Edge of the Valley by Dan'l Lewin

Nurturing Microsoft’s Relations with VCs and Startups

Dan'l Lewin — Mon, 30 Jun 2008 17:36:00 GMT

Last week I sat down with Deborah Gage of the San Francisco Chronicle. We talked about how I came to work at Microsoft and what my mission here is, as well as how Microsoft works with software startup companies, how we acquire and integrate them into our businesses.

You can read the entire article, Vice president nurtures Microsoft's relations, at SF Gate.

Thanks, Deborah, for an enjoyable conversation.

Dan’l

Don Dodge on my team adds his spin on the article on his blog.

Vator.tv: Lessons Learned, Advice for Startups

Dan'l Lewin — Sat, 09 Feb 2008 00:32:00 GMT

After John Shinal and I talked in late November, we followed up with another short talk about “lessons learned” and advice for startups. This is short but contains three ideas I think are important for startups. I have run startups and I’ve worked with many of them here at Microsoft.

John Shinal, Vator.tv : Hi. We're here with Dan'l, a group vice president of Microsoft, and he's going to tell the entrepreneurs out there what are three pieces of advice you might have for startup execs, or maybe three lessons you've learned in your entrepreneurial experience.

Dan’l Lewin: I have a strong belief in selling and channels. Most companies fail for lack of distribution and sales, and that's a fundamental element. So, I think companies and entrepreneurs should be thinking about their underlying platform assets, and who they partner with, because affiliation with large going concerns to help in the channel is always important. So, that's a fundamental.

You also can't—on a second level—get your products and services to market without money. So, I would encourage people to take more money than they think they need, because usually that's the case, you'll need it. So, the negotiation there is just a matter of how much you give versus how much you get.

The third element I would comment on is when you take your money, take it from people that you feel comfortable with, and that you believe that over time you could be in the trenches with, because things always get tough before they become good or great. So, given that you've got a good opportunity and you've got a choice, do the reference checks on the financiers as much as they do on you, and get a feel for how they'll behave when the going gets tough.

So, that's what I would say in terms of three simple things.

There's always the inevitable for the entrepreneur of knowing when to let go. There are a small number of people in the world like Bill Gates or others that have built big businesses, who know how to transition and grow and scale and create the kinds of jobs and wealth that all entrepreneurs aspire to. But there are also times when you've got to let go. Depending upon your skill set, if you're a technologist and you know you need channel or sales help, then be comfortable with that transition.

Shinal: Okay, Dan'l, thanks a lot.

Lewin: Glad to.

Beet.TV: Microsoft Seeks Innovators Around the Globe

Dan'l Lewin — Mon, 04 Feb 2008 13:01:00 GMT

Late last year, I spoke with Andy Plesser, founder and CEO of Beet.tv, about Microsoft’s IPTV efforts and how they related to startups in particular. Andy and I had a follow up talk looking into the process of partnering with Microsoft, and our engagements outside the United States. Here is the full transcript of our talk. The video can be seen here.

Dan’l Lewin: The way we look at it, we have a core group that's a set of corporate resources that I have responsibility for, and then that kind of syndicates or federates out into market areas where classical, if you will, Silcon-Valley-centric, or Silicon-Valley-style entrepreneurism and venture capital plays.

So, clearly, in the US, it's not just the Valley, it's Austin, Texas; it's Boston; it's Seattle; it's everywhere else where we have these skills and typically major universities, et cetera. Around the world, there are 15 countries where we're doing this work, probably five or six that are very, very capable and we're tightly integrated. So there's great things going on in Israel, particularly in this area. There's incredibly interesting things going on in the UK.

We've actually engaged aggressively in France. We've purchased two companies in France in the last six months, which is really interesting, one called Screen Tonic, for example. India and China, again, big market opportunities, tremendous entrepreneurial zeal. So that's a system that we've got in place and, again, we're a global company, and we see the activity everywhere, and we try and enable that wherever possible.

In terms of our global outreach and working with entrepreneurs and startups around the world, we have a Web site, www.MicrosoftStartupZone.com, and we have a program associated with that where we're—what we call "accelerating" the top 100 companies that we're able to see around the world doing interesting things in and around our ecosystem. Many of them are working in online video and related spaces, but that's really the resource place, the landing page where a startup can go. And from it, you know, discern the best way to work with and engage with Microsoft.

Andy Plesser: So how does a company go about being a part of that?

