The Creation of a Corporate Research Lab

Xerox Palo Alto Research Center (PARC) was the US’s most successful corporate research lab in the 1970s. Researchers invented the personal computer, the graphical user interface (GUI), the laser printer, and Ethernet networking technology. Many agree that the secret sauce that made PARC so successful was its highly talented employees. Six factors brought these people together in a creative environment. First was Xerox’s seeming endless pool of cash devoted to research. Second was a buyer’s market for talent. PARC was started in a weak economy when after the Vietnam War the federal government was cutting back on research staff. Third was the state of computer technology, which was at an inflection point due to Moore‘s Law.   Fourth was its quality management, which knew how to hire the best researchers, give them a broad mandate, and then let them play without directives, instructions, or deadlines. Freedom to experiment was invaluable. Fifth were the premium salaries that Xerox paid its researchers, about $30,000-35,000 in 1970, a nice amount for a new PhD. Sixth was a paucity of startup opportunities; when PARC was started, computer science researchers couldn’t easily find funding for a startup, though that would change.

While Xerox never commercialized all the wonderful technologies at PARC, the company did earn billions from these innovations, and so made its money back many times over. A handful of people deserve credit for starting PARC. Jack Goldman, Xerox’s Chief Scientist, submitted in May 1969 his proposal for an “Advanced Scientific & Systems Laboratory” to pursue research in computing and solid-state physics. As Goldman told Xerox execs:  “If you hire me, you will get nothing of business value in five years. But if you don’t have something of value in ten years, you’ll know you’ve hired the wrong guy.”  Xerox’s CEO, Peter McCullough, had the vision and long-term good sense to approve and champion it. In 1969 McCullough had Xerox purchase Max Palevksy’s Scientific Data Systems (SDS) for $920 million in stock. It was a computer company with a second rate minicomputer product that Xerox would divest years later. Yet McCullough wanted the company to explore in that direction and he had Jack Goldman take the lead for PARC to create “the office of the future.” 

Goldman first recruited some star managers. The most important was Bob Taylor, a former ARPA director. Next, coming in early 1970, George Pake accepted the job of director PARC and persuaded Goldman to locate it in Palo Alto, California, near Stanford University.   Taylor had a gift for finding and cultivating talented researchers in the computer science field. After the GI Bill paid for Taylor’s study of psychology at the University of Texas, he eventually joined JCR Licklider at the government-run ARPA.  Around October to December 1970, Arpanet, the precursor to the Internet, became formally operational, with four nodes up and running. ARPA had a $14 million budget for computer science research, more than the top 5 other grant-givers combined. Taylor eventually became Ivan Sutherland’s deputy at ARPA, and then soon began running the Information Processing Techniques Office (IPTO). Taylor would approach the best computer science programs in the country and work with PhD students and junior faculty to find cutting edge projects to promote, many in the field of human computer interaction. Taylor was important because at ARPA he funded the country’s first computer science grad programs at Stanford, CMU, and MIT. He knew all the young researchers in the field and had their trust. He knew enough to ask good questions and direct them, but was candidly not a specialist and would not micromanage research. So Taylor built one of the best professional networks in the field, and met people like Alan Kay, who said in 1972 that “90% of all good things that I can think of that have been done in computer science have been done funded by” ARPA. The ARPA model was to find good people, give them a lot of money, and then step back. If the researchers didn’t deliver in three years, they were dropped.[22]

Alan Kay was one of the spiritual leaders of PARC. In July 1969, Kay’s doctoral dissertation, “The Reactive Engine,” was accepted at the University of Utah (he only got into the PhD program because Don Evans, the director, never looked at grades). Within Kay‘s paper were early descriptions of his “Dynabook” personal computer, basically an early laptop.  Kay was a non-stop idea machine; half of which were brilliant and unworkable, the other half could be tested and be revolutionary. He had been a child prodigy and pure motion - he could never sit still. Kay hated the time-sharing computer terminals that everyone had to use at that point. Whether it was a mainframe or a minicomputer, you had to share it and they had blinking green text and were only accessible to a nerdy few. Kay wanted an interface children could use, more like finger paints and color TV.

As PARC took off, the 1970s was a tough decade for Xerox. In 1970 IBM brought out its first office copier, ending Xerox’s historic monopoly and introducing a period of painful retrenchment at Xerox. Also as some execs tried to later kill PARC, Xerox board member and Nobel laureate John Bardeen (co-inventor of the transistor) fought to save PARC in board meetings, believing the $1.7 million budget was worth it.

