SAP Looks to Xerox for R&D Inspiration

A Xerox PARC computer scientist wears a head-mounted eye-tracking device at the lab in Palo Alto, Calif., in 2001.

Photographer: Paul Sakuma/AP Photo

The name Xerox conjures so many images of jumbo photocopiers and retro printers that it can be easy to forget it was once a hub of innovation. In the 1970s the massive company’s tiny Palo Alto Research Center (PARC) developed a graphical user interface, a basic desktop, publishing technology, and Ethernet connections, and assembled those features into the first modern PC. Xerox, of course, approached Apple to help it market the computer and agreed to share its secrets in exchange for a stake in Steve Jobs’s company. Xerox benefited greatly from PARC’s other big invention, the laser printer, but its PC business never took off.

SAP, the German business-software stalwart that’s been struggling to catch up in cloud services, is trying to follow the PARC model. SAP traditionally sold its customers software outright, but for the past few years it’s been pitching them software subscriptions that can be updated automatically through the cloud. The cloud model is cheaper for customers in the short term but much pricier in the long run. Microsoft and Adobe Systems last year successfully persuaded customers to adopt the subscription model after a few rough quarters; SAP hasn’t quite made the transition. On Jan. 20 the German company cut its profit targets through the 2017 fiscal year, which it says will yield €6.3 billion ($7.1 billion) to €7 billion in operating profit, down from €7.7 billion.

Over the past year, SAP has also recruited about 20 polymathic technologists and designers from the fringes of Silicon Valley and academia. The company is funding its new hires’ pet projects and leaving them alone to experiment, says head recruiter Alan Kay, a computer scientist who pioneered Xerox PARC’s graphical interface technology in the 1970s. Although it’s unclear how products from the Communications Design Group will mesh with SAP’s portfolio of office software, Kay says that’s kind of the point. “We’re relying on people who are essentially artists,” he says. “The central idea that was powerful at Xerox PARC was about having a loose vision more than a plan, and to only get the best people. That formula led to many trillions of dollars’ worth of inventions.”

Most of Kay’s SAP recruits, who are working in labs in San Francisco, Los Angeles, and Cambridge, Mass., have esoteric interests. Bret Victor, a former Apple designer, has spent much of the past five years developing software that lets scientists simulate the shifts and changes of complex systems using interactive graphics instead of equations. Vi Hart, a self-styled “recreational mathemusician,” is working with artist-programmer Andrea Hawksley on an SAP-backed virtual-reality startup, EleVR. Mathematician and coder Toby Schachman is building a program called Shadershop that lets people structure software by drawing it instead of writing out the code.

SAP is wagering that valuable inventions will emerge from the mélange of new projects Kay’s new hires are pursuing. “He’s really good at anticipating where technology will go and what will be interesting to do with it when it becomes fast and cheap, even if it’s slow and expensive now,” says David Liddle, a former colleague of Kay’s at PARC, which is now a Xerox subsidiary. “And he’s an exceptional judge of talent.” Although much of Kay’s team is just getting started, SAP’s product chief, Tanja Rueckert, says the company is already discussing incorporating some of its ideas into commercial software.

The German company won’t say how much of its €2.3 billion research and development budget is going to Kay’s group. Chunka Mui, an innovation consultant and author of The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups, estimates that Xerox spent about $43 million in today’s dollars on its PARC breakthroughs. Kay says it was more like $100 million in today’s dollars, but that either way a loose collection of inventors will always be relatively cheap to bankroll. “Innovation is expensive because it’s product-driven,” he says, “but invention is just 20 to 40 people exploring odd things.”

Exploring odd things isn’t likely to help SAP attract more cloud customers in the short term, says Bill Hostmann, an analyst at researcher Gartner. “What SAP really needs is more execution,” he says. “A lot of people took inspiration from PARC. Did Xerox directly benefit from that? Not really.”

The bottom line: SAP has recruited a small team of design experts to pursue a range of software moonshots.

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