NIST GCR 02-834
Benefits and Costs of ATP Investments in Component-Based Software

The qualitative evaluation in this section is based on our analysis of information from all 24 funded projects in the ATP focused program.  The information and data included here are based on company proposals and business and technical closeout reports provided to us by ATP, as well as a limited amount of independent research.  Summaries of the confidential information obtained are included in a separate document delivered to ATP.  To develop data for the quantitative analysis in Section 5, in-depth case studies were conducted for eight of the projects; these results are summarized in Section 5 and presented in more detail in Appendix B.

ATP began its focused program in component-based software in 1994 with the awarding of funds to 11 companies for software development projects.  In two subsequent competitions, the ATP program funded seven new projects in 1995 and six more in 1997.  From the program’s inception, ATP committed to invest almost $70 million in R&D support.  Of the 24 projects awarded funding, 18 were successfully completed, four failed either prior to or during the project itself, and two are just completing the ATP-funded research phase.  All but two of the 18 successfully completed projects have produced commercialized technology.  Table 3‑1 presents the status of the 24 projects as of December 2000.

Table 3-1.  Funded and Commercialized ATP Projects by Year and Company Size/Project Type^a

At the beginning of this project, RTI developed 11 hypotheses about potential economic benefits of ATP’s involvement in this emerging technological arena.  Among these hypotheses were several focused on the firms themselves, including improved quality of outputs, faster development timelines, or increased probability of success.  An additional group of potential benefits focused on spillovers, both those that would lower the costs of users of the technology as well as network externalities in the emerging component-software market.  Of the hypotheses initially considered, we found the strongest evidence for the following:

• ATP funding eliminated market failures or missing markets in financing small and start-up firms in the new technology arena.
• ATP helped accelerate the development of software products, as measured by the estimated time to market.
• ATP promoted the development of a component-based market, thus serving to increase demand for each of the software products.

In the discussion that follows, we describe the qualitative economic impacts of ATP’s involvement based on details obtained from reports submitted by the funded firms.  Section 3.2 provides a conceptual model of the new technology development process.  Section 3.3 focuses on how ATP has influenced the development process within component-based software.  Section 3.4 provides some insights into why some companies that received ATP funding failed to produce a marketable product.

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To evaluate the 11 hypotheses about ATP’s potential impact on funded firms and the component software market, RTI mapped the CBSD program onto a conceptual framework of the software technology development process.  It was somewhat surprising that no widely accepted, comprehensive model for development of software technologies is in use, given all of that has been written about R&D management, the value of new technologies, and the emergence of information technologies.  The following treatment comes out of our background understanding of the subject matter and from recent research findings from this study.

3.2.1  The Development Process

The new technology development process can be separated into three stages:  idea generation, technology and product development, and commercialization.  Figure 3-1 is a flow diagram depicting the major elements of these steps.  A researcher first creates a marketable idea from theoretical breakthroughs, basic research, and a variety of communication activities.  This idea is developed into a product or service in the development process, which involves significant expenditure of time and resources and may feature several false starts or dead ends.  Once a marketable outcome is created, the product is ready for commercialization in one or several sectors.  Although each step in the process is important for developing a new technology, our study focuses on ATP’s influence on the last two stages.

Idea Generation

Idea generation is the first stage in the new technology production process.  Entrepreneurs take the available body of knowledge in their field and combine it with new innovations and insights to create a marketable idea.  Because the pure research undertaken in this phase has the characteristics of a public good, it is widely agreed that public support for this effort is needed.  Universities, governmental organizations, and private firms all provide funding for basic research.  Many of the entrepreneurs leading the ATP-funded projects were university researchers whose work was supported by institutional and governmental funds.

