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Friday, July 22, 2005

Venture Capital, .Net & New Products

An interesting article from eWeek initiated a discussion is .Net Failing to Draw Venture Capital Loyalty. It is plain commen sense that only anything that is innovative, disruptive and capable of creating huge change effect in the system can bring investments in.

Ed Sim writes, Technology and platform decisions, should be thought in 2 separate buckets, the consumer market and the enterprise market. On the consumer side, one big value for Microsoft has been its hold on the desktop as, but as we move more and more into a web-based world its strength is diminishing. Look at Google, Firefox which are increasingly offering users more and more functionality through a web-based interface. Microsoft will get it right with Longhorn but it has taken way too long and many a more nimble, startup has out-innovated Microsoft and decreased its competitive advantage. While the OS is important, Microsoft has lost its complete and utter dominance as we move to a service-oriented world where broadband is everywhere, apps are in the cloud, and the browser becomes king.Funding decisions for a startup based shall not be based on whether or not it uses .Net. On the enterprise side, the only reason for a company move off an existing platform to .Net is if there was significant customer demand for it and if Microsoft would really provide the company with access to its channel. Microsoft really wants companies to develop vertical, industry-specific applications on the .Net architecture. In other words, many of these companies are nice businesses but not venture-backable opportunities where VCs can make big returns.

Tim Oren shares shares some important insights on this issue. He says that it's a reasonable simplification to say that VCs and venture generally makes those gains by betting 'on the change'. Static or stagnant markets and technologies are not VC’s meat (unless we can disrupt them). To the extent that there's an aggregate pattern in our investments, it is a sort of rough referendum on which technologies are driving or at least surfing the change. It's again likely fair to say that while there aren't a lot of overt bets against .NET per se, there also aren't a lot of markers down that require it to drive a market to get a win. He says that could say more strongly about Longhorn, and bit less strongly about Microsoft in the whole mobile arena and offeres three thoughts on the basis for this pattern of activity with respect to MSFT.
Longhorn is tactically and strategically compromised
- Longhorn is still fundamentally a play on the desktop. It's been a decade since a major change erupted as a consequence of innovation on the desktop PC. Intel has figured out that it can no longer rely on innovation on the desktop to drive the Moore's Law investment cycle, but Microsoft still seems to believe that its hegemony in that sector is a bankable asset.We covered this in a related post Microsoft unready for Web 2.0
- Strategic leverage as negative indicator. Its use of desktop dominance seems to be a negative indicator of success of late.
- Opportunity costs. The storage learning curve beat out even Moore's Law, so we just keep everything now. Binding those bits of our lives to a particular device or body of code seems pointless, we're now used to having our resources 'in the net'. The next wave is taking this already hideous management problem, and moving our user interface onto mobile devices with far fewer affordances.
Staying too close to the desktop has let entrants like Google move right onto the pain point of the market without opposition. MSFT has always treated services as a red-haired stepchild of its product culture. Microsoft has been a prime mover in the 'success failure' that is today's networked media user experience. It is time for Microsoft to show the readiness to change and thereby change the market.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"