ASSESSING THE IMPACTS OF CHANGES IN THE INFORMATION TECHNOLOGY R&D ECOSYSTEM

Retaining Leadership in an Increasingly Global Environment

Committee on Assessing the Impacts of Changes in the Information Technology Research and Development Ecosystem

Computer Science and Telecommunications Board

Division on Engineering and Physical Sciences

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
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Committee on Assessing the Impacts of Changes in the Information Technology Research and Development Ecosystem Computer Science and Telecommunications Board Division on Engineering and Physical Sciences

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Gov- erning Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engi- neering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. Support for this project was provided by the National Science Foundation under award number IIS-0552216. Any opinions, findings, conclusions, or recommenda- tions expressed in this publication are those of the authors and do not necessarily reflect the views of the organization that provided support for the project. International Standard Book Number-13: 978-0-309-11882-8 International Standard Book Number-10: 0-309-11882-4 This report is available from: Computer Science and Telecommunications Board National Research Council 500 Fifth Street, N.W. Washington, DC 20001 Additional copies of this report are available from: The National Academies Press 500 Fifth Street, N.W., Lockbox 285 Washington, DC 20055 (800) 624-6242 (202) 334-3313 (in the Washington metropolitan area) Internet: http://www.nap.edu Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal govern- ment on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the char- ter of the National Academy of Sciences, as a parallel organization of outstand- ing engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in pro- viding services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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COMMITTEE ON ASSESSINg THE IMPACTS OF CHANgES IN THE INFORMATION TECHNOLOgy RESEARCH AND DEvELOPMENT ECOSySTEM ERIC BENHAMOU, Benhamou Global Ventures, Co-Chair RANDY H. KATZ, University of California, Berkeley, Co-Chair STEPHEN R. BARLEY, Stanford University ANDREW B. HARGADON, University of California, Davis MARTIN KENNEY, University of California, Davis STEVEN KLEPPER, Carnegie Mellon University EDWARD D. LAZOWSKA, University of Washington LENNY MENDONCA, McKinsey & Company DAVID C. NAGEL, Ascona Group ARATI PRABHAKAR, U.S. Venture Partners RAJ REDDY, Carnegie Mellon University LUCINDA SANDERS, National Center for Women and Information Technology Staff JON EISENBERG, Director, Computer Science and Telecommunications Board JOAN D. WINSTON,1 Program Officer KRISTEN R. BATCH,2 Associate Program Officer MARGARET MARSH HUYNH,3 Senior Program Assistant MORGAN R. MOTTO,4 Program Associate 1Until May 2008. 2Until August 2008. 3Until November 2007. 4As of December 2007. 

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COMPUTER SCIENCE AND TELECOMMUNICATIONS BOARD JOSEPH F. TRAUB, Columbia University, Chair PRITHVIRAJ BANERJEE, Hewlett Packard Company FREDERICK R. CHANG, University of Texas, Austin WILLIAM DALLY, Stanford University MARK E. DEAN, IBM Research DEBORAH L. ESTRIN, University of California, Los Angeles KEVIN C. KAHN, Intel Corporation JAMES KAJIYA, Microsoft Corporation RANDY H. KATZ, University of California, Berkeley JOHN E. KELLY III, IBM Research SARA KIESLER, Carnegie Mellon University JON KLEINBERG, Cornell University PETER LEE, Carnegie Mellon University TERESA H. MENG, Stanford University WILLIAM H. PRESS, University of Texas, Austin PRABHAKAR RAGHAVAN, Yahoo! Research DAVID E. SHAW, D.E. Shaw Research ALFRED Z. SPECTOR, Google, Inc. ROBERT F. SPROULL, Sun Microsystems, Inc. PETER SZOLOVITS, Massachusetts Institute of Technology ANDREW J. VITERBI, Viterbi Group, LLC PETER WEINBERGER, Google, Inc. JON EISENBERG, Director RENEE HAWKINS, Financial and Administrative Manager HERBERT S. LIN, Senior Scientist LYNETTE I. MILLETT, Senior Program Officer NANCY GILLIS, Program Officer ENITA A. WILLIAMS, Associate Program Officer MORGAN R. MOTTO, Program Associate SHENAE BRADLEY, Senior Program Assistant ERIC WHITAKER, Senior Program Assistant For more information on CSTB, see its Web site at http://www.cstb.org, write to CSTB, National Research Council, 500 Fifth Street, N.W., Washing- ton, DC 20001, call (202) 334-2605, or e-mail the CSTB at cstb@nas.edu. i

