decade at the helm, Horn made the research organization an essential part of IBM's transformation from a computer hardware company into an organization that increasingly sells innovation and business expertise. On his watch, for instance, the company undertook a shift in its approach to performance computing, placing new emphasis on energy efficiency.

BusinessWeek Senior Writer Steve Hamm interviewed Horn after his departure was announced. Edited excerpts of their conversation follow:

When you took over as the IBM Research director a decade ago, IBM had just come through a near-death experience [related to its over-reliance on the mainframe business]. Yet rather than slashing the research department the company kept investing. Why?There was a feeling by our then-CEO, Lou Gerstner, who brought me in as head of research, that research could and should be part of the difference and help turn the company around.

IBM Research had long acted on the belief that researchers should actively engage with people in the company's business units, but you dramatically increased the frequency and depth of these interactions.The interactions with the product divisions are the channel through which our innovations get to the marketplace. You can have great ideas, but you can only be innovative if you impact the marketplace. There's a limit to how tightly you can be connected. You want to do exploratory work, or else you just become a development lab. But it's very important to have the credibility that your ideas are not some wacko things generated by a bunch of researchers who don't understand what it takes to bring out a new product.

We worked it so the business units do some of the funding of research. If you're really providing value for them, the real measure is that they take money out of their development budget and give it to you. If you're not critical for them to succeed, you don't get any of that.

Since the late 1990s, IBM has exited one commodity technology business after another. How have you harnessed IBM Research to come up with innovations that IBM could build new businesses around?One of the reasons why research has been so successful is IBM's business model. As a corporation we want to be in high-value segments of the information technology market. Those are the businesses where R&D makes the most difference. For example, we got out of PCs, which have margins on a good day of 3% or 4%, and we got into businesses, like our software businesses, where you can really drive differentiation with the world's best R&D. We have a business model that keeps research in the center of things.

In the late 1990s, you pushed through a radical rethinking of high-performance computing, which resulted in IBM's Blue Gene supercomputer. It uses thousands of inexpensive, low-power processors rather than expensive, high-performance chips.Blue Gene started as a research project to fundamentally rethink computation. How can you increase computational power and, at the same time, lower the wall-plug power and the cost of energy? Blue Gene was aimed at changing the game substantially, and I think we did. You'll see a lot of the concepts in Blue Gene ripple through the whole IT industry, all the way down to your PC.

Is there a role for IBM research in virtual worlds and social networking? (See, 11/20/06, "Palmisano Gets a Second Life.")About a year and a half ago we had an online innovation jam—internally and partially externally—where a whole bunch of research technologies we had been working on were discussed. The question was: How could we use some of these technologies in the marketplace? Ten projects came out of the jam for internal incubation. One of them was in virtual worlds. That project was given to the research division. So we have a little business in research in virtual worlds. We're helping companies like Reuters (RTRSY), Sears (SHLD), and Circuit City (CC) establish a presence in virtual worlds.

Now, we're trying to open up the technology so virtual worlds will become the Internet of the future. Today, you get into Second Life or another virtual world and you go around from one 3D region to another. But that avatar can't leave Second Life. The technology is closed and proprietary. I believe that over time, when you go onto a Web site you'll be going into a 3D world, and you'll go from one 3D world into another one with the same avatar. Instead of experiencing (AMZN) as a flat Web page where you search for books, you'll go into a 3D bookstore. You may wander around and see what other people are reading and looking at. We have been working with the virtual world community to create a set of open standards to help make this happen.

IBM is perennially the leader in U.S. patents awarded, yet the company has in the past few years given away or shared patents in the spirit of the open-source software movement (see, 8/3/04, "Will IBM's Gift Keep on Giving?"). What's the strategy, and how do you see it paying off for IBM?One of my responsibilities is to look for disruptive technologies and identify them so IBM can, if necessary, disrupt ourselves rather than having one of our competitors disrupt us. One of the ways that's going to change the world is finding fundamentally new ways to innovate. And one of those ways is to be more collaborative and open. But like all disruptive things, this threatens existing businesses. For IBM, it threatens our business where we license intellectual property to others. We could stick our head in the sand and say we're going to treat IP the way we always did, or we can work with open forms of innovation, take advantage of them, and embrace the disruptive technology.

Open collaboration is a classic example of this. Think about Linux, the open-source computer operating system. It takes at least half a billion dollars a year to maintain a world-class operating system. The whole IT industry is spending about $1 billion a year on Linux. We spend about $100 million. So for $100 million we get an operating system that would otherwise cost us half a billion. We can take the money we save and spend it up higher in the value chain. If giving patents to the Linux community allows this open interaction to occur, it's worth more than the patents. It saves us a lot of money, and it enables us as a research organization to do things we wouldn't be able to do otherwise.

IBM Research is one of the last large corporate research labs in the country, now that Bell Labs is gone and other corporate labs have shrunk, what are the negative consequences for U.S. competitiveness?In this case, I may be a starry-eyed optimist. I believe that there are high-value markets where research can make a difference. It's not Bell Labs, but there will be Microsoft (MSFT) Research, or Google (GOOG) Research, or research in some of the pharmaceutical companies that will grow to fill that role. What we need to do in IBM Research is to make sure that we're innovative enough and evolving enough that we can stay at the leading edge. I'm confident there will be enough good research coming up in the U.S., and new business models coming out of it, to sustain our leadership.

Every year we look at our programs and things that have impacted the market. Last year we had 13 projects that we labeled outstanding accomplishments. Roughly half of them were very exploratory projects that grew organically in research and then over time became part of a joint project with a product division and ultimately turned into a new product and service.

You're only 60 years old. Why are you retiring?It was time for a change. I'm sure John Kelly will have new ideas—they'll get some new ideas and new blood. And I'm looking forward to doing something different down at NYU. We'll figure out together how I'm going to help change the university.

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