  Douglas Engelbart and SRI’s Augmentation Research Center

Before delving more into PARC, it’s important to understand its neighboring institution, the Augmentation Research Center (ARC), and Douglas Engelbart. Near the end of World War II, Engelbart was midway through his college studies at Oregon State University when the Navy drafted him. He served two years as a radar technician in the Philippines, where, on a small island in a tiny hut up on stilts, he read Vannevar Bush‘s 1945 article “As We May Think.”   Bush wrote about computing and a future when a “memex” device would augment human intelligence. A human could use it to store “all his books, records, and communications, and which is mechanized so that it may be consulted with exceeding speed and flexibility.”  Engelbart’s experience as a radar technician convinced him that information could be analyzed and displayed on a screen. He dreamt of knowledge workers sitting at display “working stations,” probing through information space and harnessing their collective intellectual capacity to solve problems. Engelbart returned to complete his Bachelor’s degree in Electrical Engineering in 1948 and he got a PhD from UC Berkeley in 1955. After a year of teaching at Berkeley as an Acting Assistant Professor, he took a position at the Stanford Research Institute (SRI) in Menlo Park. In October 1962, Engelbart published a key document about computing and his beliefs on the modern workplace:  “Augmenting Human Intellect:  A Conceptual Framework.” 

At SRI, Engelbart had a dozen patents to his name and he proposed research to augment the human intellect using computers. ARPA, a US government research agency, funded him and he launched the Augmentation Research Center (ARC) within SRI. ARPA gave the team funds to explore Man-Computer Symbiosis, plus technology for “time sharing” of a computer’s processing power between a number of concurrently active on-line users. Engelbart and his team developed computer-interface elements such as bit-mapped screens, the mouse, hypertext, collaborative tools, and precursors to the graphical user interface in the mid-1960s, long before the personal computer industry did. At that time, most individuals were ignorant of computers; experts could only use mainframes with proprietary systems and difficult-to-master text interfaces. After two years of unproductive work for ARPA, Bob Taylor at ARPA funded a project to experiment and evaluate various available screen selection devices, or pointers, for use in on-line human-computer interaction.

Taylor’s ARPA grant led to the modern computer mouse. Engelbart conceived of the device and Bill English actually built the first wooden prototype. In 1967, Engelbart applied for a patent (with Bill English) for a wooden shell with two metal wheels: a computer mouse (US Patent 3,541,541).  They described the device as an “X-Y position indicator for a display system.”  No one at the lab remembered who gave it the name “mouse,” but someone did because the tail came out the end.  Sadly, Engelbart and English never received any royalties for the mouse. SRI held the patent but had no idea of its value; it later licensed the mouse to Apple Computer for about $40,000.

A year later, Engelbart gave the “Mother of All Demos.”  On December 9, 1968, Engelbart and his group of 17 researchers gave a 90-minute, live public demonstration of their work. It was at a session of the Fall Joint Computer Conference held at the Convention Center in San Francisco, attended by about 1,000 computer professionals. A number of experimental technologies that have since become commonplace were presented. It was the public debut of the computer mouse, hypertext (interactive text), object addressing, dynamic file linking, video conferencing, teleconferencing, email, and a collaborative real-time editor (where two persons at different sites communicated over a network with audio and video interface).

A year later, Engelbart‘s lab became the second node on the Arpanet (the predecessor network that evolved into the Internet). On October 29, 1969, a link was established between nodes at Leonard Kleinrock’s lab at UCLA and Engelbart‘s lab at SRI. Both sites would serve as the backbone of the first Internet. In addition to SRI and UCLA, UCSB and the University of Utah were part of the original four network nodes. By December 5, 1969, the entire 4-node network was connected. Engelbart‘s ARC lab soon became the first Network Information Center; it managed the directory for connections among all Arpanet nodes. One could say that Engelbart‘s lab in Palo Alto was the physical home of the most important Arpanet/Internet node for its first few years.

