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The biggest technology companies have been pouring resources into product development, but dont look for a burst of innovative new business applications anytime soon.
A lot of the industrys recent R&D spending has been on consumer products—things such as games and Internet services. To the extent that companies are developing business applications, their focus is more on enhancing existing products than introducing new ones.
Adobe is a good example. The software maker typically spends 90 percent of its R&D budget enhancing products like Acrobat, Photoshop and Illustrator that have been around for a decade or more.
“Some of our products are Version 12 or whatever,” says Leslie Bixel, director of technology programs at Adobe, which spent $540 million on R&D last year. “It really requires that we challenge ourselves to innovate and make sure were close to the customer to deliver new value.”
Overall, R&D spending in the technology industry jumped 17 percent last year, according to a Baseline survey. The survey looked at 81 U.S. companies, more than half of them in the software business (see chart below). In a sign of how concentrated R&D is, the top 10 companies on our list invested $32.5 billion in product development in their 2006 fiscal years. That was almost seven in every 10 R&D dollars spent among the companies.
The biggest spender was Microsoft, with $6.58 billion. The software giant was an exception in that a lot of its R&D spending was devoted to new products aimed at businesses, including Office 2007 and the Vista operating system. But Redmond, Washington-based Microsoft also plowed significant sums into its Xbox 360 gaming console and Internet search.