Why would a firm devote such a big chunk to R&D? According to Bronwyn Hall, an economics professor at the University of California at Berkeley, in the past, on average, every dollar invested in R&D has boosted a company's value by between $2 and $3. (In a thoughtful article, Ben McClure explained how to go about identifying companies that are making the most of R&D. He touched on Intel
But back to Microsoft. One of its R&D initiatives is fairly novel -- hiring anthropologist ethnographers to study the habits and routines of small businesses. Just as an ethnographer might live among a remote tribe of people, studying their kinship structures, these ethnographers spent time learning how small business owners organize their lives and run their operations.
One way that Microsoft has pursued small businesses is by spending some $2.4 billion to buy Great Plains and Navision business management software. It's also already offering some special products and services, such as its Small Business Center suite of online services, Microsoft Office Small Business Edition 2003, and free seminars.
It makes sense for Microsoft to target small businesses. For starters, there are a lot of them -- roughly 8 million in America and 32 million more abroad. The software giant already reaps big bucks from large companies, but especially in recent years, these customers have reined in their spending a bit. Then there's Linux, a competitor stealing some operating system business from Microsoft. Its growth is compelling Microsoft to compete. Big rivals such as IBM
An Inc. magazine article notes that many businesses are wary of dealing with Microsoft, though: "A January Yankee Group survey of companies with fewer than 500 employees found that 43% of them are concerned about becoming overly reliant on Microsoft's products and services."
Interested investors should keep an eye on which companies are succeeding in grabbing the attention and dollars of small businesses. These little enterprises spend some $400 billion annually on technology, which could significantly boost the bottom lines of companies such as Microsoft.
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Longtime Fool contributor Selena Maranjian owns shares of Microsoft and Sun Microsystems.