That’s the message that Microsoft is pushing out to small entrepreneurs around the world: We want to sell you our technology. As part of an unusual corporate programme to get more out of its labs, the company’s intellectual property specialists in May 2005 launched a programme they call IP Ventures.
It has completed nine deals since then, licensing its technologies to entrepreneurs in the US and Europe – and expects to complete at least nine more such deals over the next 12 months, according to David Harnett, the programme’s senior director.
The Skinkers deal, valued by Microsoft at about £2 million, was in exchange for a stake of about 10% in the four-year-old London start-up. The Vimio deal is for undisclosed future royalty payments, as it sells services based on the Microsoft technology to its mobile phone clients in the Middle East.
Fleet of foot
The programme is part of a Microsoft effort to milk more out of its labs, which employ more than 700 engineers, and out of its portfolio of patents. Of course, most Microsoft discoveries are used in-house. But for those it wants to sell, Harnett says, small companies have a simple attraction: they’re fast.
“Small companies have the ability to package our technology, enhance it, and get it out to market quickly,” Harnett says. Vimio CEO Malachy Harkin put it more simply, when asked why Microsoft would pick a little firm like his for the mobile-video technology: “Because we have the customers.” Its clients include mobile phone networks in Bahrain, Saudi Arabia, Abu Dhabi and Jordan.
Skeptics might suggest another motive: small companies, in their eagerness to succeed, might give Microsoft more control than, say, an Alcatel, Nokia or other multinational it could license to.
But even if true, that wouldn’t matter much to the entrepreneurs. For instance, the 42-employee Skinkers stands to get a head start by having first crack at the new Microsoft technology, for “pushing” news alerts faster towards desktops. Microsoft plans to incorporate software code into its next Windows release to enable such “push” services. Indeed, such was the enthusiasm of Skinkers’ founders that they temporarily turned their online home page into a full-screen announcement: “SKINKERS STRENGTHENED BY MICROSOFT’S TECHNOLOGY AND INVESTMENT.”
But Microsoft isn’t alone in seeing small enterprises as a promising outlet for its discoveries. IBM, for instance, last August announced a Venture Capital Advisory Council to help it get more of its lab technologies into the marketplace.
IBM claims to have formed more than 850 “partnerships”, of various types, with VC-backed small firms since 2000. Indeed, IBM has a reputation for being the grandmaster of intellectual property management, earning more than $1.8 billion a year from its portfolio. (In fact, Microsoft hired a former IBM IP expert when it recently revamped its own strategy.)
Hooray for small companies
And the IP Ventures programme is just one part of a Microsoft strategy to cosy up to small companies. On the same day it announced the Irish and British deals, the company released a study it commissioned on the importance of small companies to the Europe in general, and the computer and telecommunications industries in particular.
The study projected that the sector will generate 1.5 million new jobs over the next four years. Software-related employees and companies will yield nearly $125 billion in extra European tax revenues between now and the end of 2009. And companies with fewer than 500 employees constitute 70 per cent of information technology employment in Europe, and account for 55 per cent of IT spending.
(The study, by market-researcher International Data Corp., went on to say that most of those small companies depend on Windows to do their jobs. Microsoft is in a high-stakes battle with European Union competition authorities – and Jean-Philippe Courtois, president of Microsoft International, acknowledged that the company wants to highlight the importance of Windows to the overall European economy.)
The IP Ventures programme is headed by Harnett, an Irishman who joined Microsoft in 2001 after working for Hewlett-Packard and Accenture. What he’s looking for, he said, is strong entrepreneurs with venture-capital backing, anywhere in the world. (So far, three of the nine deals have been with European firms, and six with Americans.)
Harnett said he typically finds his entrepreneurs through regional development agencies or through the VC firms themselves – for instance, he got to Skinkers through contacts at Cambridge-based Amadeus Capital Partners, and to Vimio through Enterprise Ireland. Terms, he said, depend on the situation: the deal could be a simple licensing arrangement, or an equity investment. In the Skinkers case, Microsoft also gets a seat on the board, along with its shareholding of about 10 per cent.
At some technology multinationals, the end-game for a small company in which they invest is to be bought outright. While Harnett doesn’t rule that out, he said it isn’t the goal for Microsoft.
Entrepreneurs interested in the programme, he said, should start at its web site, www.microsoft.com/mscorp/ip/ventures/. It lists Microsoft technologies for sale – including a new system for biometric ID cards, and a new type of WiFi antenna. The company also arranges visits to its labs, he said. As for speed of execution, the Vimio deal was negotiated in three months.