Microsoft VC Summit

Microsoft held its 6th annual VC Summit yesterday. Over 170 VCs from around the world were invited to attend. Steve Ballmer does the keynote speech every year and many top executives also do presentations at the Summit.

The Microsoft VC Summit is an opportunity for VCs to learn about Microsoft product directions and to make personal connections to Microsoft execs. About 50 top execs and technical people from all the product groups attend, as well as corporate strategy and business people. It is an event to make connections, answer questions, and build partnerships in real time.

There were breakout sessions on Windows Live, Mashups, Microsoft Office as a platform, and others. The technology being released this year in Office, Vista, Sharepoint, SQL Server, and just about every other product is amazing. Office and Sharepoint have really taken things to a whole new level. It has been a long time coming, but you will be amazed when you see the innovations, ease of use, and integration. There are lots of interesting topics and insights from the Summit, far too many for this one post. So, I will focus on just one topic here...acquisitions.

VCs are always interested in Microsoft's acquisition activity and direction. Over the past 12 months Microsoft has made 22 acquisitions totaling nearly $1B. This compares to just 9 acquisitions the previous year. The acquisition pace is likely to accelerate.

The sweet spot for Microsoft acquisitions is the $30M to $60M range, although there are sometimes billion dollar deals like Great Plains a few years ago. UPDATE: Ed Sim heard the sweet spot was $50M to $200M, and I think he heard correctly. My mistake. The acquisitions cover a range of technology areas, and typically fill in holes in our product roadmap. About a third of the companies acquired were not yet VC funded. We are doing our best to identify great engineering teams and unique technology early in the process. We form partnerships, help them get started with Microsoft, introduce them to VCs, and sometimes that results in an early acquisition. That is not the ultimate goal...but sometimes it happens. Onfolio is a good example of an early partnership that resulted in an acquisition.

Acquisitions are typically made for three reasons;

• People - acquiring great engineering teams and operating managers
• Technology - adding a technology to an existing product set
• Time to market - sometimes the market moves faster than Microsoft can release a product. Security is an example. Sometimes legislation changes the market too quickly. Sarbanes-Oxley introduced new requirements for compliance, so acquisitions were made to respond.
• New Markets - Great Plains allowed Microsoft to enter a completely new market. Teleo got us deeper into the VoIP space.

Acquisitions are rarely made based on revenues or profits. The price and multiples for these types of companies are too high. Microsoft already has great brand recognition, great sales channels and partners, and existing product lines. Small acquisitions that can be leveraged across these strengths yield the highest returns.

Here is a list of the 22 acquisitions sorted by product group;

• VirtualEarth aka MapPoint - Vexcel and GeoTango do 3D imaging and remote sensing.
• MSN - DeepMetrix (web site stats), Massive (videogame advertising), Onfolio (web research), Teleo (VoIP), Media-Streams (VoIP), MotionBridge (mobile search), TSSX (China mobile services), SeaDragon (Large Image manipulation)
• Windows Live - FolderShare (file synch), MessageCast (MSN Alerts)
• Speech Server - Unveil Technologies (call center SW)
• Security - Alacris (Identity Mgmt), FutureSoft (Web filtering)
• Systems Management - AssetMetrix (License tracking)
• Business Intelligence - ProClarity (analysis and visualization)
• Microsoft Game Studios - Lionhead Studios (games developer)
• Exchange Server - FrontBridge (email security)
• Microsoft Project - UMT (Portfolio Mgmt)
• Storage Server - Stringbean Software (iSCSI SAN)
• Vista - Apptimum (Application transfer)

It appears that many of these acquisitions were focused on MSN properties and consumer based services. One thing to remember about Microsoft...the product groups run the company, and they all work largely independent of each other. They make the decisions about what to acquire and when. There are acquisition teams but they tend to be called in to execute the deal after the product groups have decided what they want to do. So, there will not necessarily be a high level strategy that all these acquisitions fit into, but they make sense on an individual basis.

Other coverage of the VC Summit;

• Ed Sim - BeyondVC
• Can Microsoft re-invent itself?
• Rick Segal - The Post Money Value
• Jeff Clavier's Software Only
• Chandu Thota - VirtualEarth Talk

Comments

[James Clarke]

You missed iView Multimedia which dropped quite recently http://www.iview-multimedia.com/