Figure 3-1.  New Technology Development Process

Technology and Product Development

Once an idea has been created, the entrepreneur needs to raise funds to pursue technology and product development.  However, different sources of funding have different implications about the amount, type, intensity, and the probability of success of R&D.  Different types of funding also have different implications regarding the appropriability and timing of financial returns that emerge from the product that is developed.  These different implications can be viewed as constraints placed on the funding that the entrepreneur attempts to raise.  The entrepreneur is assumed to be trying to raise sufficient funds to maximize the expected return on the development effort, conditional on the constraints imposed by each type of funding source.

Once an entrepreneur has developed a marketable idea, he/she has to seek funding to engage in technology development.  ATP can influence this step by providing the first round of funding for projects that meet ATP selection criteria.  After acquiring sufficient funding, the entrepreneur engages in research to create new technologies, which can then be embodied in marketable products.  Several potential outcomes are possible at this point.  If the R&D invested in the marketable idea was successful and the entrepreneur has produced new technologies and products, he/she can move to the commercialization stage.  If the R&D has revealed that the idea was not feasible or the technology not marketable, the project ends. 

By providing additional resources, ATP can influence this part of the development process in two ways.  First, ATP funding can increase the rate at which technology development is pursued.  Second, ATP’s involvement can increase the probability of achieving successful technical results, thus raising the probability the company will move to the next stage of the process.  Although ATP does not fund product development, its involvement in earlier stages can raise the probability of success in this stage as well.

Results from R&D efforts often do not fall into one of those two terminal outcomes.  The more common result is that some innovations were made, but questions remain about the potential success of the marketable idea.  In this case, the entrepreneur needs to conduct more technology and/or product development to determine the ultimate success or failure of the project.  At this stage of the R&D process, the entrepreneur may need to engage in another round of fundraising to conduct the additional work.

Because a significant amount of research has already been completed, the entrepreneur has better and improved information about the marketable idea.  By updating his/her understanding of the characteristics of the technology and potential products, the entrepreneur may change his/her decision about where to obtain funding.  For example, as the entrepreneur begins working on a marketable product, he/she must switch financing from ATP to internally generated funds or to funding by banks or venture capitalists.  ATP can influence this part of the process by increasing the company’s credibility when it seeks additional funding.

Commercialization

Once an entrepreneur has developed one or more marketable products, he/she proceeds to commercialization.  This process includes deciding where firms should try to sell their products, whether they should expand the scope of the project to fit into multiple industries or uses, and how much of the market they should try to capture.

ATP funding can influence this process in at least two ways.  First, ATP technology development funding may allow the entrepreneur to expand the number of potential uses of the project.  For example, a component may be designed to be used by multiple architectures.  Second, ATP funding can increase the credibility that the company has when it is trying to commercialize the product.  A funded firm that successfully completes its project is perceived as having developed the potential to create high-quality products

3.2.2  Sources of Funding

Entrepreneurs have numerous potential funding sources.  Although each funding source generally offers the same services and provides a similar product (money for development work), each source is expecting different returns from the investment that they are making with the entrepreneur.  This section focuses on the different potential sources of funding that are available to the entrepreneur. 

Owner/Angel—The most common way that entrepreneurs fund the first round of financing is by using their own resources or through an “angel.”  Although this type of funding allows the entrepreneur to maintain ownership of all or a significant amount of the company, it is rarely enough funding to engage in all of the necessary R&D and commercialization efforts to bring a new product to the market.

Stock Issue:  Venture Capital—A second funding source that entrepreneurs can pursue is venture capital.  Venture capitalists exchange funding for a percentage of the company and generally focus on projects that are close to being commercialized, have appropriable returns, and have little technical risk.  Venture capitalists expect the return on investment to occur much sooner than other forms of funding; they will rarely fund basic research (Morgenthaler, 2000 ).

Stock Issue:  Public Offering—A second form of public funding available to entrepreneurs is the issuance of a public stock offering.  Similar to funding from a venture capitalist, this approach turns a significant share of the company over to the public.  Although issuing a public offering can raise a substantial amount of funding, small and start-up companies are rarely in a position to sell stock.  Most larger firms have already gone public, which further limits public offerings as a method to raise R&D dollars. 