During his time at SRI, Engelbart developed a complex philosophy about man improving through technology, a sort of co-evolution through human-computer interactions. Engelbart was strongly influenced by Benjamin Lee Whorf’s hypothesis of linguistic relativity. Whorf argued that the sophistication of a language controls the sophistication of the thoughts expressed by a speaker of that language. In parallel, Engelbart believed that the state of current technology controls people’s ability to manipulate information. Better manipulation led to more innovation and new, improved technologies. People could even work in groups, where the collective IQ would be larger than the sum of the parts (witness the modern laptop, created by teams of specialists using other computers to design and prototype a laptop’s different components). Engelbart pithily stated to Reader’s Digest:  “The rate at which a person can mature is directly proportional to the embarrassment he can tolerate. I have tolerated a lot.”  He was paid more by Reader’s Digest for this quote than for his many inventions.

By 1976, Engelbart slipped into relative obscurity. Some of his ARC researchers became alienated from him and left to join Xerox PARC. Engelbart saw the future in collaborative, networked, timeshare (client-server) computers, while younger programmers preferred working on personal computers (individual machines that would not be shared and controlled by a centralized authority). Eventually funding from ARPA stopped by 1977 and SRI transferred the lab to Tymshare, which tried to commercialize some of Engelbart’s software. However Engelbart was marginalized and relegated to obscurity. Management, first at Tymshare, and later at McDonnell Douglas (which took over Tymshare in 1984), liked his ideas but never committed the funds or the people to further develop them. Engelbart retired from McDonnell Douglas in 1986 and in 1988 founded the Bootstrap Institute with modest funding to promulgate his ideas.

Hiring the Best Computer Scientists Around

On July 1, 1970, Xerox’s Palo Alto Research Center (PARC) officially opened its doors at 3180 Porter Drive, near Stanford University. For the location, Yale’s New Haven was the first choice, but Goldman was put off by the snobbery of the university and its hostility to enterprise next door to it. Berkeley had no dedicated real estate near the campus, and Santa Barbara had no large airport. The physical and cultural climate in Palo Alto helped. Pake had hired Bob Taylor to help him staff the Computer Science Lab. Taylor forced the researchers to build things they could use daily and avoid prototypes and playthings that just sat on a shelf. He described his position at Xerox like this: “It’s not very sharply defined. You could call me a research planner.” 

Taylor made two key hires for PARC. First, in November he hired the engineers of the failing Berkeley Computer Company, including Butler Lampson, Chuck Thacker, and Peter Deutsch. Second, Taylor raided Doug Englebart’s lab at SRI’s Augmentation Research Center, where there was no desire to make a product or prototype, but just to search for knowledge. Bill English, a brilliant hardware engineer, left for PARC and other Englebart protégés followed.

PARC’s first big project came from a corporate squabble. The researches decided to build a clone of the DEC PDP-10, which was the standard minicomputer machines of the time that all the researchers wanted. Xerox had tried to force them to take an inferior SDS machine because Xerox owned SDS. Instead, the PARC researchers lost the battle to buy a PDP-10 but won the war by just ordering parts and putting together a PDP-10 clone. It was a great bonding exercise and a waste of one year. They called it the MAXC as a comeuppance to Xerox management and the poor products that Max Pavelksy’s SDS made.

The PARC researches were tinkerers and hackers. They liked to make things. Generally the office had a feeling of collegiality and a grad school environment. It had lots of informal collaboration or “Tom Sawyering,” with someone proactively setting forth an idea or project and then convincing others to join to attack it. If the problem or project got momentum, the ad hoc team could spend 3-6 months on it; if not everyone dispersed and looked for something else. One project was to make replicas of the expensive Bose 901 speaker systems, where a set cost $1,100. They reverse-engineered the speakers and made 40 pairs for the team at a cost of $125 per set. Alan Kay once said “a true hacker is not a group person. He’s a person who loves to stay up all night, he and the machine in a love-hate relationship.”  Hackers were nerdy kids who were smart but un-interested in conventional goals. Computing was ideal because no credential or PhD was required and coders could be independent artisans, selling directly to customers based on the quantity and quality of output and not pedigree or something else.[23]

One PARC institution was “Dealer,” a weekly meeting in a lounge with sofas and bean bag chairs at lunch time, usually Tuesdays. Attendance was mandatory for the computer science researchers. It began with housekeeping, and then one person would be the “dealer” and take over, to set a topic for discussion and rules of debate. Topics were unconstrained, like how to take apart and re-assemble a bike, how programming algorithms are similar to kitchen recipes, or a presentation on the sociolinguistics of the Nepalese language and culture. Discussion and blunt talk were common, with people calling each other out with ejaculations like “bullshit” and “nonsense,” not to mention denunciations like “That’s the stupidest thing I’ve heard” or “It’ll never work.”  It was a feral seminar, a match of intellects.