Lewin: Well, the first thing is they engage. They step up and let us know what they're up to within some context. And then we have a selection process. They get nominated by one of the team managers, a portfolio manager, who's looking at a particular area. And then from that, we'll provide a set of online services and related cost offsets and things. We're not direct investors, but we actually do a significant amount of people, time, and energy investment in helping these companies.

Typically, we're looking for companies that have some—what we would call a "win win win," right? They're clearly focused on customers that matter to us, and they're using some of our highlighted technologies where we can help them as we launch our products and services around the world.

It's very hard to see what an entrepreneur sees, right? An entrepreneur suspends disbelief and has a vision of what's possible. Occasionally that resonates with me personally. What we—you know, you've given them all the encouragement you can. As a company and as a group that I oversee, we spend a lot of time guiding entrepreneurs through the maze, if you will, which is a large company like Microsoft. And we can be really clear very quickly about whether or not we can be helpful, and give them context on if we can, how, or if we can't, why. And that usually provides them with some insight into what a company of our size and scale with our focus and commitment on this huge market opportunity of online video.

So we have points of view but, again, the empowering thing that we do, I think, is to give people a context on where we see things. So it's their idea that we put in context of what we know. It's not us, you know, advising them to go do this and you'll be successful. But as you said, there are so many different opportunities. There are entrepreneurs focused in so many different areas that it's exciting for us to see that and to figure out where we can help.

Vator.tv Interview: How Startups Can Work With Microsoft

Dan'l Lewin — Thu, 31 Jan 2008 17:58:00 GMT

In late November, I spoke to John Shinal at Vator.tv about the Microsoft Startup Accelerator Program and other ways that the Emerging Business Team can help a startup partner with Microsoft. The full transcript is below, or you can watch the video right here.

John Shinal, Vator.tv : Hi. We're here in Mountain View, California with Dan'l Lewin, the Corporate Vice President for Microsoft and their emerging business initiatives. Dan'l, welcome.

Dan’l Lewin: Glad to be here.

Shinal: And you guys have rolled out what you call the Accelerator Program about how startups all over the world, really, can operate with Microsoft and do business with Microsoft. Tell our startup entrepreneurs, if they want to do business with Microsoft, how do they go about doing it?

Lewin: Sure. What you do is—the first location is on the Web, and it's MicrosoftStartupZone.com, one word—MicrosoftStartupZone.com. It gives a perspective on the kinds of things and the kinds of approaches you should take that will reach out to Microsoft so that we can help put in context your areas of interest and where we can be helpful. And it's organized around portfolios. And the portfolios are based upon the patterns of entrepreneurial investment and venture-capital-style investment.

Shinal: Now, you—Microsoft ordinarily doesn't invest directly. Which—although you vet deals like a venture capital firm would. So talk about how—what happens when you choose to work with someone or choose not to? When the decision is made, what happens then as opposed to a direct investment?

Lewin: Sure. What we end up doing is taking a look at areas of interest where the entrepreneurs are thinking about new market opportunities. We look for alignment in areas of interest around our underlying platform technologies, and we look for areas where we can be helpful in helping the company both align with our technologies, but also, and more importantly, create business value for our end customers.

So, basically, the way you'd think about it is we invest very heavily in resources, in guidance, scalability work, marketing help, and sales and channel help where we can. And there are other times when we can be strong referrals into the venture capital community where companies are doing a second-level or third-level financing and they're aligned with us in some particular way. We can also help with introductions to the venture capital community.

Shinal: Lastly, you don't work with everybody, obviously. So do you make a decision and say, "Yes, we will work with you. This is what we've got going product-roadmap-wise." Or, "Sorry, we can't work with you; you're on your own."

Lewin: Yeah. The triage is pretty simple. You know, can we be helpful? If yes, how? And if not, why? And so the how we help is tied to areas of interest where we have initiative, either technical or market-based initiative. Our experience in the past has been that there are on the order of 200 or 300 companies a year where we can actually do meaningful work and help them, then they would be the ones saying that we helped them; it wouldn't be us tooting the horn. It would be then saying, "Yeah, these guys were really helpful."

From that, there are 100 companies or so that on an annual basis we launch into our Accelerator Program, which is sort of a highlight of the top 100 companies around the world, typically from 15 or so different markets, the US being sort of the leading indicator in Silicon Valley, but clearly we're talking about Tel Aviv and we're talking about Bangalore, India, China, UK, France, etc., where there are significant entrepreneurial centers. So with that, we provide strong marketing air cover and significant value in helping the companies grow their businesses. And that's the key thing, the [Microsoft Startup] Accelerator Program.