Long-Term Debt—Rather than selling an equity stake in the company, firms may wish to raise revenue through the issuance of debt.  Debt financing allows the firm to raise a significant amount of revenue while retaining ownership.  Lenders, however, must face the risk of default in the event of project failure, without the potential for added gains in the case of success.  Furthermore, with most of the firm’s assets in the form of human capital, collateral for the loans is likely to be inadequate.  For this reason, lenders are normally unwilling to supply debt financing for small, start-up firms. 

Government Programs—Entrepreneurs can also seek governmental assistance in raising revenue for R&D.  Most government programs subsidize basic research or advanced technology projects that have numerous potential applications.  Governmental funding of these types is limited in the total amount of resources that it makes available to a company but rarely takes an equity stake in the company’s financial returns.

3.2.3  Factors Affecting the Economics of the R&D Decision

Once an entrepreneur has an idea or if he/she is returning to the financing stage, several criteria influence who will be approached for additional financing.  This section discusses those criteria.

Retention of Ownership—Entrepreneurs are interested in maintaining control over their project or innovation for two reasons.  First, they would like to keep creative control over the production process and direction of the R&D.  Second, the greater the retention of ownership, the greater is the percentage of economic returns that entrepreneurs are able to keep.  Different sources of funding have varying effects on the entrepreneur’s retention of ownership.

Project Acceleration—ATP investment in projects has had a positive effect on moving the R&D investment into the present and has increased the intensity at which R&D occurs (Martin et al., 1998; Silber, 1996 ).  Firms engage in R&D sooner and they spend more money in a shorter period of time.  In traditional benefit-cost studies, this acceleration of benefits has always been construed as unambiguously positive for two specific reasons.  First, because of discounting, benefits that accrue sooner are valued more than benefits that accrue later.  Second, technological innovations that occur sooner have a greater window of market opportunity, allowing them to generate benefits over a longer period of time.

Only recently have researchers started to invest more time and effort into unraveling the impact of accelerating the R&D effort (Dixit and Pindyck, 1994; Vonortas and Hertzfeld, 1998 ).  Recent efforts to understand the impact of R&D investment have compared this investment decision to that of purchasing an option in a stock market (Dixit and Pindyck, 1994 ).  Purchasing the option gives the holder the right, but not the obligation, to purchase a particular asset at a particular price in the future.  The funding of R&D is similar in that it gives the provider of capital the right, but not the obligation, to use the product that is developed in the future.  In an uncertain world, the option is a valuable asset.

Researchers and scientists have argued that the value of the “technological option” associated with R&D is enough to justify the investment in R&D even if traditional measures of benefit-cost ratios are less than one (Vonortas and Hertzfeld, 1998 ).  The knowledge and information that is generated from the R&D expenditure may open up new and potentially highly profitable areas for products.  Traditional benefit-cost analysis that is based on cash flows does not take this potential benefit into account.  By funding R&D, ATP is able to create a technological option in these potentially new and large investment areas.  The investment in the new field would not have been possible or would have at least been delayed if the original investment by ATP had not been made.

Although it is usually viewed as strictly positive, accelerating R&D investments sometimes can have negative impacts.  By postponing the R&D investment decision, new information can eliminate market or technical uncertainties.  Firms may learn that the window of opportunity for a particular technical innovation is opening later or closing sooner than previously believed.  Alternatively, a new innovation may occur that reduces the cost or changes the direction of the production process.  The key benefit that emerges from postponement is the reduction in uncertainty that occurs with the passage of time. 

Return Time on Investment—Different projects will reach commercial success at different rates depending on the amount of R&D that needs to be performed.  Different funding sources also have different expectations about if and when the project will achieve commercial success and generate a financial return from their investment.  This effect should not be confused with the project acceleration effect.  Project acceleration focuses on how soon a project reaches the point of commercialization.  Return time on investment focuses on how quickly the firm is able to recover its investment costs and achieve financial success.  Different expectations about the return time on investment affect the quantity, timing, and intensity of R&D that the entrepreneur can perform.