By the summer of 1972, Kay and a hand-picked team completed the first version of their revolutionary object-oriented programming language, Smalltalk, which would heavily influence such modern programming systems as C++ and Java. Kay had the idea in a shower in Building 34 on the Xerox campus for an entirely new syntax of computer programming based not on data and procedures, but on “objects” that would be discrete modules of programming. Object-oriented languages are easier to code in because as a program becomes more complex, much complexity is kept within an object. So a programmer can manipulate the program more easily and stick to the big picture rather than getting lost in the granular code. Because anything could be an object, like a list, word, or picture, Smalltalk did well for a graphical display. It was the language that enabled the Alto to be really useful.

Around that time, Stewart Brand wrote an article about PARC titled “Spacewar.”  It was about a game called Spacewar on their computer which joined computers and graphic displays. It was play, part of no one’s scheme or theory, and just done for competitive fun. Yet it encompassed many of the things the researchers were trying to do for computing. As Brand noted, it was interactive in real-time, used live graphics, served as a human communication device, was on stand-alone computers, and was quite fun in a way that only games could be.[24]

The PARC researchers would go on to make numerous devices that lived up to these principles.   

The Miraculous Inventions of PARC

In early 1971 Gary Starkweather transferred from Xerox’s other research lab in Rochester to PARC, bringing with him the concept of the laser printer. Starkweather was a scientist outcast at the other lab in Webster, where he created a laser technology to “paint” an image onto a xerographic drum with greater speed and precision than ordinary white light. In November 1971 Starkweather completed work on the world’s first laser computer printer. He had modulated a laser to create a bit-mapped electronic image on a xerographic copier drum. The commercial project was approved and killed three times, saved only by Jack Lewis, a Xerox executive who ran the printing division and ignored orders. In 1972, the Lawrence Livermore Lab in Berkeley put in an order for the printers, which Xerox declined to fulfill (too low production run-unwilling to create an early adopter market). A corporate committee decided to delay for three years until a conventional high-speed printer, the 9000 series, was made and sold. The Xerox 9700 laser printer only came out in 1978, and that was after Burroughs showed it in a demo at the Hanover Messe. The laser printer and its successors would generate billions in sales.

In September 1972, after MAXC was completed, Thacker and Lampson invited Kay to join their project to build a small personal computer. The machine would be known as the Alto, and have a keyboard, screen, and processor in portable, suitcase-sized package (it would later have a mouse and GUI interface). The idea was that processors would be cheap enough in 5-10 years for every person to have their own “personal computer” instead of sharing time on an office computer.

In November 1972, Thacker began design work on the Alto. The original plan was to make 30 units for the PARC computer science lab. The screen would be 8.5x11” to mimic paper and the projected cost was $10,500 per machine. In the end, Xerox made 2,000 Altos at a cost of about $18,000 per machine, which fell to $12,000 after a high-volume program was put in place. There were some technical innovations like micro-parallel processing (to shift the memory access problem to the microprocessor) and a new high-performance display that used less memory (and so allowed the user to actually run apps).

Meanwhile, in June 1972, Bob Metcalfe encountered a technical paper by Norman Abramson describing Hawaii’s ALOHAnet, a radio network. Metcalfe would use several principles in that paper while designing the first Ethernet, a computer networking technology for local area networks (it’s how most office Internet networks are connected even in 2010).  A month later, Bob Metcalfe wrote a patent memo describing his networking system, using the term “Ethernet” for the first time. Metcalfe had come from Harvard after they rejected his doctoral thesis on how networks transmit data in digital packets because it was “insufficently theoretical.”  He would later use the concepts in that thesis to build a multi-billion dollar company and transform the networking industry (he also resubmitted his thesis with more math, and it was accepted). Metcalfe had a huge advantage over many researchers because he was the Arpanet liaison or “facilitator” at MIT in 1971, and so saw the early networking technical issues and he had valuable personal connections with people on Arpanet. Instead of getting a university position after graduation, Metcalfe chose Xerox for the high pay, beautiful weather, and pure research freedom with no teaching responsibilities or worry about tenure. Metcalfe hooked up MAXC to Arpanet, but other local network proprietary systems were too expensive. Taylor had set specs for a local area network linking the Altos whose cost was no more than 5% of the computers it connected and was simple, with no complex hardware, and that was reliable and easily expandable (didn’t want to splice cable all the time). Metcalfe used Abramson’s paper, adapting it for Altos and building in redundancy (a string of verification bits known as “checksum”) and an algorithm to deal with interference. It would also require a physical line and Metcalfe called it the Ethernet.

