Leading Edge R&D:

ELITE TECHIE TEAM CREATES RAY OF LIGHT FOR PARENT SUN

As reported by Lizette Wilson, since launching Project Juxtapose 11 months ago, Sun Microsystems has insisted Bill Joy's special research project remain separate from corporate concerns like making money.

The elite team -- handpicked by Joy and buttressed with the acquisition of Burlingame-based InfraSearch -- coalesced to develop a new generation of open standards: Peer-to-peer (P2P) protocols they would give away for free. Numbering about 25 (mainly engineers and developers) the "Jxta" group has been camped out in a small South of Market office (far in distance and attitude from the corporate campus in Santa Clara) to build a foundation for P2P applications and to find like-devices to share information and computing power.

Although more than 8,000 developers have registered to participate in the Jxta movement and there are more than 54 ongoing development projects at the jxta.org site, the group only recently tasted its first commercial success.

While the $350 million, five-year hardware deal with Hughes Networks is a pittance compared to Sun's $18.3 billion 2001 revenues, it's the first time the research and development group has helped bring in any revenue to its cash-strapped parent.

"The fact that we had a P2P solution ... that's one of the factors why they went with Sun," said Ingrid Van Den Hoogen, Jxta's director of marketing and business development. "We talked about four or five times with their technical people. From our perspective the deal happened very fast."

Fast, but not too fast for Sun, which has posted declining revenues for the past five quarters and has failed to turn a profit for the past three. When big-time Sun customers like Enron, Kmart and ExciteAtHome died along with the leagues of dot-coms dripping with venture capital, Sun's revenues also went dry.

Now, with revenues at an all-time low, pressure on the R&D division is likely to increase. Van Den Hoogen says she's actively courting existing Sun customers, including Ford, Vodaphone and NTT, and hopes to report a handful of major customers in the P2P space by year's end.

She indicated the time for research for research's sake is coming to a close, noting "ultimately there is revenue generation at some point."

Sun spent $2 million on R&D in 2001, some 29 percent of its total operating costs and about 10 percent of its total annual revenues. That's about the same percentage as 2000 and 1999, although numbers across the board were lower.

Sun does not detail funding amounts to specific R&D projects, but Jxta vice president Mike Clary said he expects to get the same amount of cash during the upcoming budget process for 2003. Having the Hughes deal under his belt won't hurt.

"There will always be catcalls when you go into the budget meetings, but that's the way Sun is. It's a very confrontational place where opinions are aired," said Clary. "It's a testament to Sun that they continue to invest in R&D and projects. They realize you can't shut out those long-term investments."

Not like Sun is the only company to bank on a brain trust. Microsoft, Sun's closest competitor pushing for similar P2P protocols for distributed computing, leads the pack of tech companies both in total dollars invested and in the percentage of operating costs it tags for ongoing R&D. In 2001, for example, the Redmond giant spent $4.4 million (just more than 32 percent of its operating costs) and employed about 40 percent of its work force in R&D, according to filings with the SEC.

Microsoft is expected to unveil more of its P2P agenda this coming year as it refines its entry into consumer, mobile and enterprise markets through its .NET initiative.

"It's about connected devices and the ability to move information from machine to machine for individuals," said Daniel Lewin, Microsoft's vice president of .NET business development, earlier this month.

And Intel? The chip manufacturer has been pushing P2P as a way to boost chip sales, which have flagged considerably with the decline of PC sales. With each device acting as a server for other peers, the P2P system could be a gold mine for the beleaguered San Jose chip maker, which posted a net income after taxes of $1.29 million, or about one-tenth of 2000 figures.

Intel tags an average of 16 percent of its operating costs for R&D, well below both Sun and Microsoft, but still more than what Oracle spends.

Sun's Clary said he's watching the market closely, especially Microsoft maneuvers in coming months.

"We know (Microsoft is) putting something together in the P2P space, but we haven't seen anything yet," he said. "More than the little startups we have to worry about the big companies looking at this space. This is a case when you get a few early wins and you can tip the market in your favor."