Microsoft looking to work with startups

Microsoft and IBM have groups looking for top start-ups to work with, or possibly acquire, according to a story today in the Wall Street Journal. (subscription required) The story profiles Dan'l Lewin who heads Microsoft's Emerging Business Team, and Claudia Fan Munce who runs IBM's VC group.

Why would Microsoft and IBM be interested in tiny start-ups? Lots of reasons. I can only speak from a Microsoft perspective, but our reasons are;

• Partner products that compliment existing Microsoft products by adding features, filling holes, and leveraging the Microsoft platforms.


• Innovative partner products that take advantage of the latest Microsoft technology encourage our customers to upgrade to the latest release.


• Successful start-ups draw attention to the benefits of building on the Microsoft platform, and the value of partnering with Microsoft.


• Small start-ups often grow into big companies that need lots of software.


• Working with start-ups keeps us close to the cutting edge of technology. A good barometer for what is coming in the next 5 years.


• Start-ups are the best source for new partners, and sometimes lead to acquisitions.

Microsoft acquired 22 start-ups over the past 12 months, and IBM acquired 16. Both companies have about 20 people dedicated to supporting start-ups and working with VCs. Microsoft's Emerging Business Team works with start-ups to establish partnerships and build great products for customers. The WSJ article cited AtHoc as an  example;

Microsoft, led by its top Silicon Valley executive, Dan'l Lewin, has scored victories too. In 2003, it convinced a newly created Burlingame, Calif., company called AtHoc Inc. to start building its software product with Microsoft's own "dot-net" technology on top of a Microsoft computer database, instead of one from rival Oracle Corp. One inducement: Microsoft offered free consulting services to help AtHoc switch off Oracle's product. They were valued at close to half of the total $200,000 switching cost, says AtHoc's chief executive officer, Guy Miasnik. Microsoft says the services were closer to 20% of the total cost.

Last year, a Microsoft sales team also introduced AtHoc to an arm of the U.S. Air Force, which uses Microsoft's database and is now deploying AtHoc's technology. The software helps companies and the military send emergency alerts to people via computers or other electronic devices. The contract is valued at about $2 million for AtHoc.

Learn more about how to partner with Microsoft by visiting the Partner Links (right column) on Microsoft StartupZone.

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Comments

[Peter Rip]

Don:

Here's the VC/startup dilemma.

(1) MSFT is #3 in online.
(2) MSFT is likely motivated to buy (a) the most innovative companies and (b) companies working with MSFT
(3) But a small company has 1 silver bullet in choosing its target partner (resources)
(4) Valuation as a going concern is maximized by targeting the largest installed base. In online that is not MSFT.

Therefore the conundrum is that working with MSFT only is rational in a build-to-flip strategy. And we all know BTF is a bad way to build a company.

It seems to me that the better strategy to signal to the market is that you want to buy the most innovative companies, regardless of whether they are working with MSFT or not. We all know that the the truth is that acquisitions always lead to a re-write anyway.

[Don Dodge]

Peter, I assume you mean that Microsoft is #3 in online traffic to its MSN properties, behind Yahoo and Google? While that may be true I am not sure how that would impact a startup's decision on which tools or platforms to use to build their product/service. Web based services tend to work on the Explorer browser regardless of the underlying technology.

Microsoft provides great development tools and platforms (OS, database, app server) for startups at a very competitive price. We obviously want to encourage ALL startups to use our technologies.

We focus our Emerging Business Team resources on those companies that use our tools AND add value,features, and services to our product lines. We want to partner with those companies and in a few cases acquire them.

You are correct about rewrites. In some cases acquisitions result in a rewrite of the existing code to achieve seamless integration with other Microsoft products. So, from that point of view it doesn't matter what platform the code was originally written on. The rub comes when we ask those original engineers to rewrite their code with Microsoft tools. Will they be skilled at doing that, or want to do it?

Remember that a major factor in most acquisitions is the talent of the engineering team. If they aren't skilled in Microsoft technologies the value of the team, and the company, is diminished in our view. That is the harsh reality. We will miss a few opportunities because of this, but overall this strategy makes sense for Microsoft.

[Dmitry Buterin]

Peter, we have chosen .Net platform for our startup software (www.wildapricot.com) on our own volition and I think we had some good reasons:
1) Population of developers experienced in this platform is very significant (I think I read stats it might be the biggest one right now - say, versus Java or PHP)
2) Microsoft dev tools (Visual Studio) are excellent
3) There is a lot of stuff to use in the foundation, e.g. we use Atlas framework for very cool Ajax functionality.