Microsoft VC Summit 2007

The day after Microsoft’s TellMe aquisition, I was at Microsoft’s eighth annual VC Summit.  Unfortunately, I missed Steve Ballmer’s opening discussion, which in my opinion, is always one of the most entertaining and informative sessions of the event.  For the last few years, Steve spoke at the end of the event but for some reason they switched it on us and had him at the beginning.  Anyway, I am waiting for some other bloggers to summarize his discussion.  Notice the picture I link to from Paul Jozefak’s blog titled "Expanding Platform to the Cloud."  I must say that I came away quite impressed by Microsoft’s progress in its cloud and Windows Live strategy.  Last year, all of the Windows Live talk seemed quite rushed, disjointed and forced and seemed it was more of a response to the market saying that Microsoft did not get the SAAS thing.  This year the strategy seemed much clearer and well defined and the executives knew how the Internet and cloud fit into all of the various business units.  In the end, Microsoft has made some huge strides and will certainly be worth watching over the next year.  In addition, as with each year, I did find the Microsoft executives more willing than ever to network with startups to fill gaps in their product line and to be a more open, gentler Microsoft versus years ago.  There is nothing like real competition to get a company to change its mindset.  Sure, they didn’t tell us much in the public sessions as sometimes you can come away with the impression that Microsoft is doing everything and the only opportunities for startups are niche verticals built on Microsoft’s platform.  But truth be told, if you actually did get a chance to spend some one-on-one time with the executives, you will find a much different story. Reflecting on that point, Microsoft made a little over 20 acquisitions last year and plans on doing a similar amount this year.  One sure way to not get any partnership done is openly ask the Microsoft executives, "How do I get my portfolio company acquired?"  The real point is to find and network with the key executives at the summit and figure out how the individual business unit’s process works on a partnership discussion and get that started.

The consumer mobile breakout session was one of the more informative discussions that I attended.  Basically as the world moves to three dominant operating systems for wireless (Symbian, Windows Mobile, and Linux), Microsoft will look to increase its penetration by leveraging an extensive development platform to allow third party partners to develop new consumer services which can be easily deployed via its worldwide carrier partners.  Naturally, one of the questions asked was if these apps only worked on Windows Mobile or across the various operating systems.  As you might suspect, these apps would likely work better on the Windows Mobile platform, but the Microsoft folks did stress that it does and has to work with other competing operating systems as well. The gaps that Microsoft was looking to fill through partnerships or acquisition were, broadly speaking: games/entertainment, location aware services, TV/video (although the one Microsoft executive acknowledged it was overhyped), ad management, mobile content mgmt, and billing and payments.  One of the value propositions offered by the Microsoft mobile folks was key relationships with carriers across the world.

Another engaging talk was Peter Moore’s (Corporate VP, Interactive Entertainment Business) presentation on Microsoft’s move into the digital home with its Xbox360.  Of course, after a long day, seeing a commercial for the yet-to-be-released Halo 3 was quite energetic and refreshing.  Interestingly enough, it is quite amazing to see that as these gaming machines get more powerful, the games themselves end up being the commercial (think about The Gears of War commercial on television).  Despite the fact that Peter could have spent hours demoing games, his presentation centered around the full featured entertainment capabilities of the device which included the ability to synch with other PCs in the home and buy movies, television shows, and music in a simple way.  Once again, it is amazing how much progress is being made throughout the many divisions at Microsoft and how the Internet and on-demand services are getting weaved into the very fabric of the applications and infrastructure.  For a large company, one year has made a huge difference.  Finally, one of the other recurring themes I heard throughout the day was the importance of advertising in many of its product lines ranging from mobile to MSN to the digital home and video gaming.  If there are other acquisitions to be done, I am sure that some interesting advertising related technology and services will be on their radar screen.

Just to be clear, this is not in any way, shape or form a Microsoft love-fest.  I am just pointing out that while so many people are counting them out that they have lots of cash, renewed energy, and a long-term view towards winning in their markets.

