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High R&D Investment Shouldn't Be Sniffed At As Just Moonshots

A high R&D spend is sometimes seen as a negative, but this isn't always the case

27Apr

It's no secret that a majority of the big brands spend fortunes on their R&D (research and development). Certainly, it's important to stay up to date with all the developments the technology world has to offer, but it's vital to offer something back on a regular basis. That 'something' involves innovative products which may be capable of becoming a sensation and bringing colossal profit. However, innovations require financial support before they can be brought to life. Research is inseparably involved in that process and it also needs considerable investment.

Every company has its own spending plan. Unfortunately, there is no line that can be drawn to estimate whether there was enough money spent for the sake of R&D. Thus, the question comes to mind: is it a good idea to spend billions of dollars on research and development?

First of all, it is worth mentioning that one of the biggest fish in tech industry, Apple, spends much less on R&D than brands like Facebook, Google and almost every other major player. There is a lot of criticism around that subject, claiming that the company has stopped creating and simply adds features which don't do much. It's questionable whether we should start throwing stones at Apple for that. Product wise, Apple is still improving and developing, but undeniably, not as much as other tech corporations. Love it or hate it, Apple gets things done even with the less R&D spend. Presumably, the reason for that is hidden in a line once said by Steve Jobs back in 1998, that ‘innovation has nothing to do with how many R&D dollars you have’.

According to a Bloomberg report, in November of 2015, Apple spent only 3.5% of its revenue on R&D and still it achieved a profit of $233 billion.

With other big names, such as Facebook, we can see a more significant financial sacrifice with 21% of their $12.5 billion revenue going on R&D. In this case, we shouldn't give up on Mark Zuckerberg's ambitions just yet. He is continuously adding software engineers to his team in order to support his initiatives. Back in 2013, he undertook a major commitment to research, specifically around artificial intelligence, which proved to be the case after he hired Yann LeCun, a pioneer of convolutional neural networks and a key architecture of deep learning. The bright side of this kind of spending is that it has every chance of paying off. It probably can be explained by the non-existence of the formula of success in that if something has failed to prove itself to be successful in a short term is is still capable of creating sensation in a longer period of time.

With constant ups and downs, success and failures in the tech field, it is healthy to be active rather than just keeping yourself afloat by not taking risks and staying where you are. Alphabet, which is the new parent of Google is performing rather well, believing in its R&D spending to be worthy of large investment. Regarding facts and figures, it has managed to achieve 17% of the revenue growth during the first three months of this year. Here comes the risk though - it has managed to spend some serious money in its experimental moonshot projects, engineers, data centres and YouTube events, leaving investors being disappointed with their profit expectations. However, it seems that Alphabet enjoys spending money, probably because it can do so without being uncomfortable afterwards. Expenses which can be controlled are always the ones which don't leave you with a bitter taste of loss. 

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