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Preface The sustained development of information technology (IT) over the past several decades has contributed significantly to nearly every aspect of the U.S. economy and society. This development has been fueled by the participation and cooperation of members of an ecosystem comprising academic, industry, and government IT research and development (R&D) performers and supporters. Concern has been growing, however, that the historically highly successful U.S. IT innovation ecosystem is at risk. In this period of intense global competition—reflecting, notably, the growing economic strength of India and China—the consequences for the United States of a less than vital IT R&D ecosystem could be quite severe. To address these concerns, the National Science Foundation asked the National Research Council (NRC) to assess the impacts of changes in the IT R&D infrastructure. The statement of task for the study was as follows: This study will assess the changes occurring to the structure, processes and outcomes that have historically characterized the nation’s long- term investment in information technology research and development. It will look broadly across academic, government and industry activities (including research, human resource and venture capital development), characterize issues and identify opportunities to sustain innovation. It will examine issues including the maturation of information technology research fields, economic processes of information technology research and production, international competition and collaboration (intellectual and economic), patterns of funding, and the structure of funding pro- grams as they affect the innovation and human resources pipeline. The ii

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iii PREFACE study will examine alternative strategies and develop recommendations on actions that could be taken by the public and private sectors, alone and in partnership, to sustain and improve the health of the relevant research fields, and the historic pattern of technical innovation and na- tional economic and security benefits. The Committee on Assessing the Impacts of Changes in the Informa- tion Technology Research and Development Ecosystem was appointed by the NRC and convened under the auspices of the NRC’s Computer Science and Telecommunications Board. The members of the study com- mittee were drawn from academia and industry (see Appendix A for biosketches of the committee members). Individuals on the committee have expertise spanning the areas of IT software and hardware research; IT education; the economic and business aspects of R&D and innovation; globalization and IT; IT issues, history, and policy; participation in the field; the use of IT in organizations; regional and thematic R&D consortia and centers; and venture capital. The committee’s goals for the study were to do the following: • Describe the current IT-specific ecosystem through which innova- tive, market-creating information technologies and products are concep- tualized, transitioned, and developed into new economic sectors and globally competitive products (i.e., “the next billion-dollar industries”). Identify this ecosystem’s essential components and their dynamic interre- lationships, the contextual forces that influence its health, and the nature of its products and contributions to the nation’s economy and its society. • Assess, considering both national R&D priorities and global com- petition, the ecosystem’s current health in the United States, through the quantification of relevant “vital signs,” especially with respect to the dynamics of industrial globalization, the sociology of new-industry cre- ation brought about by innovation networks, the changing economics and funding sources for underwriting innovation, and the role of regulation in accelerating or impeding the commercialization of new ideas. • Identify the role of emerging technology platforms—such as per- sonal computers (PCs), Windows, and client-server processing in the 1980s; the Internet and the World Wide Web in the 1990s; and open- source software and Web 2.0 services and “mashups” (Web applications that combine data from multiple sources) in the first decade of the 21st century—that dramatically reduce the barriers to the deployment of new concepts and products. • Illustrate this assessment with several case studies that highlight recent successes and failures of the current IT R&D ecosystem. • Formulate policy recommendations aimed at enhancing the sur- vival and increasing the agility of the U.S. technological and commercial

