InnovationInspiration

8500 Startups vs Skype

The recent Microsoft purchase of Skype for 8.5 billion dollars left a lot of people unhappy, and calling for Ballmer’s resignation as CEO. So, what could Microsoft have done instead of buying Skype? Well, what would happen if Microsoft invested 1 million dollars in 8500 startups, and gave them access to the distribution channels, expertise and technical resources that Microsoft has? It’s an interesting thought experiment!

Not too long ago a close friend and mentor of our company suggested this potential strategy for Microsoft over breakfast. That comment he made in passing really did make us all think - why the hell isn’t Microsoft investing small sums of money in a large number of startups as their way to establish a pipeline of innovation? They would be playing some pretty good odds of developing multiple hundred million, and billion dollar companies! Especially when considering the network effects that would be gained! So - why isn’t Microsoft Yuri Mcluring it?

Sure Microsoft has their BizSpark program for startups, which tries to connect them with Mircosoft technology, but the offering isn’t overwhelmingly compelling for startups, and they don’t invest in the companies! As a result Microsoft is not doing a great job garnering the mindshare of startups, and this is dangerous for the company’s long term well being. In order to retain that mindshare one thing they could try is to make a TechStars, 500 startups or Y Combinator style startup incubation program where they invest small seed/Series A stage investments in an incredibly large number of startups that fit within Microsoft Research’s vision of the future. Even if the immediate monetary returns were not phenomenal - they’d have mindshare, access to talented developers, and ideas!

It’s true that M$ currently has limited expertise in the realm of startup incubation - being in a large company is VERY different from being in a startup. But, with a couple of pilot programs they could quickly develop the expertise and framework needed, and they would essentially be pumping out 8500 miniature Microsoft Research groups! They could set broad themes in terms of the types of startups they’re looking to fund (e.g. social enterprise, teleconferencing, database technology), and make it ridiculously compelling for entrepreneurs to participate. Some of the benefits they could offer include:

Easier distribution and partnerships with Microsoft’s existing user base… which…. is a ridiculously large user base.
Free access to Microsoft technology (There’s a reason so few startups use M$ technology. It’s definitely more heavy duty than what most startups need. But, if more of them did use it, it would put pressure on M$ to improve their underlying technology, and there would be a lot more people who know how to develop products using M$ technology.
inside knowledge of what Microsoft is doing next, and how they can build on top of unreleased technology (this is similar to what Apple does with their app developer ecosystem)
Ready connection with Microsoft for M&A purposes - i.e. they have a high likelihood of being bought by Microsoft, but they could also pursue other buyers.
Access to experts who can help the startups with areas that are not their core competencies: e.g. technology experts, marketing experts, sales experts. Who can do regular reviews of the startups and offer advice (essentially Microsoft advisory boards).
Free office space? Imagine 8500 startups working in close proximity, all near Microsoft’s headquarters to keep their core staff constantly energized, and connected to the cutting edge of technology (Redmond can feel like a bubble at times). The importance of being in close physical proximity, and how that impacts innovation, and execution, should not be underestimated!
Free legal services up to some amount.
Help finding additional financing from other sources - I’m sure M$ could put together a strong network of investors, and become a prominent player in the deal flow.
A free zune.

The list of possible benefits could go on (would love to hear what you think they could offer). I’d certainly seriously consider participating in that program if it was available. Now, all this thinking is at a very high level, and misses out questions like what would happen in terms of follow on investment, etc. But, that stuff could be figured out - and when I imagine what the potential benefits to Microsoft of doing something like this could be - the question resurfaces: why isn’t Microsoft doing this?