It's true. There are lots more companies out there than we could help. And through access to the Startup Zone, you can take a look at the areas where we have interest. And it's typically where we've been helping companies in the past. Those are the clusters in the areas. We'll be clear when we can't help you, and in some cases, you know, we'll pay attention over time if you're doing something that we don't see it today, but we should be paying attention because it looks interesting, but we don't have a way that we can help. So we'll pay attention and monitor those as well.

Shinal: So we're back with Dan'l Lewin in Mountain View, California. And Dan'l, if you could give me one or two examples of some startup partners, either through the Accelerator Program or not, that Microsoft has partnered with, and how you're helping them. I think you mentioned maybe Jajah or Newsgator or someone like that.

Lewin: Yeah, Jajah is a newer company doing some interesting things in and around VOIP and combining calls from local handset software. And they built, again, their platform technology as well as their client side doing a lot of work with Microsoft and our Smart Phone—excuse me—mobile platform asset.

Sequoia-backed company, Mike Moritz is on the board. It's a terrific company growing leaps and bounds in a hot area at the moment. And we've just begun the engagement with them in the last couple of months. So as their success unfolds beyond the normal here's where we are with our product roadmaps and here's how we can help you with the immediate technologies. As their plans unfold and their business starts to scale, we'll be there and understand their need and bring value to the table there to help create business success for them on the other side.

Shinal: Okay, Dan'l. Thanks.

Lewin: Sure. Great.

Microsoft Bets on Global IPTV

Dan'l Lewin — Fri, 28 Dec 2007 20:53:00 GMT

This November I gave a keynote address at the NewTeeVee conference in San Francisco. Later I chatted with Andy Plesser, founder and CEO of Beet.tv, about Microsoft’s IPTV efforts and opportunities for entrepreneurs.

Some highlights from my talk with Andy:

The biggest area where we've placed a big bet, and we've been at it for a while, is in our IPTV area, our Media Room technology, and we've been partnering with over 20 major service providers around the world. AT&T being the U.S. primary partner, and the AT&T Uverse service that's out there. It's a platform that is encouraging partnership and third-party content creation, so switch network that's very high performance, allowing for multiple picture-in-picture, instant channel changing, all kinds of interesting capabilities. So, that to us is one of the most interesting areas.

Clearly, online Internet-based video distribution through various mechanisms is going to be important, is important. The business models are taking shape. Obviously advertising driven is one, but there will be subscription models, there will be pay-per-view style models, one-off purchases as well.

We've delivered some interesting tools in this area, our Silverlight technology and Silverlight streaming service, which lets people host for free 4 gigabytes and have 100,000 downloads a month at no charge.

Our Windows 2008 Server coming out early next calendar year includes the media streaming capability and media server capability at no charge, integrated into the Windows Server platform, which runs at scale.

I could keep going. We have just a plethora of interesting underlying platform assets and partner opportunity. I think it's one of the most exciting times ever. I think we have the foundation technologies and the underlying platforms that have matured, and in our case, in Microsoft's case, we're bringing a lot of those underlying platforms and tools to market now.

I don't see it as a bubble in any particular way. Personally, there's always excess investment, and there's always failure, but I think that the level of opportunity and the level of outcome, if you will, of the buyers, the acquirers, which is typically where startups end up−a few of them go public but most of them are acquired, the successful ones−I think it's going to be a great opportunity for the entrepreneurs.

More on our IPTV Business:

Business Week Nov. 6, 2007, by Peter Burrows: Microsoft IPTV: At Long Last, Progress

NewTeeVee blog of my talk, Nov. 14, 2007

Microsoft TV home

Technology Benefiting Humanity

Dan'l Lewin — Mon, 12 Nov 2007 19:29:00 GMT

On Wednesday, November 7th, The Tech Museum Awards honored the use of technology to improve the quality of life for people around the globe. The gala, attended by over 1500 global technology leaders, philanthropists and guests, honored Gordon Moore as well as 25 Laureates in the categories of environment, economic development, education, equality and health.

Microsoft sponsored the Education Award for the 4th year. This year’s recipient was TakingITGlobal, technology that provides young people worldwide with an online platform for social change. Other award sponsors included Applied Materials, Accenture, Intel, SanDisk, and the Swanson Foundation.

