In the midst of all the bad Microsoft news and yesterday's four-year low, it's worth asking the somewhat theoretical question: what premium does Microsoft's laudable and long-term commitment to basic research add to the long-term value of the stock? 

There's little question that MSFT has created a research establishment that's much in the mold of the early Bell Labs and Xerox PARC (more in a moment as to whether that's a good or bad thing): lots of pure academics hired from top universities who apparently have quite a bit of freedom to select research topics and to publish.  Here's a quote from a recent speech by Rick Rashid, the well-respected Microsoft head of research: "...we started investing in basic research at Microsoft 14 years ago...today we’ve grown to over 700 researchers worldwide. And to put that in perspective, that’s the equivalent of growing a major computer science department, like a Berkeley computer science faculty, a year every year for 14 years. And we’re expecting to double that rate of growth over the next two years. We believe that investing in basic research in Computer Science is critically important at this juncture."

But is it critically important to the value of the company?

I got a sense of the depths of Microsoft's research efforts last year when I was visiting a friend at the Redmond campus. In the lobby of her building was a poster offering employees a free Microsoft product if they would stop in at one of the research units and provide a handwriting sample.  Ah, I said, a little extra work on the Tablet PC.  Actually, she told me, the researchers had been doing that for ten years now, and already had the largest collection of handwriting samples, in various languages, in the world.  

All that research turns into patents: Microsoft received number 5000 just a couple of months ago.  That still puts them well behind IBM, but then Big Blue had a head start.  So far Microsoft hasn't been much of a patent troll--they'd rather license and spread the Microsoft way around--and they'd probably run into even more regulatory problems if they got too aggressive.  So patents per se aren't really the pay-off for research.  But in an industry that's built on new ideas, shouldn't all that research count for something?

History isn't clear on this. Bell Labs was a wonderful source of technology and arguably was good for AT&T, although back in those monopoly days it's hard to judge exactly how that technological cornucopia really affected Big Bell's bottom line. But spinning Bell Labs out into Lucent certainly hasn't helped LU shareholders. Whole books have been written, of course, about how Xerox PARC changed the face of personal computing but didn't contribute all that much to Xerox, although some insiders question that view: laser printing, for example, has been very good to Xerox.

I believe that basic research helps sustain major technology companies over the course of decades, even if the benefits can't easily be quantified in a tidy timeframe. Playing that card wisely--figuring out how to turn deep and original knowledge into competitive advantage--will be a key to Microsoft's future. Basic research is not sexy, but it's one huge advantage that Microsoft, for now, has over most of the other companies it faces. It's the kind of value that quarterly-focused Wall Street analysts have a hard time measuring.