Microsoft dominates Apple in patents, so why does it lag in innovation?

Just-released information shows that Microsoft was granted the third most U.S. patents of all companies in 2010, with Apple way down the list at number 46. Why, then, does Microsoft lag so far behind Apple when it comes to developing innovative products?

The IFI Claims Patent Service reports that Microsoft was granted 3,094 patents in 2010, behind leader IBM with 5,896, and number two Samsung with 4,551. Apple, number 46 on the list, was granted 563. However, Apple was also cited by the service as having the greatest increase over 2009 in patents among the top 50, with a whopping 94% increase. Still it lags far behind Microsoft.

Microsoft, though, clearly lags behind Apple in innovation. Apple creates entirely new mass markets with innovative products, such as the iPad and iPod. And it launched the latest generation of smartphones with the iPhone.

Microsoft, in general, doesn't release such innovative products, although the remarkable Kinect gaming system is an exception to that rule.

Microsoft spends an estimated $9 billion annually in research, development, and acquisitions. An in-depth Reuters report about Microsoft noted this about the company's approach to research and innovation:

There is a growing feeling that the $9 billion a year Microsoft is now spending on research and development -- totaling almost $69 billion over the last decade -- has not brought the breakthroughs it should.

"Comparing Microsoft to Apple over the past 10 years in terms of innovation, new products and completely new businesses, the differences are pretty obvious," said Don Dodge, a former 'startup evangelist' at Microsoft, who now works for Google. "What did Microsoft investors get in return for their investment of over $75 billion in R&D and acquisitions?"

The Reuters article went on to say that Microsoft appears to suffer from the "innovator's dilemma" which occcurs when a company focuses on protecting existing markets, rather than trying to create new ones, worried that new markets may eat into existing revenue streams. The article has this to say:

That view is shared by another former high-ranking Microsoft executive, still active in the technology sector, who asked not to be identified. "There probably isn't another company in the world that has the same amount of raw talent and smart people," he said. "Then you look at the results over the last 10 years and they're not so impressive. How do you explain that gap?"

But there's more than that at work. Microsoft has made a conscious decision to do pure research as well as applied research, which necessarily means that research dollars may never turn into actual products. A Computerworld examination of the research labs at Microsoft, HP, and IBM, notes:

Leaders of Microsoft's research group sometimes speak with nostalgia about the glory days of computer science research, when labs like the revered Xerox Palo Alto Research Center and Bell Labs worked on ambitious projects.

Most of those famed institutions are gone or are shadows of their former selves, victims of budget cuts and investors who demand that every dollar be clearly earmarked toward development of profitable products.

While its research group never quite ranked among those famous labs, Microsoft likes to boast that it's one of the few remaining public companies that still do pure research, including kinds that might not turn into products for many years.

So Microsoft deserves kudos for spending money on resesarch and possibly never seeing a return on it. More companies should follow suit.

Still, that doesn't explain why there's such a gap between the number of patents Microsoft receives, and its inability to match Apple when it comes to releasing innovative products.

One major reason for that is the difference between Steve Ballmer and Steve Jobs. Jobs is brilliant at recognizing what people want even before they know it, and then having great products designed to fill that need. Ballmer is anything but a visionary, and simply doesn't have the vision to create innovative products.

Another reason is corporate culture. Apple's focuses on innovation. Microsoft's includes more than its share of turf-protecting, and that's no way to innovate.

Microsoft deserves a great deal of credit for the amount of money it's willing to put into research and development, and particularly into pure resesarch. And its resesarchers deserve a great deal of credit for the number of patents they've received. But the company needs to re-think its approach to innovation and product development, so that it can better reap the benefits of its researchers' work.

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