Sponsorship of the Tech Museum Education Award is an important part of our citizenship effort in Silicon Valley and around the globe. It is part of our continuing investment to help people and businesses throughout the world realize their full potential. We are excited as a company and as a team to be able to support this great program. It is personally one of the most satisfying parts of my job here in Silicon Valley.

Below are links to a few of the stories about the event.

Dean Takahashi’s “Tech Talk” blog for the San Jose Mercury News – Laureate Award Winners

Dean Takahashi’s “Tech Talk” blog for the San Jose Mercury News – Highlights from the Tech Museum's Award Dinner

Tom Foremski’s “Silicon Valley Watcher” blog – Warm and Fuzzy Wednesday - Silicon Valley Awards Do-Gooders

Wired – Do-Gooder’s Gather Tech Museum Awards

Giga Om Interview

Dan'l Lewin — Mon, 05 Nov 2007 17:03:00 GMT

In October, I was interviewed by Om Malik and Joyce Kim about my role in Silicon Valley and how Microsoft works with startups. The interview is posted on our site, www.microsoftStartupZone, and Don Dodge, on my team, blogged about it.

Some highlights from our discussion, with questions and my comments:

How Can Startups Partner with Microsoft?

The basic premise of the Emerging Business Group is, we look at all the entrepreneurial activity, we look at where the money flows, where the angel investors, and where the entrepreneurs are going, and then the venture community. And we map that against what we're doing, so that we can provide context in areas where we can be helpful. We have a terrific program, the [Microsoft Startup] Accelerator Program, which is a significant way for us to help promote the companies where we can be helpful. It's typically tied to some partnership in and around product collaboration, and, of course, customer wins.

So the kinds of companies that we've worked within the past include NewsGator, My Space, PolyServe, there are lots of interesting companies. The scale of that operation is significant. We look at about 100 companies a month. That winnows down over the course of 1,000-plus a year to about 200 a year, where they would say we're doing meaningful things. That, in turn, funnels down into areas of interest where the product divisions, which are the P&L units, the profit and loss units inside the company, do their acquisitions. So in any given year over the last two or three, we'll buy between, say, 12 and 20 companies that are in the startup zone, if you will. We certainly made larger acquisitions than that as well.

Do Acquisitions Often Arise from Partnerships?

It varies. Obviously, in some instances, entrepreneurs are very specifically looking at areas where we have need, and they'll build something that you might call a tuck in, a smaller, early stage acquisition for us. In other areas, a market opportunity will blossom, a company like Placewhere, where we now have our Live Meeting acquisition that was an interesting one. TellMe, most recently, was a great acquisition, a terrific entrepreneurially driven company, doing really innovative things that will have a cross-company impact inside of Microsoft. So, they vary, but it's also the case that it's rare for us to buy something where we don't already have a partnership.

Does Microsoft Invest in Startups?

We typically are not a direct investor.

We Operate on a Global Scale:

…in this world that we live in, which is flat, what I get to do in my core business, in and around working with innovative startups, is to see things on a global scale. We've got operations that are directly in Silicon Valley like entrepreneurial, venture-backed, best practices, [and are] in 15 countries around the world. We've got operations in 45 countries where we do this at scale, and it's soon going to be growing to nearly 100 countries.

So the idea that a startup like Wallop, which is a member of our [Microsoft Startup] Accelerator Program, is getting a huge amount of traffic in China, we can help them. So seeing the entrepreneurial spirit, helping things explode on a global scale, there's no better place to be than Microsoft.

More information about the new Microsoft Startup Accelerator Program can found at:

Press Pass interview

MicrosoftStartupZone web site

Microsoft Seeks Closer Ties with Silicon Valley and Startups

Dan'l Lewin — Fri, 14 Sep 2007 20:22:00 GMT

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.

The Facts on MS Interoperability

Dan'l Lewin — Sat, 16 Jun 2007 21:56:00 GMT

Contrary to what Bruce Chizen, Adobe CEO, has said about our lack of intention to maintain a cross-platform solution, we have historically demonstrated a market-driven pursuit of interoperability on behalf of our customers. That won’t change, hasn’t changed. Cross-platform support is a small part of our overall interop commitment, and we have a strong commitment to both. We think it’s an important point because our support for real interoperability affects the ability of our customers to drive value from their IT investments and affects the ability of our ISV partners — large and small — to provide solutions that work in the heterogeneous world in which we live and work. We get that. We want to reach out to the broadest audience, and that means going where the audience is — on our platform, yes absolutely, and on others.

