On August 15, 2007, I was interviewed by Tom Foremski, publisher of Silicon Valley Watcher—Reporting on the business and culture of Silicon Valley. The podcast and video are posted on PodTech here (11 min 45 sec.) The complete transcript is posted below for those who prefer reading.

Key take-aways:

• Microsoft’s Silicon Valley campus had 6 buildings that include about 2,000 employees focused on development activities. The lion's share of the activity is tied to consumer and related entertainment activities including Xbox hardware, IP TV, Hotmail services, distributed computing, our Mac business unit and research.
• A large part of my personal charter in the company is to focus on what we call Emerging Business Development -- entrepreneurially driven and venture capital backed businesses. The activity emanates from Silicon Valley, but it's certainly spread across the United States and the world. We’re doing this kind of engagement in 15 countries, whether it's in Israel or China and India or France or the UK or Canada or Singapore.
• Do we invest in startups? We're not typically a direct investor of capital. We invest heavily in a series of outreach resources to helping them go into market, helping them with technology scaling, et cetera. So, it's really a set of services that we provide.
• Partnering with startups: We're looking at well over a thousand companies a year on a global basis. That narrows down into a meaningful set of relationships where we mutually agree that we've helped each other, and that there's customer outcome that's really terrific, with probably several hundred companies a year.
• Acquisitions: In any given year over the last two or three we've been on a pace to buy two to three companies per month-- ranging from very, very small three or four-person shops that are doing interesting things, to very large ones. In my area we're concentrating on these venture-backed businesses, which I'd say typically in terms of call it a sweet spot for acquisition is somewhere in the say 10 million to several hundred million in price point.
• Local software economy: This initiative that I lead is touching 60 countries right now, and there's over 130 innovation centers that are in collaboration with the local constituents, so the government agencies, universities, local software associations, large and small corporations. These innovation centers are working on understanding the local problem set, the local knowledge economy issues. As the world goes flat, it's really all about leveling the playing field and bringing people up into the economy where technology can play an important part.
• Collaboration and coopetition with everyone: We have a very broad portfolio. There really aren't very many areas where we're not interested in partnering and/or looking. We have a pretty good appetite for partnership. Microsoft's business and the whole technology industry and software are expanding at an incredible rate, both creating massive vertical opportunities, as well as horizontal layers of opportunity. So, I think we're in a world of “coopetition,” where we're going to be competing and collaborating with everyone in the future.

Complete Transcript:

TOM FOREMSKI: I'm here with Dan'l Lewin, who's VP at Microsoft, and head of Emerging Business Development at the Microsoft campus in Silicon Valley.

Dan'l, could you tell us what you guys do here? You've got five or six large buildings.

DAN'L LEWIN: That's right. Yeah, in the Silicon Valley campus we have about 2,000 employees focused on development activities. The lion's share of the activity is tied to consumer and related entertainment activities.

FOREMSKI: Is that also Xbox development?

LEWIN: Yeah, we have Xbox, hardware engineering, we have the complete end-to-end business around our IP television business, we have a lot of core services around Hotmail and related infrastructure services or MSN, so our online video, a lot of consumer oriented activities. We also have a large research presence tied to distributed computing and part of our search lab is also here as well.

FOREMSKI: Oh, really? It's interesting, Google is just a stone's throw away from --

LEWIN: They're not far away. Neither is Apple.

FOREMSKI: That's true.

LEWIN: We have a Mac business unit here as well, exactly.

FOREMSKI: You used to be at Apple.

LEWIN: I was at Apple a long time ago, that's right.

FOREMSKI: That's great.

You've spent a lot of time at startups, too, not just in Silicon Valley but abroad.

LEWIN: That's right. A large part of my personal charter in the company is to focus on what we call Emerging Business Development, and that's really entrepreneurially driven and venture capital backed businesses.

So, while we know a lot of the activity emanates from Silicon Valley, it's certainly spread across the United States, and now through our outreach and programs around the world, we're actually doing this kind of engagement in 15 countries, whether it's in Israel or China and India or France or the UK or Canada or Singapore. So, we're kind of all over the world, too.

FOREMSKI: Does Microsoft invest in these companies?

LEWIN: We're not typically a direct investor of capital. We invest heavily in a series of outreach resources to helping them go into market, helping them with technology scaling, et cetera. So, it's really a set of services that we provide.

We also coordinate and help through marketing and sales activities reduce cost of sales and things like that for these companies. Most of them, if they can align with Microsoft in a way that's supportive and collaborative for the end customer benefit, they're not having trouble finding venture capital from real venture capitalists that are looking at strategic return.

FOREMSKI: Do you meet with venture capitalists and tell them the kinds of markets you're looking at in the future?

LEWIN: We do. We meet with the venture capitalists really around the world. We've got a set of relationships. We look at where they've made their investments in the past, and we line up by looking at their portfolio of investments.

So, a scenario would be for us to meet with a venture firm and meet with all the partners to understand the areas where their strategic interests lie in investing, and to carry on a conversation that we would call opportunity mapping about where, in and around what Microsoft is doing, we see good opportunities to be helpful.

FOREMSKI: How many companies do you look at a year?

LEWIN: At this stage we're looking at about 100 plus companies per month on a global basis. So it's well over a thousand a year that we look at. That narrows down into a meaningful set of relationships where I think we mutually agree that we've helped each other, and that there's customer outcome that's really terrific, with probably several hundred, 200 plus, companies a year.

FOREMSKI: And how many acquisitions would you make a year?

LEWIN: Yeah, one of the offshoots of this engagement process is that we end up understanding areas where we can be a good acquirer. In any given year over the last two or three we've been on a pace to buy two to three companies per month. So, I think last year was on the order of 26 companies, and then this year we're kind of midway through the calendar year, so we're on scale for about that same number.

