Funding future tech at Motorola

The highly competitive communications market stands still for no company, which is why Motorola has created a special internal venture capital fund to commercialise technology it's developed in-house.

The Early Stage Accelerator (ESA) programme, started in early 2004, is headed by Jim O'Connor, the former leader of Motorola Ventures, which invests in start-ups outside the company. During his time with Motorola Ventures, O'Connor oversaw the creation of investment operations globally and invested in over 50 ventures.

Now his attention has turned to the inside of Motorola where he taps the creativity of the company's 20,000-some engineers to take early-stage research into commercial products.

The second-largest mobile-phone maker in the world, Motorola has been struggling recently to regain its footing in a market that is getting increasingly competitive. The company hasn't had a hit product since the Razr, and it has reported net losses amid sharp price cuts on its products.

But chief executive Ed Zander has promised that the handset division will show a profit for the year. The company's biggest challenge moving forward is finding new products to excite the market and to help it compete against rivals Nokia and Samsung Electronics, which have made gains in recent quarters. While the ESA programme probably won't fuel all of this development, it could help.

O'Connor recently talked about how this internal venture capital fund operates and how it can help drive growth for Motorola. Below is an edited version of the conversation.

Q: What is the ESA programme?
A: It's an internal venture fund that is used to create different businesses using technology developed by Motorola. The group was started at the beginning of 2004 within the office of our chief technology officer, Padmasree Warrior.

How did the programme form?
We had a lot of great technology, but we weren't commercialising it. And we needed to find a way to take new innovations and make the business case for it and be able to start pilot programmes with customers.

I came to Motorola as part of the venture funding group in 1999. And basically we were funding companies that were developing new technologies outside the company, much like Intel Capital has done. We still do that.

We're taking research out of the lab and ideas out of PowerPoint and putting them into prototypes that can be tested in pilot programmes

Jim O'Connor, Motorola

But we also looked at the more than 20,000 Motorola engineers around the world and realised we could fund them like start-ups, giving them small chunks of money or seed capital to create a prototype that we could use to expose to product groups and customers.

Can you give some examples of technologies that came to market as a result of the ESA programme?
The best example is a project we called "Canopy" that was incubated in the labs in 1999 until 2003. It eventually became the seedlings of our wireless WiMax technology. In 2004, when ESA first started the project, they had about 10 people working on it. So we put the commercialisation wrapper around it to go to market so it could be a self-contained business. And then we migrated it into the traditional network business. If we hadn't had the ESA group, the technology could have stayed in the lab environment or maybe it would have been killed. But we were able to bring scalable marketing and get in front of customers.

Are products from this group being deployed today?
Yes, the Canopy project moved out of the ESA programme in 2004, and now Sprint Nextel is using some of these products in its 4G WiMax network, which it's currently building.

Are there other examples that you can talk about that are more recent?
Yes, there is a trial we are doing right now in Namibia with a cellular operator using wind- and solar-powered bay stations. Cellular bay stations need to connect to the electrical grid to get power and, as you know, in rural communities in places like Africa, India or China power is constrained, so we aren't able to provide as much coverage as we'd like. We developed technology in Swindon, England, and Southern Africa that is the first of its kind to help solve this problem.

The interesting thing is that this went from an idea to a trial in less than nine months. That is warp speed in terms of start-up incubation.

How much do you invest in these in-house start-ups?
Usually the investment is similar to what a venture capital fund would put into a Series A or seed round of funding; about a few million dollars. The wind- and solar-powered project was a low-cost investment because it involved a lot of existing technology. Solar- and wind-powered technology has been around for a while and what we had to do was integrate the technology. The trials are going really well so far.

How is what you do through ESA different from what a regular research and development group does?
The difference from our perspective is that we're taking research out of the lab and ideas out of PowerPoint and putting them into prototypes that can be tested in pilot programmes.

Does Motorola still do pure research?
Yes, I'd say about half the R&D budget is spent in the labs on pure "blue sky" research on innovations — things that can change the world. Motorola is one of the larger research organisations in terms of companies. The other half is spent looking at technologies that are closer to being developed into products. But the idea is that eventually all research should lead to a feature or product that can be commercialised.

Are the organisations tied or related in some way?
They are separate groups, but they're a related part of the chief technology officer's office. That is part of the beauty of how it works. We're not beholden to the research organisation to…