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ix PREFACE IT R&D enterprise through the appropriate nurturing and sustenance of its ecosystem. Of necessity the committee had to limit its consideration of each of the many subfields of IT R&D, and the lack of discussion of any particular subfield is thus not an indication of the importance attached to it by the committee. In particular, this study did not devote significant attention to cybersecurity, which was the focus of the 2007 NRC report Toward a Safer and More Secure Cyberspace. That report calls for “a broad, robust, and sustained research agenda at levels which ensure that a large fraction of good ideas for cybersecurity research can be explored . . . commensurate with a rapidly growing cybersecurity threat” and observes that “a sub- stantial increase in federal budgetary resources devoted to cybersecurity will be needed.”1 In addition, because the committee focused on IT R&D ecosystem changes that occurred during the period from 1995 to 2007 and largely wrapped up its deliberations in mid-2008, it was not in a position to consider the implications of the 2008 global economic crisis, which was continuing to unfold as this report went to press. What was apparent in late 2008 was that several conditions—including a marked reduction in the availability of venture capital funds following losses in pension funds and endowments; a dramatic reduction in initial public offerings by technology companies and a decline in mergers and acquisitions; steep declines in consumer confidence; and significant layoffs and hiring cut- backs in IT firms and across the global economy—would all have adverse impacts on both investments made in and revenue earned by the IT sector. Those conditions will almost certainly also significantly affect the IT R&D ecosystem, undermining the partial recovery seen over the past couple of years, although the magnitude, duration, and enduring impacts of the downturn are not yet clear. With the economic downturn have come prospects for additional fed- eral stimulus spending in 2009, which has in turn prompted debate about the role that federal R&D investment should play as part of a stimulus package. This report underscores both the importance of the IT sector to the economy and the importance of R&D investment to the IT sector’s health and growth. The committee was, of course, not in a position to consider what stimulus effect federal R&D spending would have or the relative merits of investment in R&D versus alternatives. Nonetheless, the committee believes that this report will be helpful to those setting 1National Research Council, Toward a Safer and More Secure Cyberspace, The National Acad- emies Press, Washington, D.C., 2007, pp. 11-12.

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x PREFACE priorities and otherwise structuring whatever additional investments in IT R&D are ultimately made. Most importantly, the committee believes that the report’s main mes- sage—that the need has never been greater for the nation to recommit itself to providing the resources required to fuel U.S. IT innovation, to mitigate unintended negative consequences of laws and regulations, and to remain a nation of leading innovators and users of IT—takes on even greater importance in light of the recent economic downturn. The committee drew heavily on perspectives and other inputs gathered during three, day-long public workshops (detailed workshop agendas and lists of speakers are provided in Appendix B): • In Washington, D.C.: The first study workshop and meeting took place at the National Academies Keck Center in Washington, D.C., on November 2-3, 2006. The focus was on the committee’s receiving its charge and terms of reference and being briefed on an initial set of important per- spectives on the IT ecosystem. In particular, the study committee received presentations on the federal agency view of the ecosystem, university and business perspectives on the state of R&D in the field, and an overview of the state of technology start-up activity in the Washington, D.C., area. • In Mountain View, California: The second study workshop and meeting were held at the Computer History Museum in Mountain View, California, on February 23-24, 2007. The emphasis of this meeting was on gathering input from the Silicon Valley community and the greater academic and business community of the San Francisco Bay Area, one of the key cluster regions of the IT industry in the United States. The topics covered included perspectives on the emergence of the IT industry in China and India, changes in the IT R&D ecosystem as observed by lead- ing journalists and writers on technology, the changing experiences of serial entrepreneurs and early-stage angel investors, and the thoughts of leading scholars who have studied the evolution of several industries in response to globalization and technology shifts. • In Boston, Massachusetts: The third study workshop and meeting were held in Boston, Massachusetts, on April 19-20, 2007, to gain insights from the second-largest cluster of the IT industry in the United States. The topics covered included public policy aspects of the industry; the relation- ship between universities and both U.S.-based and international firms; perspectives on the development of the IT industry in Israel, Ireland, and Scandinavia; the emerging technology platforms for information technol- ogy and their impact on research and development; and workforce and social issues.