FOREMSKI: And the size of those companies? Are they small shops or --

LEWIN: Well, they range, as you know, from very, very small three or four-person shops that are doing interesting things, to very large ones. In my area we're concentrating on these venture-backed businesses, which I'd say typically in terms of call it a sweet spot for acquisition is somewhere in the say 10 million to several hundred million in price point, so some, you know, depending upon how hot the area is.

FOREMSKI: Which are the hot areas for you right now?

LEWIN: Which ones aren't hot? That's the real question. We have a very broad portfolio. So, there really aren't very many areas where we're not interested in partnering and/or looking. We have a pretty good appetite for partnership. Clearly that is our model. We do well when others are working in and around our platforms.

In terms of the acquisition areas, the best indicators are to look at our past transactions, and that's usually a sense of where things are hot, and that's all available on our Web site.

FOREMSKI: To many people you've become the human face of Microsoft in Silicon Valley. Is Microsoft going to be expanding its presence here?

LEWIN: Well, we have been expanding the presence. I've been here a little over six years now. The physical campus that we're visiting today, or you're visiting and I live and work on, is coming up on eight-years old. So, the company has had a presence in Silicon Valley for 25 years, the campus with these five buildings, the sixth opening up very soon, and through our recent TellMe acquisition we have another campus that's about a mile away from us right now.

So, we're constantly growing and expanding both our core businesses and then through acquisition, where, of course, there's great opportunities here in the valley, some of the best and brightest, and some of the companies that we're engaged with will undoubtedly end up as part of our acquisition strategy.

FOREMSKI: You spent 30 years in the valley, and you've done a lot of traveling to other small valleys around the world. So, I think you can say that that's unique about Silicon Valley that you don't find elsewhere.

LEWIN: Well, Silicon Valley is the most diverse place on the planet, at least from my personal experiences in traveling around the world. So, it's a combination of -- well, it starts with the weather, the weather is terrific, but Stanford and Berkeley, the draw that they present to the academic community, the diversity and the talent from around the world, many, many large companies, the spirit of a frontier, willingness to tolerate and, in fact, to praise failure. These are things, cultural traits, concentration of assets, and a terrific willingness of I think the community to embrace a new idea. This is a terrific place. I see things around the world but nothing quite like the valley.

FOREMSKI: In terms of overseas innovation centers, what's cropping up on your radar screen? You were saying you were in Latin America recently?

LEWIN: That's right. One of the areas that I oversee is part of this emerging business area is tied to what we call the local software ecosystem or local software economy. We're as a company doing business in over a hundred companies [countries] around the world. The initiative that I lead is touching 60 countries right now, and there's over 130 centers, about 130 centers that are in collaboration with the local constituents, so the government agencies, universities, local software associations, large and small corporations.

So, these innovation centers are working on understanding the local problem set, the local knowledge economy issues. As the world goes flat, it's really all about leveling the playing field and bringing people up into the economy where technology can play an important part.

So, we're really excited about this initiative, and the best practices that emanate from Silicon Valley again can be translated as best as possible around the world, and localized as appropriate.

FOREMSKI: Okay, cool.

In terms of trends, is there anything that's catching your eye specifically right now?

LEWIN: There are many exciting things. Personally I'm really, like most, excited about what's going on with the core Web, the technologies and services around Web Services. Software plus service is the way we look at it with the edge devices, using all the compute cycles. Mobility is important to that.

So, from our standpoint in what I see, you know, some of the most exciting examples come out of the gaming community, for example, and the Xbox world is interesting because there's a very sophisticated compute machine on the one side, with local content, and then the online services that blend in with that are really, you know, things to come. So, we think the software plus services model around the world is going to be really exciting.

FOREMSKI: Interesting.

Microsoft seems to be partnering much more than in the past. In the past it didn't have quite as good a reputation. How has that been achieved?

LEWIN: Well, I think it's a combination of appreciating our corporate position, the leadership role we have, which is a broad footprint across the board with the scale of our business. So, I think a certain acknowledgement and maturity around our role in the industry, so we call that taking on the responsibility of a leader, so I think there's that going on.

I also think that the industry is ever changing and rapidly moving forward. We've now in this last six or years been rapidly expanding to the edge, right. TCP/IP is everywhere, edge devices, compute cycles at the edge, and I think if you look at the early '80s and '90s where we were collapsing to the desktop around office automation activity and things like that.

So, I think Microsoft's business and the whole technology industry and software is just expanding at an incredible rate, both creating massive vertical opportunities, as well as horizontal layers of opportunity. So, I think we're in a world of coopetition, where we're going to be competing and collaborating with everyone in the future.

FOREMSKI: Microsoft is such a large company and in so many businesses. Does that make it less agile in taking advantage of these opportunities?

LEWIN: Well, we certainly operate with certain principles around our management behaviors and things like that, but I think there's a really exciting sort of entrepreneurial spirit inside of the company. We have a terrific I think design around the way our product groups are organized under the three different division presidents, and the way things work kind of better together, and people team cross-functionally. So, I think the management structures that have been put in place in the last few years -- just personal opinion -- that Steve Ballmer has put in place, and with the division presidents and now Ray Ozzie coming on board to drive technology collaboration across all the groups, I think we're very well positioned, and the spirit is pretty darn strong.

We're pushing 80,000 people or so on a global basis, and there are some incredibly innovative things coming out, whether it's the Surface Computing technologies that we just announced, or some of the robotics toolkits that we're coming forward with, very rapidly growing, strong position in mobility with our Smart Phones, et cetera. So, I think the spirit is here.

FOREMSKI: Okay, good. Well, thank you very much for your time.

LEWIN: Thanks, Tom.