Xerox Keeps It in the Family

SAN FRANCISCO (04/28/2000) - It's a tale that has become Silicon Valley legend:

Steve Jobs visited Xerox Corp.'s Palo Alto Research Center in the early days of computers and was shown the prototype of the Alto computer.

From it, he "borrowed" ideas like the mouse and the graphical interface for his company, Apple, and became a billionaire. Xerox's missed opportunity with PCs is now water under the bridge, but it's also a lesson learned. The company is determined not to let such failures happen again, and today it joined forces with Microsoft to make sure that its latest venture, ContentGuard, doesn't go the way of the Alto.

The new Xerox strategy is not to ignore technology that doesn't quite fit into its business purview, but to create new companies around it, with the intent of spinning off those companies down the road. ContentGuard, a software application that manages copyrights and other digital licensing for online documents, is the latest such attempt for Xerox. The company, now jointly owned by Microsoft and Xerox, is rooted in a project from Palo Alto, Calif.-based Xerox PARC that was born in the days before the Internet emerged.

Xerox is set to spin off ContentGuard, primarily because the parent company isn't really built to reward people for quickly bringing a product to market the way a stand-alone startup can. "It's hard to get some things done in a company with a lot of existing rules," says John Manferdelli, ContentGuard board member as well as senior researcher and security architect at Microsoft.

"Not that rules are bad, but we can't have one reward mechanism for a small group and another reward mechanism for the other 80,000 people in the company."

Bruce Gitlan, Xerox's director of corporate alliances, adds: "We knew we had to spin it off because we knew we had to attract powerful partners, top-notch people, and move fast. We couldn't do all that at Xerox. We've already gotten Microsoft as a partner, which we probably wouldn't have done at Xerox." Xerox has had some spin-off experience already, with varying degrees of success.

Documentum was spun off from Xerox in 1993 and completed an IPO in 1996. It now trades at about $50. Another subsidiary that was to be spun off was ScanSoft, a scanning-software company. Instead, the company was unceremoniously merged with competitor Visioneer last year. Microsoft got into the ContentGuard deal despite the fact that it already has a similar technology. "We're not going to develop something that won't fit on the Windows platform," Manferdelli says.

"Frankly, they have a broader, more general product, and we needed that for a lot of things we're doing. We were doing similar stuff, but we weren't going to do all the stuff Xerox did."

Microsoft Reader, a new software product for displaying eBooks, will be the first Microsoft product to incorporate the ContentGuard technology when it debuts this summer. Xerox, for its part, says it has another spin-off in its pipeline, with more to come.

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