Credibility—Funding from any source increases the amount of R&D that can be performed, but funding from some sources may increase the credibility of the company that receives the funding.  For example, government agencies or investment companies that fund cutting-edge research may provide a "stamp of approval" for that company and that industry.  By receiving approval from an objective third party, the company may have an easier time acquiring additional funding, entering into supply agreements, or marketing its product.

A recent study by Gompers and Lerner (1999 ) points out that high-tech firms are able to raise equity in two ways to finance their R&D:  internally and externally.  Internal funds consist of internal equity and retained earnings, and external funding consists of venture capital, bond and loan financing, equity financing, or expenditures by government.  Firms need to have capital to invest in the necessary R&D to develop a product.  If firms wish to raise external funding, they must convince financial institutions that they will develop a product that has commercial potential. 

The problem is that firms know more about their product and the likelihood of commercial and technical success than potential investors or banks do.  This situation is referred to as asymmetric information.  Firms that are developing a product want to send a signal to the market that the product is marketable.  Several benefits emerge if the firm can send a positive signal to the market.  Banks and other financial institutions may be willing to lend to the firm at a lower rate or investors may be willing to invest more capital in the firm.  However, the market cannot simply trust the firm.  Rather, the market needs to receive a signal from a third party that indicates a high likelihood of success for the product.

ATP and its parent organization, NIST, are highly respected and have significant experience in evaluating alternative R&D investments in technology.  Financial institutions and investors may see the funding decisions made by ATP as positive signals.  In effect, ATP funding creates a “halo” of credibility around the firm that receives the funding.  The halo effect is more than a risk-sharing effect.  If the funding had come from an unknown source, the next financial institution that lends funds to the firm would not have any additional information about the probability of technical success.  The only change would be the decreased probability of failure because financial constraints were relaxed.  ATP funding not only reduces the probability of financial failure, but it also sends a positive signal regarding the probability of technical success (Gompers and Lerner, 1999; Silber, 1996 ). 

Probability of Success—Increasing funding will likely increase the probability of success.  The entrepreneur has more resources that can now be spent on a project, so he/she engages in more or better R&D.  Some funding sources may go beyond an increase in funding and have an additional nonmonetary impact on the probability of project success.  For example, some funding sources may help eliminate technical difficulties a firm is facing.  Other funding sources may have technical expertise that helps firms solve some project-specific issues, or they may have commercial expertise that helps a firm market its product.

Project Scope—Additional funding increases a project’s potential applications.  Within component-based software, increases in funding will increase the functionality of the components and architecture that are developed.  By increasing the product’s ability to work with multiple types of software, beneficial network externalities are created.  Network externalities are the benefits that other users and developers receive by increasing the number of products that can interact with the given technology.  Some funding sources may push firms to increase the functionality and compatibility of their technological innovations relative to others. 

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The entrepreneurs hoping to develop component-based software need to raise funds sufficient to maximize their expected return on the technology that they are developing, subject to constraints imposed by the funding source.  ATP selection criteria have specific constraints that affect the type of projects for which companies may seek funding from ATP; these constraints also affect project and company performance and future financial viability.  This section describes effects of ATP’s funding on factors of importance, both to the firms that receive funding and the nation’s innovation system.

The tables in this section are based on the business closeout reports or the most recent anniversary report of the ATP-funded firms.  Because several firms have multiple projects and not all firms responded to all of the questions in the report, the total number of responses varies across questions.  To make responses comparable across tables, the percentage of responses in each category is presented.

Additional information on the effects of ATP funding is based on the proposals that the firms submitted to ATP before they were awarded funding and started R&D.  When available, the technical closeout reports were also used to increase our understanding of the effects of ATP funding on firms.  Fifteen ATP-funded projects had submitted business closeout reports as of July 2000.  Two remaining companies, Synquiry and Data Access, were still in the ATP-funded research phase.  Multiple applications have emerged from each funded project.  For example, Sagent has created five new applications that it intends to commercialize based on the technology it developed with funding it received from ATP.   

