Wall Street Journal, March 16, 1999



The Lab of the Future


Imagine that, around 1975, one company had a group of people working for it who had a clear picture of the way computing would develop over the next 25 years. Suppose that -- years before Microsoft and Apple -- the same company developed prototypes of a personal computer, a mouse, a word-processing program, a computer network and an operating system that allowed programs to be accessed by screen icons.

One company did have those people and did develop those prototypes, but it didn't become the dominant player in computers today. How could that happen? That question and others are answered in "Dealers of Lightning" (HarperBusiness, 448 pages, $26) by Michael Hiltzik.

The company was Xerox. The lab that it funded -- Xerox Palo Alto Research Center, or Xerox PARC -- was purposely set up far from corporate headquarters in Connecticut. In that way the company bigwigs wouldn't see people bicycling down hallways or playing computer games. And PARC's eccentric employees wouldn't be reminded how people who work for big companies wear ties to work, write memos and form committees.

Of course, not too long after the lab was founded, its activities were made public. The first time this happened was in 1972, when Rolling Stone ran a story on what it called "computer bums." The folks in Stamford, Conn., were less than thrilled when Alan Kay, one of the more brilliant people at the lab, was quoted saying: "People are willing to pay you if you're any good at all and you have plenty of time for screwing around." Things tightened noticeably after that.

Xerox had been an early technology leader with its copying machines, developed in the 1960s. But its success eventually attracted competition, and something new was needed. But what? The mind-set gulf between Stamford and Palo Alto was never wider than on "Futures Day" in 1977, when the lab put on a dazzling display of what could be done with the Alto, the personal computer it had developed. The demonstration was for the Xerox anointed and their wives. (This is four years before IBM introduced its PC.)

As the PARC people showed, you could type on the Alto and draw pictures on it using a strange pointing device called a mouse. Its developers talked about sending their handiwork by way of Ethernet to networked printers or storing data in electronic "file servers." They also announced the capacity to send documents anywhere in the world without generating a single piece of paper.

The Xerox executives were plainly discomforted by these strange machines, although not their wives, who would walk up to the lab techs and say, "Could I try that mouse thing?" (The wives, it turned out, had often been secretaries, so they had actually used office machines.) It was clear right then that the corporate types at Xerox were not able to see any compelling reasons for hitching the company's star to a digital future.

Xerox did not shun every idea that came out of PARC, but development did require some effort. One researcher, Gary Starkweather, developed the laser printer, which was launched in 1977 and became a huge business for Xerox. But before it made it to market the project was killed three times by the company's narrowly focused bosses. It was saved by Jack Lewis, an executive who ran the company's printing division and who ignored the last kill orders from above.

Mr. Hiltzik doesn't let Xerox Corp. off the hook when it comes to judging how things might have been. But he does point out that very few companies at the time would have been able to handle a lab full of visionary prima donnas. It is way too easy, he also notes, to conclude that Xerox blew it when it came to personal computers. After all, the computer industry is capricious about rewarding its participants -- look at Apple's tiny market share in personal computers.

Obviously, inexpensive, reliable computing has changed the way business is done. So how should corporations adapt? Carl Shapiro and Hal Varian, in "Information Rules" (Harvard Business School Press, 352 pages, $29.95), offer several ideas. The authors forgo buzzwords and hype, for the most part, to describe proven strategies based on enduring economic principles.

According to Messrs. Shapiro and Varian, one of the most important and tricky areas in the brave new information-driven world is pricing. Price your product wrong and you can quickly become an observer rather than a player. Because information is costly to produce but cheap to reproduce, price competition can be fierce. The authors cite the example of Encyclopedia Britannica, which until recent years sold its 32-volume paper edition for $1,600. Then Microsoft developed the rival (though smaller) reference source Encarta, selling it to computer manufacturers for $49.95 and including it in their software packages.

Britannica tried an online edition for a fee of $120 a year but found few takers. Finally, it brought out a top-rated CD-ROM edition for $89.95, which has the same content as its $1,600 edition. Can the company survive on such slim pickings? The answer to that question lies in how many people buy the CDs and whether Britannica will be done in by the high front-end costs it endured to produce the first CD -- and by the costs of keeping it updated.

Of course, most of the content won't change from year to year, although one entry certainly will -- the one under the heading "Computers."


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