Microsoft is losing its grip (Twister please do not read this)
redherring.com
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.
All the best JC, I like the Sunw pens,
Michael |
