July 19, 2005
Do VCs Help in Building a Technology Platform?
Here is an interesting article on whether or not Microsoft’s “.Net” technology is attracting the interest of the venture capital community.
As a platform company, Microsoft has reaped huge benefits from the formation of vibrant application opportunities on top of its OSes. In the 80’s, the Microsoft desktop OS was the breeding ground for such successful application companies as Lotus, Borland, Adobe, and many more. Many of these companies were very successful stand-alone public companies. In the 90’s, many enterprise software startups were successful by betting early on Microsoft NT. IPO’s resulted here as well.
Venture Capitalists look to the public markets for clues on where to go next. There is no point in investing in technologies that don’t lead to liquidity events. What the article stresses is that the majority of VC money these days is being spent on top of the Open Source platform rather than the Microsoft’s .Net platform.
It’s not clear to me if this is because (1) VCs are making a conscious bet on the future success of the Open Source platform, or if (2) VCs have recognized that Microsoft tends to move up the stack quickly eating up these application opportunities, and have therefore turned to a platform that is seemingly more benign. It is also unclear what impact this will have on the overall staying power of the Microsoft platform. Rapid and fervent application availability certainly reinforces, fortifies, and protects any platform play.
Posted by Bill Gurley on July 19, 2005 at 08:54 PM | Permalink
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Posted by: James | Mar 1, 2006 3:19:33 AM
I'll second Bill's finding of "over 90%+ bias towards Linux as the development platform" with respect to the Massively Multiplayer Online (MMO) game space. After seeing the red flags go up when pitching a previous .Net based start up to Angels and VCs around the valley I did an exhaustive inventory of people working on MMO games and found everyone was using Linux over .Net hand's down. Keep in mind that the game industry tends to be more Microsoft friendly then most so these findings are less about Microsoft bashing and more about the technical merits.
Posted by: Thor Alexander | Jul 23, 2005 6:43:27 PM
Interesting points, Bill. The takeaway is somewhat ironic, inasmuch as a few years back, Microsoft spent a lot of time with the venture community trying to "educate" them on which segments are safe for investment and which ones Microsoft will likely expand into.
The problem with this approach as it has played out was two-fold. One, Microsoft's "safe" investing grounds were largely niche markets which are exactly the types of segments unsuitable for venture. Two, given the company's historical zero-sum approach to business, when they did decide to buy their way into a market, it generally didn't translate into great financial outcome for investors in the acquired company. Contrast this with Cisco, where the venture community and Cisco's corporate development folks were practically kissing cousins.
Moral of the story: what you sow is what you reap.
Relative to VCs, they are the ultimate thin slicers so to the extent the meme, "Microsoft embraces, extends, extinguishes" sticks, they're stuck. Same story in open source where VCs can free associate on a built-in community model and open APIs translating to lower initial selling costs, more viral cross customer leverage, friction free upselling opportunities and a generally more fluid and agile ecosystem. And, oh yeah, no 500 pound gorilla. Not a panacea to be sure, but gravity certainly feels a lot more favorable in the open source arena from an investing perspective.
Posted by: Mark Sigal | Jul 22, 2005 2:42:05 PM
Being a developer, I see that platforms are chosen by the technology heads in a company. Sometimes its a manager type that saw a good dog-and-pony show at a conference or who makes a decision based on industry buzz. Other times its based upon hands-on experience that the development team has had with certain platforms. Most often the driving factor is to get something up fast! In which case, you go with what you know as long as you haven't had bad experiences with it. In my view, going with .Net, Weblogic, Java, etc.. should all get you there as long as you can find a good staff experienced with the platform to ensure stability and performance. Personally, I lean towards Linux and Java because I have a feeling it has a lower cost of ownership.
I can't imagine that a VC firm will look at the technology used for the implementation of an incredible business idea and decline to invest. If this is the case, Benchmark would have taken one look at Pierre Omidiar's nasty Perl scripts and said "No thanks!" to eBay. You bring in some technology studs to make it ready for primetime.
The bigger platform question is the one of traditional server-side web user interfaces of to go with client-side RIAs that connect to web services. For example, a spreadsheet application that connects to eBay web services. Another example would be a Flash Application that connects through web services to provide automaticly updating sports scores, video, etc. matching the user's tastes. Think PointCast, with a standard means of providing such an intriguing user interface. We all know that PointCast had no business model and went down in flames ... if they had the knowledge we have today about the search engine business model of Google or Yahoo!, they would be an incredible force to this day. Back to my point, VCs should be looking at solid contenders who use this new hybrid client-side web-services platform. They are sure to be the next round of winners. Can we take clues from the market? Heck yes... why do you think that Adobe bought Macromedia! Macromedia's Flash platform is light-years beyond anything else. Of course, the down-side to this is that there is currently not enough talent with this kind of experience. Its also a completely different mindset for the development community that is going to take a while to gain traction.
Posted by: Alex Malone | Jul 21, 2005 8:57:22 AM
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DISCLOSURE: The information contained Above the Crowd has been obtained from sources believed to be reliable but is not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a general partner of Benchmark Capital, a venture capital firm in Menlo Park, Calif. Benchmark Capital and its affiliated companies and/or individuals may have economic interests in the companies discussed herein. © J. William Gurley 2005-2006. All rights reserved.