Initially none of the Alto users wanted to use Ethernet at a $500 cost, and it competed with “sneakernet,” that is, people using hard disks and walking between labs with sneakers to transfer data. But when an early version of Starkweather’s laser printer was connected to the Ethernet, the “EARS” system was too valuable. Ethernet for the network, the Alto for the personal computer, a Research character generator for early word processing, and a Slot machine (the name for the laser printer) to make professional paper documents. On March 31, 1974 Metcalfe filed a patent for Xerox (awarded two years later). He then quit for a job at Citibank, where he got higher pay and a chance to work on its electronic fund transfer system. He was the first top researcher to leave PARC.

Bob Metcalfe of 3Com (2010)

The Alto is the First Personal Computer (PC)

In April 1973, the first Alto became operational, displaying an animated image of Sesame Street’s Cookie Monster. The Alto was described in a memo in 1972 by Butler Lampson (himself inspired by the “Mother of All Demos” of Doug Engelbart); Chuck Thacker was the main designer of the Alto. Lampson’s memo had proposed a system of interacting workstations, files, printers, and devices linked via one co-axial cable within a local area network, whose members could join or leave the network without disrupting the traffic.

The Alto was revolutionary because it was a personal workstation for one, not a room-sized, time-sharing computer for many, meant to sit on a single desktop. It is credited as being the first “personal computer” (PC) in a world of mainframes (note that some would argue for other PCs being first, like the Olivetti P101). The Alto had a bit-mapped display, a graphical user interface (GUI) with windows and icons, and a “what you see is what you get” (WYSIWYG or “wizzy-wig”) editor. It also had file storage, a mouse, and software to create documents, send e-mails, and edit basic bitmap pictures. Also in April 1973, Dick Shoup’s “Superpaint” frame buffer recorded and storeed its first video image, showing Shoup holding a sign reading, “It works, sort of.”  It was the first workable paint program.

The Alto got better as PARC’s programmers built apps for it. In fall 1974, Dan Ingalls invented “BitBlt,” a display algorithm that later made possible the development of key features of the modern computer interface (overlapping screen windows, icons, and pop-up menus which could be manipulated with a click of the mouse). This was the desktop metaphor used by 99% of personal computers around the world even in 2010. At the same time, Charles Simonyi, Tim Mott, and Larry Tesler began work on two programs which would become the world’s first user-friendly computer word processing system.

The Alto, BitBlt, and Bravo basically created the modern industry of desktop publishing, used by office workers around the world. Ordinary people at home or work could turn out professional quality newsletters, magazines, books, quarterly letters, and so on, faster and more easily.

Bravo, the word processor, has a fascinating story. Charles Simonyi, a Hungarian computer science student who defected to the US, was a key actor. His defection, as a side note, caused the Hungarian government to fire his father from a teaching job at a Budapest engineering institute, showing how the vaunted “Soviet science” system devoured its best talent for idiotic political reasons. Simonyi built on Burt Lampson’s ideas for holding an entire document in memory using “piece tables” to create an app called Bravo. It was the first “what you see is what you get” WYSIWYG word processor on a computer at a reasonable speed – a useful application. People started coming to PARC to use it for personal stuff like PTA reports, letters to professional bodies, resumes, and so on. Their friends writing PhD theses wanted to use it. Larry Tesler and Tim Mott improved the Bravo user interface to create something similar to the menu-based interface people use in MS Word in 2005. It had features like “cut,” “paste,” and so on, after watching how non-engineers actually interacted with the interface.

     In early 1975, Xerox established the System Development Division, as a stronger attempt to commercialize PARC technology. More than five years later, SDD would launch the Xerox Star. Meanwhile, a Sante Fe startup called MITS was selling the Altair 8800, a hobbyist’s personal computer sold as a mail-order kit. It made the cover of Popular Electronics and caught the attention of a generation of youthful technology buffs—among them, Bill Gates and Paul Allen.

In February 1975, PARC engineers demonstrated for their colleagues a graphical user interface for a personal computer, including icons and the first use of pop-up menus. This concept would later be stolen by Steve Jobs and Bill Gates and be developed into the Windows and Macintosh interfaces of today. A month later, PARC’s permanent headquarters at 3333 Coyote Hill Road formally opened.

