Siemen's Opens New Tech Incubators.

These aren't the easiest days for Technology companies, but that isn't Stopping Siemens AG from launching ventures to find new, innovative ideas. The German engineering and communications powerhouse is opening a Munich-based technology accelerator, similar but not identical to its technology-to-business

Indeed, while the vast bulk of Siemens' 5.9 billion euro (US $5.6 billion) budget for research and development still goes toward protecting existing businesses, the company has become increasingly hungry for fresh ideas and new sources of growth. The two-year old Technology-To-Business (TTB) Center in Berkeley, California and the new Siemens Technology Accelerator (STA) in Munich look beyond established product lines into entirely new areas of communications, information technology and industrial automation in which Siemens lacks expertise. The technology incubators see their mission in helping both internal and external innovators to develop ideas, craft financial plans, attract venture capital, and get their innovations out the door quickly.

Venture arms, like TTB and STA, aren't entirely new in the industry. U.S. telecoms equipment manufacturer Lucent Inc., for instance, launched its New Ventures Group (NVG) almost four years ago as a division to scout out promising technology that doesn't mesh well with current business lines (see RTM, March-April 2000, pp. 13-17). The expectation at Lucent--and at Siemens--is that such technologies will either go it alone or acquire enough critical mass to thrive inside the mother ship. Hewlett-Packard, IBM, Motorola, and NEC are among the other big-name technology companies that have rolled out similar venture units.

Spin-in and Spin-out Companies

Siemens' TTB center, which opened its doors in Berkeley in 1999, aims to convert innovative technologies into new "spin-in" Siemens businesses or freestanding "spin-out" companies. The spin-out businesses can take alternative forms, including self-financing ventures, businesses backed in whole or in part by Siemens investments, or entities packaged for acquisition by other companies.

Project ideas, or "seeds," come from inside and outside Siemens. After a seed is identified, TTB nurtures it in many ways, depending on need. Start-ups, for instance, may want to collaborate with TTB's in-house team of researchers or tap into the Siemens global corporate R&D network. Or they may want to go to other groups working closely with TTB, such as the University of California at Berkeley (UCB), the Venture Group Alliance in San Francisco, or The Enterprise Network (TEN) based in San Jose.

Since its founding, TTB has established a strong working relationship with UCB, collaborating with its engineering school and the Haas School of Business. The center's strategic cooperation with the Venture Group Alliance and TEN opens still further doors for innovative entrepreneurs to receive support. The non-profit organizations offer a network of high-level industry and academic contacts, a series of incubating clusters, a selection of venture capitalists, and advisory support.

Already TTB has successfully kick-started several startups, including Rether Networks Inc. in Berkeley and WebV2 Inc. in San Francisco.

Rether Networks, for instance, has developed software to bring "low-latency" voice and video communications to Ethernet-based computing networks. The technology closes the so-called "last mile" gap for current voice/video-over-Internet technologies by bringing voice-grade quality of service to end users' desktops over Ethernet networks. WebV2, on the other hand, has developed a range of applications based on a peer-to-peer computing architecture.

"We really want to tap into the Silicon Valley culture and the venture capital world," says Thomas Grandke, president and CEO of Princeton, New Jersey-based Siemens Corporate Research Inc., one of five corporate R&D centers worldwide and responsible for the Berkeley operation. "TTB helps us achieve this goal."

For Grandke, the Berkeley technology center "bridges the gap between what incubators and industrial R&D are trying to achieve." It allows Siemens, he says, to expand its "innovation scope by combining technology, business and venture activities in one place." It provides a platform, he adds, to attract entrepreneurial innovators "capable of developing and commercializing `discontinuous and disruptive' technologies."

At the same time, Grandke is quick to point out that TTB needs to keep its focus. "We can't look at every opportunity that makes commercial sense," he says. "We are focused on three main areas: communications, information technology and industrial automation. Although these may be broad areas, they are defined nevertheless."

Munich Technology Accelerator

While Silicon Valley, admittedly, has its thumb on the pulse of the fast-paced and rapidly converging computer and communication industries, clever minds on the other side of the Atlantic are coming up with innovative ideas of their own, and they, too, are in need of support, both financial and technical. Keen to tap this pool of external knowledge, Siemens has decided to launch a technology accelerator just an arm's length from its corporate R&D center in Munich.

Unlike the Siemens technology center in Berkeley, STA has no resident researchers, taking advantage instead of the vast pool of scientists and engineers in the company's corporate technology center in Munich and at the group's other research centers in Berlinand Erlangen, Germany, and Romsey, England. "We don't need to have our own researchers because we have them at the front door," says STA managing director Thomas Lackner.

The mission of the Munich-based technology accelerator differs from that of the corporate technology division largely in its pursuit of disruptive ideas. While corporate R&D focuses primarily on research aimed at ensuring the long-term success of established product lines or, as Siemens board member and director of the corporate technology department Claus Weyrich puts it, "strengthening our strengths," new units like TTB and STA are needed to recognize and access technological trends early and to be able to invest in them successfully.

Like TTB, STA takes advantage of the huge network that Siemens' corporate technology division has developed over the years with numerous universities and more than 150 research institutes worldwide, including Germany's state-funded Fraunhofer Institute.

In particular, the new Siemens technology center hopes to capitalize on ideas from the many start-ups that have sprouted up in and around Munich and southern Germany. "These groups are aware of the Siemens brand and the network of expertise they can dip into," says Lackner. "That's something we want to take advantage of."

That said, it's still a challenge to find the right groups with the right ideas. "Good ideas aren't just lying on the streets waiting for us to find them," Lackner adds. "Nor can we knock on doors and expect people with good ideas to just hand them over to us. We need to build trust bases, which we are doing extensively in universities."

Siemens Venture Capital

Money also helps. Siemens has its own venture capital unit that not only finances internal corporate technology ventures but also external start-up firms, in addition to working closely with outside investors to provide venture capital for new projects. Since its launch in January 1999, Siemens Venture Capital GmbH has invested over $400 million in promising firms in the United States (50 percent), Europe (25 percent) and Israel (25 percent).

In particular, Siemens intends to use its technology centers and own venture capital subsidiary to open new opportunities between its research departments and other venture capital companies. "Research projects that were previously only `marketable' within a particular company, so to speak, can now be launched on the market," says Dirk Lupberger, managing director of Siemens Venture Capital. "A company, like Siemens, can earn a bonus for the risks it takes with specific research projects, even if it should choose not to utilize the results itself by allowing venture capital companies to commercialize research results."

Setrix AG, which develops intelligent surveillance cameras, is an example of a company that began as a project and was later spun out of Siemens into an independent company. Siemens retained a stake in the company in exchange for the know-how provided.

And what about competition between Siemens TTB in Berkeley and STA in Munich and between the other research centers? "Yes, in a way, all of us are competing for good ideas--the technology centers, the incubators within the divisions and the corporate R&D centers," Lackner says. "But it's healthy. The days of conducting research in ivory towers are over. We need to work with others because we can't possibly do all the research we need to do by ourselves."

Lackner admits that there is a new thinking in the ranks of Siemens R&D staff: "We want to move away from R&D being a cost center to becoming a value generator." In this sense, he and his other colleagues managing technology in Siemens have a common vision when it comes to developing and commercializing discontinuous and disruptive technologies: spur collaboration, reward game-changing ideas inside the company through bonuses, stock options and more while scouting for new ideas outside the organization, and, above all, bring these innovations to market fast and efficiently.

John Blau in Dusseldorf jblau@attglobal.net www.siemens.com www.scr.siemens.com www.ttb.siemens.com