A few stats on our cross-platform commitment, which goes way back:

Apple II — Go back nearly 30 years, the Apple II boot ROM included Microsoft Basic.
Macintosh -- Microsoft's earliest versions of Word and Excel were released first for the Mac platform in 1984 and were followed by Office in 1989.
We ensured that both Office 2004 and Virtual PC supported the Mac Tiger OS, and another new version of Office for Mac is on its way. Scheduled for the second half of this year is the first Universal version of Office for Mac for PowerPC- and Intel-based Macs — Microsoft® Office 2008 for Mac.
And then there’s Silverlight, that’s cross-platform too, we’ll get to that in a moment.
An FYI, our Mac software business unit is the largest, 100%-Mac-focused developer of Mac software outside of Apple itself.

So you see, Macintosh cross-platform support is a key commitment and part of our strategy, but our overall interoperability commitment goes much, much deeper. Think Java, Linux, Open Source, IP access, open standards, and more.

The Larger Strategy — Interoperability by Design

Bill Gates introduced this concept more than two years ago. It is based on our industry leadership in expanding the use of XML and delivering technology that empowers customers by working with the applications and solutions they already have in place. Over the past year, we have broadened our investments in interoperability and collaborated with both partner and competitive software and hardware companies — particularly where improving interoperability for shared customers benefit all parties. And we named a new corporate champion to spearhead our interoperability efforts – Bob Muglia, our SVP of Servers and Tools.

Why are we doing all of this and why does it matter? It matters to our customers — and matters a lot. They have always worked in heterogeneous IT environments and require greater levels of interoperability from their IT vendors. As a technology leader, it is our responsibility to support interoperability — in a way that promotes innovation and the development of the software industry as a whole.

We design our products to work well with others out the box, to not require expensive and complicated consulting and integration engagements to work, and we’re building bridges to competitors and partners alike to foster competition and coexistence across innovative solutions.

In fact, we deliver interoperability by design in four important ways: through our products, collaborations with the community, access to our technology, and industry standards.

Interoperability by Products:

Microsoft’s products connect and exchange data with software and hardware from more than 100,000 other companies. There are more than 25,000 configurations of PCs that work with Windows out of the box. Our technology enables translation between diverse systems through the use of protocols and data formats based upon XML. An important recent example is Silverlight, our cross-browser, cross-platform plug-in for delivering the next generation of Microsoft .NET–based media experiences and rich interactive applications for the Web. It offers consistent experiences between the Windows-based and Macintosh computers without any additional installation requirements.

Our chief software architect Ray Ozzie has said that “when you are developing for the universal Web (browsers for a range of devices) you can’t think about what platform the user is running on — it could be a phone, a PlayStation portable — do they have a browser on that? The guidance I give our development team is to look at where the audience is, and prioritize development for Silverlight based on that, we’re investing that way.”

We’ve made significant progress on interoperability with Linux/OSS vendors, including technical collaboration agreements with three of the leading open source software businesses — Novell, JBoss (now part of RedHat) and SugarCRM.

In fact, to achieve interoperability by products, and in particular to achieve this interoperability between products from Ajax technology vendors, we entered into a highly collaborative effort — OpenAjax Alliance. Comprised of nearly 90 companies, it hopes to accelerate success with Ajax and drive the future of the Ajax ecosystem.

Interoperability by Community:

We’re building technology and business bridges to partners and competitors to increase ROI for our customers. We’ve led and continue to support the goals of the Interop Vendor Alliance (IVA), a cross-industry group of global software and hardware vendors and other organizations that work together to enhance interoperability with Microsoft systems on behalf of their customers. With 20 founding members of the alliance, including Sun, and more than 40 members today, the IVA is further evidence of our long-term investment in improving interoperability between heterogeneous systems. Listen to Greg Papadopoulos, CTO and EVP of Research and Development at Sun, talk about the importance of Microsoft and Sun solving interoperability problems on behalf of customers.

We’re also listening intently to what customers are saying about key interoperability scenarios. Through the Interoperability Executive Customer Council (IECC), formed in June 2006, we’re identifying areas for improved interoperability across our products and the software industry. Last October we hosted IECC in Redmond where we met with founding member CIO/CTO’s from Societe Generale, LexisNexis, Kohl’s Department Store, Denmark’s Ministry of Finance, and many others to get feedback on the pressing areas of technical and business interoperability. In May of this year we had our second full member meeting.