Others Commercialize on PARC Technology

Due to one bad corporate decision, a billion dollar product was lost. In August 1977, Xerox shelved a plan to market the Alto as a commercial project. It closed the door to any possibility that the company would be in the vanguard of personal computing. If Xerox had followed through with its plan, it would have released a PC in mid-1978, beating the IBM PC by three years with a much better machine. The project was killed because Xerox President, Archie McCardell, was an accountant who didn’t get technology. Also, because of Xerox’s poor organizational structure, the Altos would have to be made by a Dallas manufacturing facility that made typewriters. The managers in Dallas just wanted to keep making the same product and get their highest short-term bonuses.  Xerox’s top execs just didn’t get the Alto or PCs. They were used to a leasing business model where customers leased a copy machine and paid annual fees for the copies used based on the meter. Their fear was that if there was no print copy, “how would Xerox get paid” over and over again?

However, Xerox did sell some early Altos running Bravo to the Carter White House in 1978, and eventually to Congress for their offices. John Ellenby tried to more aggressively push the sales of Altos. But after senior management interfered too much (over the course of 3 years), Ellenby quit Xerox in 1980. He started his own company, Grid Systems, making some of the world’s first laptop computers.

At the same time, during a “Futures Day” at the Xerox World Conference, Boca Raton, Florida, personal computers, graphic user interfaces, and other PARC technologies were introduced to a dazzled sales force. Other than the laser printer, however, few reached market under the Xerox name.

In June 1978, PARC scientists completed the Dorado, a high-performance PC, and Notetaker, a suitcase-sized machine that became the forerunner of a generation of laptops. The next month, PARC made a mistake by starting a program in silicon-based integrated circuits and building an expensive fabrication lab. Building a fab lab briefly put Xerox in competition with Intel, a hardware component company which Xerox had no business competing against (and Xerox never made money in that business). Xerox was attempting to do something internally that it could do much better and more cheaply by sourcing externally.

In December 1979, two key events occurred. First, Stanford University Professor James Clark designed the “Geometry Engine,” the first 3-D computer graphics chip and later the foundation of his billion-dollar company, Silicon Graphics, Inc. He had used design principles formulated at PARC. The company’s chips allowed the computer-aided design of cars, aircraft, roller-coasters, and movie graphics like “Jurrasic Park.”  Clark’s first test chip was built by Lynn Conway at PARC, who came from IBM in 1972. She had written a book with Carver Mead on VLSI chip design (how to pack more circuits into a microprocessor). PARC then offered professors at a dozen schools the use of PARC’s lab to create their own specialty microprocessors. Clark moved to PARC’s offices and focused for 4 months in the summer of 1979 to create his chip.

At the same time Carver Mead went to Xerox headquarters to suggest they do a better job of commercializing PARC technology. He suggested Xerox set up an internal venture capital arm to fund startups with technology made by their scientists. Xerox would take an equity role and have a strategic position, while incentivizing entrepreneurial scientists to run companies. Xerox declined.

The second big event in December 1979 was when Steve Jobs and a team of Apple Computer engineers visited PARC twice and took copious notes. They came because one of Jobs’ key designers, Jef Raskin, had many relationships with PARC researchers and he was impressed with their work. Jobs had signed a deal with Xerox letting Abe Zarem’s Xerox Development Corporation, a subsidiary, invest in Apple pre-IPO in exchange for “marketing help.”  It turned out that the technology demos were much more important, and they gave Jobs a demo that no other outsider had received at that point. After observing its hardware and software in action, Jobs and his team took steps to incorporate Alto‘s design principles and the GUI into the Apple Lisa and Macintosh. Jobs even poached some PARC talent, like Larry Tesler, who would eventually become Apple’s Chief Scientist.

In September 1980, PARC finally released its first invention to the world for commercialization. Along with Intel and Digital Equipment, Xerox issued a formal specification for the Ethernet and made it publicly available for a nominal licensing fee.  Ethernet quickly became the networking technology of choice. PARC scientists also worked on an Internet Protocol standard, called PARC Universal Packet, or “Pup,” which eventually became a crucial part of the Arpanet standard known as TCP/IP. It became the standard for much of the data passing through the Internet. At the same time, John Shoch invented an early computer virus, a “worm,” which temporarily shut down the entire network and all the Altos at PARC one day in 1978.