Over 80 percent of the applications resulting from the research projects in the study are described as new products.  Just over 15 percent of the applications are described as a new service, while the remaining applications are new manufacturing processes.  Further reflecting ATP’s desire to fund cutting-edge research is the fact that a majority (67 percent) of the applications of the ATP-funded projects are attempting to introduce brand-new products or production technologies, rather than improving an existing product or production technology.  Of the 24 projects funded, 16 were in the process of commercializing their ATP-funded technologies at the time of the study.  Many companies were selling a product or had multiple products.

3.3.1  Retention of Ownership

From the entrepreneur’s perspective, one of the main advantages of ATP over other forms of funding is retention of ownership of the firm and the technology.  From a social welfare perspective, the retention of ownership is a somewhat different issue.  If the innovating firm is bought by an American company, then the benefits from domestic ownership still accrue.  However, if the innovating firm or technology is bought by a foreign company, then American social welfare could be affected.  Table 3‑2 measures the impact of ATP funding on U.S. ownership of the company and the technology.  Twenty responses were recorded for this question.

Based on the responses from funded CBSD firms, ATP increased the likelihood of U.S. retention of the company or allowed the company to do the research for roughly half of the firms responding.  Most firms that submitted proposals to ATP did not believe that they would have to sell their firms; rather, they said they would have to partner with foreign firms or governments.

Table 3-2.  Impact of ATP on U.S. Ownership

3.3.2  Project Acceleration

For 62 percent of the applications resulting from the ATP-funded technology, respondents to business closeout reports believed that speed to market was critical to achieving project success.  For an additional 33 percent of applications, respondents said that speed to market was an important factor in determining project success.  Surprisingly, for 5 percent, speed to market was not important. 

Further examination of the 5 percent reveals some possible explanations.  A firm responded that speed was not an issue for one of their products but added that this product would not reach commercialization for a minimum of 5 years.  If the technologies used in this product are so much further advanced than the current state-of-the-art technology, then having them rushed to market would not result in profitable sales because they would be incompatible with existing technologies.  It is more difficult to explain the response of a second firm that speed-to-market was not important for two of their applications, despite a window of market opportunity of less than 1 year.

The project acceleration effect can be very significant in some cases.  In its proposal, one small firm stated that it could conduct the same total amount of R&D with or without ATP funding.  However, without ATP funding, the firm would expect to conduct the research over a 5- to 10-year period rather than a 1- to 3-year period.

Given that the respondents reported speed to market is an important criterion in determining the project’s success for 95 percent of applications, understanding the impact of ATP on speed to market is important in estimating ATP’s net benefit.  Respondents were asked to estimate how much ATP funding will shorten time to market for each application.  Table 3‑3 presents these results. 

Table 3-3.  ATP Acceleration of Time to Market

Consistent with previous analysis of ATP-funded projects (Martin et al., 1998 ; Silber, 1996 ), for most applications, respondents thought that ATP-funded projects had a 1- to 3-year acceleration effect.  Although this acceleration effect may seem minimal, windows of market opportunity are often very small in a new technology setting.  For over 93 percent of the applications, respondents said that their market opportunity window would remain open only 2 years after completing the ATP project.  The relatively brief market opportunity following project completion, combined with the acceleration effect, suggests that, in essence, ATP funding expands the project’s window of market opportunity.

3.3.3  Return Time on Investment

The conventional wisdom, documented by one of the ATP project participants, is that venture capitalists would only fund projects that would generate a return in 18 to 24 months.  The ATP participant’s research project, like most ATP projects, was projected to take several years to complete and an additional 12 to 24 months to commercialize.  The difference in the desired financial returns of venture capitalists and the realities of cutting-edge projects that ATP funds all but eliminates venture capital funding.