Just recently, Microsoft’s Jean Paoli, XML co-creator, told me that based on our review, we believe that we’ve addressed and made progress on approximately 70 percent of the interoperability concerns that were raised in the first six months. We are working with the council members’ architects and CIOs to review the final status of each issue to confirm. We particularly value working with our customers on identifying issues and providing solutions and we urge people, as I said in the headline of this column, to work with us and ‘get the facts’. Of course, we need to do a better job of communicating them as well. Jean and Tom Robertson head our interop programs.

Here’s our commitment to some other important platforms and communities:

Java — We’ve supported cross-platform compatibility between Java and .NET for several years — and broader interoperability with Java was first supported through COM, via third-party vendors. With the release of Microsoft .NET 1.0 in 2001, we introduced Web Services, which from then on became the main way we’ve supported interoperability between the two platforms. In fact, Microsoft and other vendors (Sun, BEA and IBM) are also part of the Web Services Interoperability Organization (WS-I). Given the high concentration of both Java and Microsoft .NET developers worldwide, we launched Resources for Java Developers and more recently, Project Tango, a joint Microsoft/Sun cross-company collaboration that will ensure strong Web Services interoperability between the two platforms.

Linux and Open Source — In 2005 at LinuxWorld, we announced the formation of the Linux/Open Source Software Lab on our Redmond Campus. By running Linux and a variety of other OSS in a highly Microsoft-centric IT environment, we’re learning how those technologies can better interoperate with Microsoft’s technologies and vice versa. Visit our community website, Port 25.

In November last year, we announced what we think is a historic bridging of the divide between open source and proprietary software. We have signed three agreements with Novell that, taken together, will greatly enhance interoperability between Linux and Windows® and give customers greater flexibility in their IT environments. We’re also planning to open a joint interoperability lab that focuses on interoperable virtualization between the Windows and the SLES (SUSE Linux Enterprise Server).

In early June, we announced a broad collaboration agreement with Linux platform provider Xandros, Inc. and collaboration with Linux desktop provider Linspire. Both extend a bridge between open source and commercial software and deliver customers real value in mixed systems environments.

SecureIT Alliance — Formed in 2006, its mission is to develop, enhance and promote applications that interoperate with the Microsoft platform, providing informational resources for security technology professionals. We now have more than 100 members, including Symantec Corp., McAfee Inc, Trend Micro and VeriSign as well as innovative startups such as Avoco Secure, Centrify, and e-Security.

OpenID —With this universal online identity, we’re working with the industry to enable interoperability between discrete systems — what we call ‘anywhere access.’

Interoperability by Access:

By offering to make our technology and IP available for use by others, Microsoft opens the door for greater innovation and a more competitive market. In addition to making source code available in many cases, Microsoft makes patent rights available to others to develop their own implementations of key technologies such as Web services, ECMA, OpenXML, Virtual Hard Disk, Sender ID and others via the Open Specification Promise.

As an example, we’ve designed interoperability software in Virtual Server 2005 R2 to support Linux guest operating systems and the royalty-free licensing of the Virtual Hard Drive (VHD) format to more than 45 vendors such as Akimbi, Brocade, Diskeeper, Fujitsu-Siemens, Network Appliance, Platespin, Softricity, Virtual Iron, and XenSource.

We’ve also licensed our IP to such companies as TurboLinux, and have inked collaborative agreements with SAP and Hyperion as well. In early June we inked a cross-license patent agreement with South Korea’s LG Electronics. Under terms of the deal, LG will be able to use Microsoft-patented technology in its products, including Linux-based embedded devices. And we get access to LG’s patents and will license other ones developed by LG, now owned by MicroConnect Group.

We have also licensed our IP to XenSource, and ventured into IP licensing agreements with Nokia, Symbian, SAP, NEC, Toshiba, Sony, Erickson, and Autodesk.

Interoperability by Standards:

Standards are one way of many that the software industry uses to foster a competitive marketplace. Even more than that, standards help establish a common ground for everyone to use — they simply make things work better together. We are working with many formal and informal standards efforts, including organizations such as IETF, W3C, OASIS, IEEE, ETSI, OMA, ECMA, ISO/IEC (JTC1) and ITU.