Microsoft’s next battleground – wireless

I am sure you have seen the news all over the web and Techmeme about Microsoft’s purchase of TellMe, which is rumored to be around $800mm.  As you can see from this Microsoft press release, the big opportunity is for Microsoft to use the TellMe voice-driven user interface as a key component for mobile handsets:

We’ve made great strides in speech technologies, but have only scratched the surface of what is possible,” said Jeff Raikes, president of the Microsoft Business Division. “The acquisition of Tellme will bolster Microsoft’s existing speech capabilities, bringing both immediate and longer-term value to our customers and partners.”

“Tellme was founded with the idea that anyone should be able to simply say what they want and get it from any device, starting with the phone,” said Mike McCue, co-founder and CEO of Tellme. “Now, with Microsoft, we’ll be able to extend that vision to millions of businesses and consumers around the world.”

I remember when I started in the VC world over 11 years ago, the question we always had to ask ourselves before we made an investment was "what is Microsoft doing or going to do?"  As I reflect on the last decade, I never really did think that as an investor in software and the Internet that the question would become almost irrelevant and would change to "what is Google doing or going to do?"  Given all of the discussion about Microsoft being dead, I must say that while they are still a distant third in the search space, they did make a brilliant move in acquiring TellMe.  While most of the revenue does come from TellMe’s hosted speech applications for customer service, the big value in the long run will be Microsoft’s ability to incorporate TellMe’s mobile search and voice-driven search through the mobile handset.  In other words, it seems that while Microsoft is not conceding to Google in search, that it does recognize that the mobile opportunity is potentially much larger and that this acquisition will clearly give it a big lead in the mobile space.  Think about it – when you leave home, you grab your keys, wallet, and cell phone.  The opportunity to reach and market to this third screen is huge and just in the first inning.

Even Tim Berner’s Lee in this week’s Economist (sorry, password required) highlights the next wave on the Internet being around mobile:

Although he is somewhat sceptical of the hype around Web 2.0, Sir Tim is excited by three other areas of the web’s development: its spread to millions of new users via mobile devices, the growing interest in the technology’s social and political impact and the “semantic” web, in which information is labelled so that it makes sense to machines as well as people. “If you look at the number of internet-capable mobile phones, PDAs and so on, they are rapidly outnumbering the things we think of as computers,” he says. “As the price of these devices falls, large parts of the developing world will get web access. When you have a large mass of new users, you will get many new applications, written by people with other needs.”

The number of internet users reached 1 billion in 2005. But although about 70% of the population now has access to the internet in North America, the figure is just 11% in Asia and less than 4% in Africa. To the jaundiced observer who remembers the disappointment of WAP, the first attempt to bring the internet to mobile phones, Sir Tim’s enthusiasm for mobile-internet access may sound like déjà vu. But he insists that there are crucial differences. “WAP was not based on standard internet protocols, there was no competition for browsers, and operators had a stranglehold on access,” he says.

Maybe with this acquisition and Microsoft’s commitment to mobile, I and other VCs will find ourselves once again asking the question, "what is MIcrosoft doing or going to do?"

As an FYI, there should be more to come on this topic as I will be at the Microsoft VC Summit tomorrow learning more about their plans for the next year.

Algorithmic technology on the web

Matt Marshall (amazing how he does it!) recently broke the news on my fund’s (Dawntreader Ventures) latest investment which is still in stealth mode.  Now that the news is out, all I can say is that there is tons of data on the web, most of which is unstructured, and that the company, Peer39, has some serious algorithmic technology which can help mine that information and boost "conversion rates" dramatically for advertising as Matt succinctly describes.  Matt correctly updated that Dan Ciporin, the former CEO of, is not a founder but a seed investor and board member of the company.  Amiad Solomon is the founder and my two colleagues, Ned Carlson (who will be on the board) and Sang Ahn (not Dan Ahn) were leading the deal from our end.  I know – having stealth companies is a pain, but we were truly trying to keep the company under wraps until we rolled out our beta system later this year.  What we love about the model is that with some proprietary algorithms we believe we can turn just plain data into real usable information to dramatically improve the effectiveness of advertising, and that as a fund we believe there are many more opportunities on the web to take unstructured data, apply some algorithms, and turn it into real valuable information.  The other beauty is that if we execute correctly, it is an extremely scalable and capital efficient business.  More to follow and thanks to Matt for breaking the news…