Windows OUT.....Linux IN................http://biz.yahoo.com/prnews/000217/ny_bloombe_1.html
Microsoft is losing its grip
By Lawrence Aragon
Redherring.com, February 17, 2000
On the eve of one of Microsoft (Nasdaq: MSFT)'s most significant product
introductions, a dozen venture capitalists sat around a room scratching their
heads. The question before them: "Is Microsoft dead?"
It wasn't a joke. The VCs, who had gathered Tuesday at a private function to
discuss investing trends, had been arguing about the one stock that investors
should hold for the next five years. Everyone agreed on Cisco Systems
(Nasdaq: CSCO). They haggled over Amazon.com (Nasdaq: AMZN) and
eBay (Nasdaq: EBAY). But the company that wrought so much havoc in the
marketplace that the government took it to court wasn't mentioned. Not once.
"Somebody asked: 'Did anyone even consider Microsoft?'," says Keith
Benjamin, a general partner at Highland Capital Partners who was one of the
12 VCs present. He declines to name the others that were in the room, but he
says the assembled VCs answered, "No, of course not."
WHILE THE GIANT'S AWAY, THE STARTUPS PLAY
Apparently somewhere during the long-delayed development of Windows
2000, Microsoft began to lose its relevance. At least in the world of startups.
And that's no small thing, considering that as a group, startups are the growth
engine of the New Economy.
No one is saying that Microsoft is irrelevant or is doomed to fail. After all, this
is a company that racked up sales of nearly $22 billion last year and has a
market cap of $508 billion. The point is that even at such a large size,
Microsoft has gone from being the proverbial big fish in a small pond (desktop
operating systems) to just another cod in the ocean of the Internet and
communications.
It wasn't long ago that venture capitalists would avoid companies that couldn't
show how they'd peacefully coexist with Microsoft or pull an end-run around
the monster developer. You had to have a "Microsoft strategy."
"In days past you might spend a lot of time thinking about [a potential
investment's] dependencies on Microsoft," says Rich Shapero, managing
partner of Crosspoint Venture Partners of Woodside, California. "But these
days there aren't very many companies that are dependent on Microsoft. It
remains an important strategic partner for many of our companies, but we
don't have to worry about tiptoeing around it anymore."
Jonathan Guerster, a general partner at Charles River Ventures of Waltham,
Massachusetts, is more blunt. "The newest and biggest opportunities aren't
where Microsoft is right now," he says.
LONELY AT THE TOP
What has taken Microsoft's place? It isn't a single company or technology.
For Mr. Guerster it's a troika of electronic-commerce powerhouses: Ariba
(Nasdaq: ARBA), Commerce One (Nasdaq: CMRC), and Verticalnet
(Nasdaq: VERT). "They're the three bellwether companies I think about when
I think about funding any e-business company," he says. "I don't think about
Microsoft."
Mr. Shapero agrees that no single company has become as feared or loathed
as Microsoft. "There are some new leaders in critical sectors," he says. "You
have players like Ariba and Commerce One in the supply-chain B2B
[business-to-business] space, you've got a player like Covad (Nasdaq:
COVD) in the DSL space, and you've got a number of other young
companies that have established leadership positions. You're competing in a
completely green field."
Does that mean we'll never see another technology company with as much
power and influence as Microsoft? "It's too early to say, but it's safe to say
that the market is too large for any one player to have a Microsoft-like
influence for at least the next five years," Mr. Shapero says.
At least on the surface, it appears that Microsoft has spent so much time
protecting the desktop that a myriad of other opportunities passed it by. This
is illustrated by its failed battle with startup eDocs. About two years ago,
Charles River Ventures funded eDocs, which makes software that allows
consumers to view bills online. The VC took the risk even though the
company was worried that Microsoft was building a similar application.
Microsoft had started a joint venture called Transpoint with First Data
Corporation (NYSE: FDC) to compete with eDocs partner Checkfree
(Nasdaq: CKFR).
It turned out eDocs's fears were unfounded. "In two years, Microsoft was not
successful in producing an enterprise software application [to compete with
eDocs], and it was not successful in building a third-party service company
like Checkfree," Mr. Guerster says. His statement was punctuated by
Checkfree's announcement Wednesday that it would acquire Transpoint.
"Back in 1993, it would have been wildly different," he says.
SLIPPERY SLOPE
Mr. Benjamin argues that Microsoft will continue to see its influence erode
with the rise of application service providers (ASPs), a model that isn't
dependent on a single platform, such as Windows. "The word ASP had some
meaning to Cleopatra and definitely has some meaning for Microsoft," he says.
"We're all doing ASPs right, left, and sideways, and the last thing I care about
is Microsoft."
Mr. Benjamin goes on to say that "software itself has become less valuable.
We're truly seeing critical applications moving out beyond Microsoft's grasp.
For example, the Commerce Ones, Aribas, and others in the B2B world are
reinventing business software."
Out of more than a half-dozen VCs contacted by Redherring.com, just one
said today's rollout of Windows 2000 was significant for a company in his or
her investment portfolio. That was Heidi Roizen, a longtime developer and
principal managing director of Softbank Venture Capital (whose parent holds
a stake in Red Herring).
"One of my companies, Great Plains, is basically based around NT. They're
pretty excited about [the new release] and its focus on reliability and
performance," Ms. Roizen says. She adds that new operating systems "always
create new opportunities."
While Ms. Roizen agrees with colleagues that the playing field has changed,
she says, "That doesn't mean that Microsoft is marginalized. They're still an
incredible force in the Internet economy."
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