Microsoft's plan to invest millions in a new research centre in Cambridge follows scathing remarks by chairman Bill Gates and several of his peers on the state of technological innovation in the UK and Europe.
We Britons hung our heads in shame as Gates, Intel's Andy Grove and Hewlett-Packard's chief Lew Platt sternly instructed us over the past few months to send more Emails and buy more software, or face relegation in the tech league.
Gates has now decided to bung several millions into this technological backwater, by funding a major research facility in Cambridge. But if Gates believes his long-term research goals are best served by British scientists, then maybe we're not so behind after all. His investment is more than a welcome boost for the British software industry: it is a vote of confidence in the UK's future as a home of technological innovation.
Assuming it goes ahead, Microsoft's Cambridge facility is likely to be the company's biggest investment in research outside the US. The deal is rightly being seen as a plaudit to Cambridge's reputation as a research centre. The town already plays host to the Olivetti Research Laboratory, in which Oracle invested $10 million (#6.25 million) last year, and Xerox's European research centre, nicknamed EuroPARC after the famous Palo Alto Research Center in the US. There is also a crowd of over 400 technology businesses operating in the area, including ISP UUNet, Acorn, Online Media, networking company ATM and notebook manufacturer Tadpole.
Microsoft's attraction to Cambridge, with its research pedigree, was strengthened by the friendship of chief technology officer Nathan Myhrvold with Professor Stephen Hawking, Lucasian Professor of Mathematics at the University. Hawking taught Myhrvold cosmology when he was a post-graduate student, and helped to broker the deal with the software company. He told the Daily Telegraph: "I am very pleased that my connection with Nathan has helped to promote a major new project that will link Cambridge University and Microsoft in the next century."
Despite a flurry of press reports on the deal, Microsoft still refuses to confirm or deny any involvement with Cambridge. However, in an official statement, the University admitted that, "we are in early discussions with Microsoft", although it added, "these talks are very preliminary and there is as yet nothing definite to report".
The statement concluded: "Microsoft is an extremely impressive and well-respected company. It has a strong track record in research, as does Cambridge University. We would be delighted if these talks resulted in some type of collaboration."
"Cambridge is patently one of the world's leading centres of research into all sciences, not just computers," said Lorenzo Wood, Cambridge computer science graduate and founder of London-based software company KBW. Although he has reservations about the impact Microsoft's move could have on sapping talent from indigenous software companies, Wood professed to being "not at all surprised" at Microsoft's choice of location.
"Good call," he said. "If I were Bill Gates I'd go there too."
But Wood, who set up KBW in 1993, disagreed with Gates over the general state of software development in the UK. While Gates has been heard to say: "I do not understand why there is not more software activity coming out of Europe", Wood argued that the climate in the UK is very healthy for software companies in general. Wood believed there is an impressive amount of innovation from UK companies, despite disadvantages not shared by US firms.
"The UK is a place where cool ideas come from, but it suffers from a lack of investment," commented Wood. "I have come across more talented people here than anywhere else, but it's more expensive to run a business here, it's a smaller market than the US, and it's harder to find investment."
The Confederation of British Industry is working to make it easier for small IT companies to make their mark. Peter Agar, deputy director general of the CBI, admitted that "venture capital in the UK is not as good as in the US, although it is better than in continental Europe". Acknowledging that this is a "constraint" on business, he pledged to "look very closely at ways to ease that constraint".
Robin Sewell, who heads systems and software company Cambridge Multimedia, took a slightly different view. He believes the climate is no different here for hi-tech companies than it is for any other. "It's the same as selling anything," he said, "but with a bit more hype and exaggeration."
Although optimistic about the future, Sewell felt IT start-ups should not expect too much. "Since the IT industry started in this country, everybody has been waiting for these large pots of jam to appear, and they haven't," he explained. "This is a growing industry like any other, and as more competitors appear, you increasingly end up running to a standstill."
While UK firms may face difficulties, some observers believe the larger overseas software companies see the UK as a very attractive market. "Big US companies such as graphics and utilities software firms are doing particularly well in the UK," commented John Ces, an analyst at UK researcher Romtec.
"Demand is high, prices are down and volume is up. The market is looking very well."
His views are borne out by the latest Holway report on the UK software and services market. According to the report, published last week, the average pre-tax profits of software and services companies in the UK have gone up by 28% since 1995, and the average revenues per employee up by 6.7%. Holway also found that the UK software market was the fastest-growing in Europe, and by the year 2000 will overtake France to take second place behind Germany.
The market is still dominated by the US giants, however. Despite the activities of UK firms, there is still no UK-owned company in the 20 top earning software companies in Europe.
Microsoft's likely investment in a research site in Cambridge is an important vote of confidence in the UK's continuing ability to forge ahead in technology.
Gates chose Cambridge because he believed "the biggest brains in the world" are based there. Already, pundits are predicting that a complex will develop to rival California's Silicon Valley. Some have even dubbed it Silicon Fen.
While development on such a scale depends on other major technology companies following Microsoft's example in setting up facilities, the healthy pace of growth in the UK's software market is making that prospect more likely.
But the real question is: why should Britain's brainpower only be exploited by overseas firms? If the UK is not to become merely an offshore version of Silicon Valley, foreign investment needs to be matched by the growth of native companies, which will require inward investment. Microsoft's plan should be taken as a challenge to UK business to live up to the confidence being placed here.
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