We continue to participate in, and support industry standards for improved data exchange and application integration in technologies such as web services, financial and business transactions (EDI and RFID support in Vista), speech-enabled applications and websites (SALT in Speech Server 2007), and Web content (XHTML 1.0 support in Office 2007).

Other examples of our standards support include:

Web Services at W3C — Co-developed the Web Services specifications with others. Specifications submitted to the W3C, and after further input by others many have been published as open standards.
XML Paper Specification (XPS) at ECMA International — Submitted XPS (our portable document format) to ECMA for standardization. In a letter from Brad Smith to the Director General of Competition for the EU, we committed to submitting any extensions and further versions for the next 10 years.
OpenXML at Ecma — Contributed our Office OpenXML specification to standardization at Ecma International, and with the further work of many others at Ecma, the expanded specification was approved as an international open standard and is undergoing further submission for publication at ISO/IEC.
Video Coding — Submitted video coding technology to SMPTE where, after input and modification, the SMPTE VC-1 video coding specification was published as an open standard.

A Word about Open Standards vs. Open Source

It’s worth noting, as Bill Hilf, General Manager, Platform Strategy, says, that interoperability is not a new focus for Microsoft. “We have been enabling interoperability via Host Integration Server and Services for UNIX for some time. A key approach to bridging the interoperability divide at Microsoft is our strong support for open standards, as seen in our involvement in Web services, XML and SOAP. It is these open standards – not open source – that help make today’s integration technologies more interoperable than ever before. We believe that incumbent vendors like Microsoft and vendors with emerging platforms need to share the responsibility of bridging the interoperability gaps and working together to meet customer satisfaction.”

So given all of what I’ve said above, we think the evidence is already in. We’re committed to coexistence and interoperability. Cross-platform, yes, but it’s part of our bigger story on interoperability. So Bruce, and I mean this in the nicest way, we’re neighbors, worked together at Apple, and respect each other, but get the facts: we have supported cross-compatibility on the Macintosh for almost 30 years and we will continue to do so, and we strongly support interoperability with competitors and friends alike. When we do so, our customers win, the industry wins, we all win.

VCs Converge on ‘Convergence' at Microsoft Silicon Valley

Dan'l Lewin — Tue, 20 Mar 2007 23:45:00 GMT

Talk, Debate, Collaborate — VCs Get Down to the Business of Startups

Just last week, approximately 200 venture capitalists from around the world converged on our Silicon Valley campus in Mountain View, California to join us for the eighth annual Microsoft Venture Capital Summit. Our theme? “Investing in a Converging World — Everywhere, Locally.” At this one-day summit, we explored the convergence topic with talks by Microsoft executives including Steve Ballmer, Peter Moore, and Debra Chrapaty.

As head of Emerging Business Development, a significant part of my role is to help provide VCs with insights into Microsoft’s strategic and business direction, and in turn, reinforce how we work with startups. VCs are important to Microsoft — as are their portfolio companies. And our annual Summit is a great way to show how, as well as to help them work more successfully with Microsoft.

The What and Why of the Summit

It’s all about networking — and creating an open and engaging dialogue where knowledge sharing isn’t just encouraged, it really takes place. This happens VC-to-VC, VC-to-Microsoft executive or manager, and so on. Lots of energy, lots of conversations taking place, lots of brainstorming. For another take on this energy, read Ed Sim’s blog.

Part of the purpose of the VC Summit is for key Microsoft executives to provide high-level perspective on their product roadmaps and customer needs. We highlight where we are going and have a discussion with the VCs on how we can work together. The Summit is an event by invitation only, and I think of it as a metaphor for the more private conversations that we have throughout the year, that we like to have with VCs and startups where we find opportunities for engagement. We’re aiming to create a win/win/win — for our customers, for the entrepreneurs, for us.

We also use this annual event as an opportunity to better understand some of the important trends that are taking place worldwide — not just here in Silicon Valley and along Sand Hill road – but in Israel, in India, and now in China — nearly 25 percent of the VCs in attendance were from international VC firms, or firms with global presences today.

Why the Data Center, Why the Enterprise, Why Connected Entertainment?

At this year’s summit, we covered a range of topics — from our newly launched robotics platform — to the new breed of enterprise applications (Office Business Applications) that bring the front office and back office together. We also covered the user experience, how to make it richer than ever before utilizing our WPF, WPF/E technology, and how we’re democratizing games development with XNA to the challenge of building and managing mobile services.

