Is Redmond Adopting Win-Win Strategies?

Until recently, typical of the companies its size, Microsoft has leveraged its intellectual property (IP) portfolio mostly in the context of IP exchanges. That is, until May 4 2005, when Microsoft unveiled its IP Ventures program meant to link venture capital community, entrepreneurs and emerging businesses with its multibillion-dollar R&D effort.

Microsoft IP Ventures opens up hundreds of internally developed technologies to entrepreneurs and new businesses by licensing and spinning out Microsoft's innovations to facilitate new product and business development.

"Our research labs and efforts across the company have created a large portfolio of innovative technologies that extend the reach of personal computing today, with much of it going into Microsoft® products," said Rick Rashid, senior vice president of Microsoft Research. "At any given time, there are hundreds of projects under way at Microsoft. IP Ventures provides yet another vehicle for extending this reach and delivering innovations to customers in a variety of areas." (

So, Microsoft gives something away for sure. Let us consider some of the reasons:
  1. Its R&D (700+ people worldwide) has become too big for Microsoft to capitalize on its IP by itself;
  2. Need for additional direct revenue (it is estimated IBM gets $1B a year from licensing out IP);
  3. In addition to its developer tools, Microsoft's IP could become yet another powerful way to ensure the growth of the ecosystem centered on Microsoft technologies;
  4. Potential for long term returns from the equity small companies trade for the Microsoft IP.

What can go wrong? It is hard to say. Let us only mention that open source, IBM, and SUN, have been giving away IP for some time now. Thus, the impact of the reason #3 above may be diminished. As well, tying one's future to the odds of success of fledgling companies is a risky endeavor that requires specialized assets and resources. Thus, the impact of the reason #4 above is uncertain--especially for the accounting types. Also, given Microsoft behavior, ungentle at times, toward smaller companies that seemed to take away some of its revenue, companies will need re-assurance that everybody in the ecosystem is going to earn something and be able to keep it.

All in all, this cannot be a bad time for the Microsoft centered companies. The customers are likely to get more innovative technologies, the partner-companies are likely to get access to the Microsoft smarts and channels, and Microsoft itself will get the rest.

1 comment:

Anonymous said...

IBM and the Seeds of Revolution

IBM (IBM:NYSE) hit on two hot-tech topics: China and open standards.

On Monday, Big Blue announced the creation of a venture-capital advisory council and offered developers in emerging markets free workshops that presumably will help them create applications more expeditiously.

IBM is initially bringing together seven venture capitalists to develop closer ties to the start-up world. The Armonk, N.Y.-based company is hoping to gain more insight into cutting-edge technologies and access to new business partners; the VCs are hoping to give their start-ups greater access to IBM's technical expertise and enormous sales muscle.

"Our customers are hungry for the best and brightest new solutions to accompany our middleware and lower-level components," says Drew Clark, director of strategy at IBM's Venture Capital Group in Menlo Park, Calif. "The venture capital firms themselves are really a lens for IBM to look into the world of start-ups."

Rather than investing directly in start-ups as do other companies such as Intel (INTC:Nasdaq) and Microsoft (MSFT:Nasdaq) , IBM has focused more on developing partnerships with start-ups and investing in venture capital funds.

A relationship with IBM, however, is more important than Big Blue's investment in a fund, says Lip-Bu Tan, chairman of Walden International and a member of IBM's new VC advisory council.

"A lot of those small application-software companies have a hard time getting major accounts as a start-up company," he explains. "But a partnership with IBM Global Services will open the door and give them credibility."

IBM created the VC advisory council with both emerging markets and open standards in mind.

Walden, for instance, has been active in China and Hong Kong since 1994; and Tan, Walden's founder, helped pioneer the U.S. venture capital concept in Asia. Several of Walden's portfolio companies, meanwhile, are focusing on open standards, including SugarCRM and Funambol.

Another member of the IBM VC advisory council, Richard Frank, CEO of Darby Overseas Investments, is a former managing director of the World Bank and a sort of "dean of VCs in Latin America," notes Clark.

Other VC firms that have agreed to join the council include Draper Fisher Jurvetson, Hummer Winblad, 3i and U.S. Venture Partners.

Meanwhile, IBM also plans to directly help developers in emerging markets -- specifically China, India, Russia and Brazil -- create applications based on open standards by vastly expanding the classes it offers them.

Instead of having to wait weeks and then traveling to attend classes at IBM's "innovation centers," the company is offering free virtual mentoring classes within a matter of hours, taught in real time by IBM architects in developers' native languages, explains Mark Hanny, IBM's vice president of independent software vendor and developer relations.

The move is focused on helping to accelerate the development of applications based on open technologies such as Linux.

Not surprisingly, that could translate to more sales for IBM, whose hardware and software products often serve as the foundation for such applications. Last quarter, IBM sales in China, Russia and India grew 23%.