Aggregating data across all respondents, we found that for almost 75 percent of the applications, respondents anticipated revenue from their projects within 2 years following completion.  This puts the revenue window at 36 to 60 months (project R&D time plus commercialization time).  This timeframe is not when profitability occurs (which is what venture capitalists desire), but when the first income stream emerges.  For several of these projects, profitability may not occur until well after 60 months.  When the profitability delay is combined with a significant potential for technical failure, it is not surprising that most venture capitalists do not fund these projects.

ATP funding may not only help accelerate the current project, but also may influence future projects.  Half of the respondents said that ATP funding increased their ability to conduct long-term research, and 40 percent said that they would never have been able to conduct research currently underway without ATP funding.  Sixty-five percent of the respondents also stated that the ATP funding increased the speed at which they could conduct R&D projects.  Because ATP funding not only affects the current project, but also other R&D projects that the company conducts in the future, it may be appropriate to evaluate ATP funding on a company-level basis, rather than at the project level.

3.3.4  Credibility

A major theoretical effect of ATP is that it increases the credibility of the company that receives the funding.  ATP funding gives the company additional resources to use in R&D and indicates the project has gone through a rigorous peer-review process and successfully competed against other cutting-edge research projects.  The ATP award is perceived to be a quality certification. 

Some economists view ATP funding as a solution to an information problem (Lerner, 2000 ).  Venture capitalists and other potential funders are unable to learn enough about the quality of a firm to agree to make an investment.  Because of the uncertainty associated with the firm’s quality, potential funders are forced to assume that the firm is of low quality—and do not invest.  This problem is referred to as the “Lemons Problem” (Akerlof, 1970 ).  By funding a firm, ATP solves this market failure by informing potential funders that the firm's R&D is of high quality. 

To examine this impact, respondents were asked how the ATP award affected their credibility with various business entities.  Table 3‑4 reports these results.  Most respondents stated that ATP increased their credibility in all business activities.  Interestingly, although most companies said that the ATP award increased the credibility of their business activities, the extent of the use of the award as a marketing tool varied across companies.  For example, one firm released several press announcements and posted an announcement on its Web site about the ATP project.  Several other companies have not promoted the award on their Web sites. 

Table 3-4.  Impact of ATP Award on Firm Credibility

3.3.5  Probability of Success

Additional funding allows researchers to engage in additional amounts of R&D.  Two theories exist about the impact of additional funding on the probability of R&D success.  The first theory views R&D as a directed search process.  Researchers try different promising approaches until they find success.  Additional funding allows them to expand their search.  The second theory views R&D as a cumulative process.  Researchers apply their past experiences to move along a learning curve about the product or process.  They must then reach a threshold level of knowledge along that learning curve before a breakthrough occurs.  Within either theory, additional funding increases the probability that success is achieved.

There is no direct way to measure this impact of ATP on project success because no true counterfactual scenario exists.  However, as described in Section 2, additional funding increases the speed of the project and the amount of R&D that can be performed.  These results are consistent with the first theory regarding ATP.  To test the second theory, we can see if firms said that ATP funding was effective at creating new knowledge.  Sixty percent of the respondents stated that ATP funding increased their amount of useful knowledge to a great extent, and 40 percent stated that useful knowledge was increased to a moderate extent.  No respondents indicated that there was just a slight increase in knowledge or none at all. 

3.3.6  Project Scope

ATP funding can increase the amount and rate of R&D on a particular project and it may expand the scope of the R&D project.  Expanding the scope of the project could include increasing the functionality of the tools and range of useful application domains for the tools and infrastructure.  

When respondents were asked if ATP funding allowed them to expand the scope of their project, half responded affirmatively, and the other half stated that they would not have even conducted the R&D without ATP funding.  One of the start-up firms provides an example of how ATP funding increased the scope of a project. 