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xi PREFACE The committee deliberated and developed draft materials in working meetings held in conjunction with each workshop and held an additional working meeting on June 7-8, 2007 (in Menlo Park, California) to develop the study’s recommendations and report outline. It worked on this report throughout the study period by e-mail and teleconference. This study and report were made possible by sponsorship from the National Science Foundation. The committee is grateful to all of the work- shop participants for their thoughtful presentations and discussion and appreciates the comments and constructive criticisms of reviewers of the draft report. Eric Benhamou and Randy H. Katz, Co-Chairs Committee on Assessing the Impacts of Changes in the Information Technology Research and Development Ecosystem

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Acknowledgment of Reviewers This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its pub- lished report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: Roger D. Blandford, Stanford University, Eric A. Brewer, University of California, Berkeley, Daryl E. Chubin, American Association for the Advancement of Science, Dixon Doll, DCM, Shane Greenstein, Northwestern University, Anita K. Jones, University of Virginia, Robert E. Litan, The Ewing Marion Kauffman Foundation, Peter Miller, Vanderbilt HealthTech Laboratory, David Moschella, Leading Edge Forum, Linda R. Petzold, University of California, Santa Barbara, Prabhakar Raghavan, Yahoo! Research, Daniel A. Reed, Microsoft Research, Anna Lee Saxenian, University of California, Berkeley, xiii

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xi ACKNOWLEDGMENT OF REVIEWERS Robert F. Sproull, Sun Microsystems, Myron F. Uman, National Research Council (retired), Andrew J. Viterbi, Viterbi Group, LLC, and Irving Wladawsky-Berger, IBM Thomas J. Watson Research Center (retired). Although the reviewers listed above have provided many con- structive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Lewis M. Branscomb, University of California, San Diego. Appointed by the National Research Council, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Contents SUMMARY 1 1 DEFINING THE INFORMATION TECHNOLOGY 14 R&D ECOSYSTEM Anatomy of the Ecosystem, 15 Selected Key Elements of the Ecosystem, 17 Relationships and Interactions Among Major Actors in the Ecosystem, 20 2 INFORMATION TECHNOLOGY: THE ESSENTIAL 22 ENABLER FOR THE INFORMATION SOCIETY The Importance of Information Technology, 22 Results and Impact of Information Technology R&D, 31 Information Technology Research—The Boundless Frontier, 36 Summary, 41 3 THE CHANGING LANDSCAPE OF THE U.S. 42 INFORMATION TECHNOLOGY R&D ECOSYSTEM: 1995-2007 Shocks to the U.S. Ecosystem, 42 The Evolution of Technology Platforms, 54 The Evolution of Information Technology Industry Sectors, 68 Infrastructure to Enable Multifaceted Innovation, 88 Summary, 104 x

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xi CONTENTS 4 A GLOBALIZED, DYNAMIC INFORMATION 106 TECHNOLOGY R&D ECOSYSTEM The Globalization of Product and Labor Markets, 106 The Globalization of Venture Capital, 116 Frictions in the U.S. IT R&D Ecosystem, 122 Industrial Research: Shifting Patterns of Corporate Information Technology R&D, 128 The Funding and Organization of Information Technology R&D, 132 Changes in the Relationship Between Employees and Employers, 145 5 FINDINGS AND RECOMMENDATIONS 149 Objective 1. Strengthen the Effectiveness and Impact of Federally Funded Information Technology Research, 150 Objective 2. Remain the Strongest Generator of and Magnet for Technical Talent, 155 Objective 3. Reduce Friction That Harms the Effectiveness of the U.S. Information Technology R&D Ecosystem, 160 Objective 4. Ensure That the United States Has an Infrastructure That Can Enable U.S. Information Technology Users and Innovators to Lead the World, 163 Conclusion, 166 APPENDIXES A Biosketches of Committee Members and Staff 169 B Workshop Agendas 180