Paying Now For New Ideas Tomorrow

By Gregory S. Davis | August 27, 2008 AAA

The ability to see into the future is priceless. While Research and Development (R&D) expenditures are critical towards developing new innovations, companies maintaining close ties to learning institutions like the Massachusetts Institute of Technology (MIT) should not be overlooked. Investors focused only on the products and services available today in their portfolio must take the time to consider which companies will be the thought leaders of tomorrow. (Learn more about R&D expenses, in our related article The Ins and Outs Of In-Process R&D Expenses.)

Future of Banking
Bank of America
(NYSE:BAC) is preparing to invest $3-5 million into MIT's Center for Future Banking over the next five years. The goal is to utilize a multidisciplinary approach ranging from behavioral economics to urban design in order to enhance the customer experience at the intersection of banking and technology. The new research center will be located at the Media Lab on MIT's campus.

The Next Billion
Mexican telecommunications provider Telmex International (NYSE:TII) partnered with MIT's Media Lab on the Next Billion Network. Over the next three years, an estimated one billion new consumers will become cell phone users. The goal of the Next Billion Network is to bring mobile technology to emerging and frontier markets. The network combines academic research, entrepreneurship and local relationship building to help shepherd the mobile technology proliferation.

Beyond Borders
Swiss automation technology provider ABB Ltd (NYSE:ABB) announced earlier this year a $5 million partnership with MIT's Energy Initiative. The goal is to support research of ABB technologies including nanofluids, power electronics and equipment heat management. ABB currently spends $1.1 billion a year on R&D. Its investment in MIT shows its commitment to look beyond geographic borders for creative input.

Tech Collaboration
Microsoft
(Nasdaq:MSFT) has also become a founding sponsor of the MIT Kerberos Consortium and will join its executive board. Kerberos is a networking protocol currently used in Microsoft products including Windows Vista and Windows Server 2008. The move allows Microsoft to work with Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG) and Sun Microsystems (Nasdaq:JAVA) who already have seats on the executive board of the consortium. The groups' goal is to continue to develop and introduce interoperable technologies to improve computing interaction.

Final Thoughts
Universities like MIT are great breeding grounds for new ideas that have the potential to put companies at tops of their fields for ingenuity, design and functionality. Companies that are putting resources into researching tomorrow's best ideas are likely to gain an advantage over their competitors and make better investment opportunities for investors.

Investors take note: Companies that cut research and development are in danger of saving today but losing big tomorrow. Read Buying Into R&D to learn more.

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