Xerox did have a new computer product; it just wasn’t a good one for the market. In April 1981, Xerox unveiled at a Chicago trade show to wide acclaim the Star workstation as the Xerox 8010 Information System, with a beautiful GUI and desktop metaphor. It was the commercial offspring of the Alto and other PARC technology. However, the Star was slow and cost $16,600. Moreover, customers needed to buy 2 to 10 at a time, and had to install Ethernet and a laser printer. The costs were daunting. By August IBM unveiled its Personal Computer, forever altering the commercial landscape of office computing and making the Star obsolete. IBM’s machine only cost $5,000 and didn’t have the pretty GUI. It didn’t have icons, windows, a desktop metaphor, e-mail, or Internet; it crashed  randomly. Yet it was good enough for basic business tasks and apps and it sold very well. Only 30,000 Stars were sold, compared to millions of IBM PCs.

PARC’s talent was frustrated and wanted to leave. Earlier that year, Charles Simonyi was thinking about next steps. Bob Metcalfe suggested he talk to a 22-year old kid named Bill Gates who ran a startup called Microsoft. Gates and Simonyi hit it off right away with high-bandwidth conversations on the nature of computing, the role of technology, and future product ideas. Simonyi felt the Xerox corporate brass didn’t know much about technology and didn’t care – they were bean-counters, ex-Ford finance people that McCardell had hired to run the company. Gates on the other hand was a visionary and a first-rate, cut-throat businessman. As Simonyi put it, “you could see that Microsoft do things one hundred times faster, literally.”  So Simonyi left PARC for Microsoft, where he became a “messenger RNA of the PARC virus.”  Within six years, the market capitalization of Microsoft was higher than Xerox’s, and Simonyi plotted a strategy to exploit a range of markets that Xerox fumbled on:  word processors, spreadsheets, e-mail, and voice recognition. Simonyi especially helped on the project to create Windows, a first-rate GUI operating system that competed with Apple.

Another dispirited engineer who left PARC in 1981 was Chuck Geschke, who was frustrated that Xerox wasn’t commercializing their work. He went on to found Adobe Corp., a billion-dollar company that used postscript, a typesetting language, to help computer users make crisp, printable, presentable, and professional documents with text and graphics. The company’s technology became the de facto standard of computer typesetting and held that position in 2010.

By May 1983, Apple introduced the Lisa, a personal computer with a graphical interface based on principles developed at PARC. Jobs joked that Xerox couldn’t compete with his scrappy startup because Xerox’s cost structure was too high. The company was fat and bloated. As one Xerox engineer joked, “If we built a paper clip it would cost three thousand bucks.”

In September 1983, Bob Taylor resigned from PARC under pressure. Within a few months many of the center’s top computer engineers and scientists resigned in sympathy. Many went to Taylor’s new employer, the DEC Systems Research Center. In January 1984, Apple introduced the Macintosh, the popular successor to the Lisa and the most influential embodiment of the PARC personal computer, with a striking “1984”-style television commercial during the Super Bowl.

Did Xerox PARC Blow It?

Why did PARC invent so many great technologies and then fail to commercialize them?  The first part of this chapter listed factors leading to success. Now we turn to why Xerox failed at commercialization. As Steve Jobs said in a speech in 1996:  “Xerox could have owned the entire computer industry… could have been the IBM of the nineties… could have been the Microsoft of the nineties.”[25]

One reason is that the company’s decision-making on dozens of occasions was not about new technologies and opportunities, but about personalities, politics, and short-term incentives.

The second was that the company’s managers saw it as a copier company, not as a computer or a publishing company, let alone an enabler of the “office of the future.”  The managers were fixated on the leased copier business model, and the sales force was trained on copiers and typewriters, not new office technology. Also the purchasing managers for computers were professional IT people, not the managers who ordered copiers.

A third reason was that Xerox wouldn’t allow entrepreneurial scientists to do spinouts and avoid the corporate bureaucracy. New ventures had to be led by people running established divisions, people who hated risk-taking. So Xerox lost talent like Clark, Simonyi, Geschke, Metcalfe, and others who did startups that became billion-dollar companies much bigger than Xerox.

Finally, the fault lay with PARC itself, which often acted as a pure research center. The scientists were generally far away from customer development, sales, or intrapreneurial development. The few Xerox execs (not PARC researches) who tried to commercialize products were crushed by the corporate bureaucracy. So while PARC was a success at an innovation, it was mostly a failure at commercialization.