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May 12, 2005

Microsoft's VC Conference

I'm in Mountain View, CA today attending Microsoft's annual VC Conference.  Every year, Steve Ballmer and crew come down from Redmond and expose 100 VCs to their upcoming plans.  The buzz points in the audience this year include:

  • The enterprise software business model is dead.  This is refrain many VCs are mumbling to each other lately.  Price pressure is incredibly intense between open source, Microsoft moving up the stack, vendor consolidation, IT buying wariness, the ASP model, overfunding in interesting sectors and many other factors.  It used to be that you could build a profitable enterprise software company at the $15-20M threshold.  But with today's pricing pressures and high cost of sale, it seems to have jumped to $40M, and it's harder to reach that threshold quickly.  VC appetite for standard enterprise software appears to be dwindling to nothing.
  • LAMP cost of ownership vs. Microsoft is a myth.  This is a new acronymn that I learned today.  It stands for Linux, Apache, MySQL and PHP - all open source components that are eating away at Microsoft's value chain.  Microsoft firmly believes that they are right on the facts and losing a perception battle with their core developer community - and need to fix this, fast.
  • Microsoft is no longer the Big Bad Wolf.  Believe it or not, Microsoft feels downright warm and fuzzy lately to a VC.  It used to be that VCs would complain that investing is software is dumb because Microsoft will simply build it and give it away for free.  Nowadays, you hear much less of that.  The law of large numbers has settled into Redmond's decisions.  If a business is less than $1 billion in platform revenue potential, it's not interesting enough to warrant Microsoft's attention.  Therefore, there are plenty of multi-hundred million dollar software segments that Microsoft is thrilled to help young companies build (on top of their platform, of course).  Also, Microsoft's IP strategy is now all about aggressive cross-licensing rather than offensive litigation.  This company has really grown up over the years.

Ballmer's keynote over breakfast is today, so we'll see if anything new comes out of that.  Last year, he spent much time trying to convince us (and himself!) that Microsoft would catch up with and crush Google.  One year later, they seem to have slipped farther behind!

Comments

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I think that enterprise innovation has just begun. See -
http://www.strategicboard.com/weblog/pivot/entry.php?id=212.

Dudu

MSFT usually gives some hard data to back up counter-claims to industry trends that are allegedly negative to them, like LAMP...

on the LAMP vs. myth issue, curious if they cited any numbers and/or hard data.

Jeff,

How's it going -- Sounds like Steve is pulling a Larry Ellison by saying the equivalent of the software business is mature. I disagree -- MSFT and Oracle can only go after the large $1 Billion opportunities thus leaving room for the little companies to come up the stack (Innovator's Dilemma). I do agree if you follow the traditional model - the cost of sales will eat you alive but there are other paths.
Best
Karl

I missed... do you agree or disagree with the feeling on software?

Is the software hang over self inflicted by the investment community? Over the last handful of year a whole lot of software has been funded that is a feature not a business.

Customers still need to improve their business and it is hard to see how software will not be part of this. Else where in the blog someone mentioned enterprise software is just begining and I would have to commend then for their insite.

These are exciting times! Having been in the tech industry for some time as an entrepreneur, living through the bubble & burst, it's great to see free market innovation on the rise again.

And that LAMP is catalyzing this new traction and growth is both amazing and interesting at the same time. No longer are the large players able to stall progress to keep innovation and competition at bay.

I recently read that Firefox / Mozilla is gaining on Internet Explorer as the most widely used browser -- 25.5% of all surfers use Firefox and this percentage is growing every day. Microsoft was asleep at the browser wheel, not having even upgraded the product in over 4 years! Who was losing out in that deal...us, end-users.

Enter Google. The new paradigm shifters. They clearly want to take things to another level, a place where "intuitive" and "ease of use" have meaning, where staples like Microsoft Office will no longer be the suite of choice, where we'll simply log into our Google accounts for our workbooks and word processors. Who wins out in that deal...us, end-users.

Quite frankly, it's time for change. From 2001 until quite recently, high tech has felt...for lack of a better term...dead. But, the Internet is now in all our homes, and with cable modems on an incredible ascent, it's time to bring high tech to the next level.

But, I do go on...

swallow Microsoft kool-aid if you wish, but LAMP is already old, and the next generation of Open Source is already moving along... as an old mainframe programmer, and founder of an enterprise software company and now a life sciences company -- and with the final decision in my hands to pick anything I want for my data center, what platform did I base my company -- Linux, Apache, PHP, JSP... MS fails to notice it's not a cost decision, but that anything makes more sense than MS server software because THEIR STUFF IS NOT RELIABLE AND ENTERPRISE READY... IT'S JUST NOT GOOD ENOUGH !

I love how the mention of Microsoft always brings out the "passion" in people!

Personally, I am a reformed wintel addict. Since going entrepreneur, I use Mac iBook (plus iPod) and Firefox.

However with regard to my business plan and other business documents, I use MS Word, Excel, and Powerpoint ... and my calendar / contacts are in MS Entourage (Outlook for Mac). I'm not stupid - I'm going to use the best stuff.

The only reason I wish I still had a wintel machine is so I could use GoogleTalk and "Brainstorm for Windows".

BTW, re: your blog post, the causality behind Microsoft's new intellectual property strategy is completely wrong.

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