This firm was trying to apply object-oriented technology to the development of efficient, scalable, parallel-computing software and algorithms that could be incorporated easily into hardware systems-independent business applications.  They envisioned three major economic benefits from their new technology:  lower cost, increased capacity (more users and more applications), and more useful computing capacity (users could use more intensive applications).  The company stated that with ATP funding they could achieve all three goals, but could only focus on achieving one or two of the goals without ATP funding.

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ATP has funded most projects in the CBSD program at just under $2 million per project.  In addition to the funding cost, ATP expends resources on selecting each project, convening meetings, managing projects, and other necessary operations.  Even with diligent efforts in project selection and monitoring, some projects may not deliver on their promise.  Understanding the causes of these failures may help ATP in future project selection and monitoring.

Failures can occur at three separate points within the project:  financing, development, or commercialization.  All of the firms in this study were able to raise money to conduct R&D through ATP and other sources; this study can thus only examine causes and impacts at the R&D and commercialization stages.  Failure at the R&D stage occurs when the project acquires funds to conduct research but cannot achieve its technical and scientific goals.  Four of the funded firms experienced failure at this stage.

Failure at the commercialization stage occurs when the project reaches its technical and scientific goals but does not produce a product that can either be commercialized or used in‑house to improve the firm’s production process.  Two additional firms in the ATP focused program failed to commercialize their technology, and in two of the projects we identified as successes, the funded firms were selling a product or service substantially different than that initially intended.

Two of the failures at the R&D stage were due to an inability to form the planned joint venture (JV).  One of these projects received a planning grant to organize a JV, but the firms involved never came together and eventually abandoned the effort.  A second group was awarded funding to conduct a JV but could not reach final agreement with ATP about the details of the project.  Although the specific causes of failure in these two JVs were apparently related to changes in business priorities of the participating firms, it is interesting to note that both halted work during the development of the JV rather than during the research or commercialization stage.  In contrast, the ATP-funded Commerce One JV found no insurmountable barriers on the path to technical and commercial success. 

The other two firms that did not complete the technology development phase experienced a more typical type of failure.  They began working on developing the technology but were not able to meet the goals established at the project’s inception or to modify the focus of the project toward an achievable technical goal while remaining consistent with the original proposal.  One firm had difficulty hiring the technical experts originally envisioned in the proposal while the other firm underwent changing business priorities due to a merger.

Of the projects that achieved technical but not commercial success, it appears that mistakes in estimating future market conditions were the main explanation.  One of these firms incorrectly estimated market demand, while a second experienced changes in a business unit that made pursuit of the ATP-funded technology unprofitable.

The technology pursued by one of the large firms was supposed to be implemented into another of the firm’s new products.  During the 3-year project, the development team was able to achieve technical success.  However, continued development and commercialization were cancelled after the project’s completion when the firm purchased a company that was already marketing its own portfolio of similar products.  Although the large firm is still pursuing other internal product applications, it is unclear whether any of the firm’s products will apply the ATP-funded technology.

One of the companies that achieved only partial commercial success created a solution to parallel computing problems, enabling rapid, error-free implementation of business applications on a wide variety of scalable, parallel computer servers.  This company had hoped to work with the applications providers and reported that several firms were willing to adopt their technology to reduce costs.  However, once prototypes were developed, the applications providers were unwilling to take the risk of making significant changes to their production processes, and the funded firm was unable to widely sell or license its technology.  The firm changed its business model to a solutions approach, abandoning its initial product orientation, but a recent merger and refocusing on different business priorities has made the fate of the ATP-funded technology uncertain.

A second, partly successful project made significant initial progress in developing its component-based software technology during the 3-year project period.  Unfortunately, one of the principal investigators left the firm at this point to pursue other opportunities, and the project languished.  Business challenges resulting in cost-cutting and a series of layoffs effectively ended the second phase of the R&D process, leaving the firm with a product that was significantly more limited than originally envisioned.  At this point, it is doubtful that the firm will be able to develop, market, and install the complementary technologies needed to make its core product effective, though the developed technologies may be used in other products.

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Date created: December 3, 2002
Last updated: August 2, 2005

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