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!