The day centered around two “main tent” discussions — one on the data center of the future and the other on our vision of connected entertainment. By having two keynote panels, we presented perspective to the VC community on the kinds of things we’re doing to enable a connected, personal world of digital devices and services – whether you’re a consumer or the operator of a major corporate data center. We’re a broad, horizontal company, and we’re investing heavily in building a platform which encompasses the living room to the back room.

The Data Center Future - More flexible, dynamic and interoperable environment

A recent Wired Magazine article talked about the size and scale of the new data centers, saying that the ‘Internet cloud’ is where massive facilities across the globe will store all the data you’ll ever use. Given our scale, we have some thoughts of our own on what the data center of the future will look like — and how it’s crucial to the future of software plus services. And it all has to do with scale and demand.

Just to give you an example of the scale we operate at: Our datacenters serve 160 internal Microsoft client services, including Hotmail’s 260 million users, MSN Messenger’s 240 million, and Live’s 320 million users. In fact, as we rapidly grow our existing services businesses and prepare for launching our Live services platform, we’re now installing as many servers per month as we had in total just four years ago when Debra Chrapaty joined the company.

Debra Chrapaty, our Corporate Vice President of Global Foundation Services, sees big changes coming for data centers that will require a more flexible, dynamic and interoperable environment. In speaking at the Summit, she said that our customers think their services and information come from a cloud. And that’s exactly the experience we want them to have. But of course, we all know, there’s a lot more to it. And there is nothing fluffy about this cloud.

The “real cloud” is a bunch of concrete, copper, steel and power…lots and lots of power, that delivers the services and information our customers have come to expect. And how do we deliver great services? By providing what customers want, architecting the services so they can run globally at scale, and delivering a great infrastructure optimized for today and flexible for tomorrow.

Just a few of the many data points that Debra cited about our new data center in Quincy Washington:

The new data center will be 475,000 sq feet
It will have more than 1.5 million pounds of batteries, 300 miles of chilled water pipe, 100 miles of electrical conduit, 600+ miles of electrical wire, 1.2 million pounds of copper
It will be a 27 megawatt data center of server load when both phases are complete
It will support our delivery of services to users in 234 countries
One service of ours that hit 3.5 G bps of traffic on its second day of existence

Another interesting point, Debra talked about how we are as a company driving significant investment into power efficiency and going green. She said that we’re turning up our first carbon neutral data center in a few months. We’ll be able to support 400 customers on the same amount of energy it takes to light a 60 watt light bulb. Pretty amazing stuff!

Ready for SaaS Future, Today

Ultimately, we are building these datacenters to go after the future of software plus services. And we’re already in the market delivering services in a big way with some 165 internal Microsoft clients operating at massive scale.

So we’ve covered the ‘cloud’ data center and the enterprise — where does connected entertainment fit? Connected entertainment provides an integrated view of how all of this works together – for you, with your ‘stuff’. In fact, the disruption taking place in the market presents great opportunities to build interesting companies — all of which assume a presence, your presence on the network, your ability to store things in the cloud, your ability to have your identity at work, syndicate with your identity personally. And because we all have different devices from different manufacturers, we’re driving all of this focused on XML and interoperability.

Connected Entertainment — From Microsoft TV to the eHome Division to Zune

During this session Peter Moore, Corporate Vice President of our Interactive Entertainment Division, talked the audience through our vision of connected entertainment. Moore joined Microsoft in January 2003, bringing with him more than 20 years of experience and leadership in consumer businesses.

Connected entertainment is our approach to moving away from devices that are strictly a hardware play and toward a new industry paradigm where devices are more equal parts hardware, software, and services. How these elements are blended together enables what we call the “four C’s of connected entertainment” — content, connectivity, community and creativity.

Connected entertainment will unite content and community in powerful new ways, enabling consumers to access their music, TV, movie, and games content anywhere, anytime, from any device. And best of all, consumers can share these experiences with the communities of their choice. With many new technologies becoming mainstream – High Definition, broadband, digital media — we must continue to deliver innovative hardware, software and services, and find new and exciting ways to bring technologies and entertainment content together.

Xbox Live - The software plus services model example

Clearly, we have a key competitive advantage in the console space with Xbox Live — we want to extend that success and open up more opportunities for startups than anyone else in the online game and entertainment space. And while Peter says the core gamer got us the 10 million units, we think the casual consumer will get us the next 10 and beyond. Incidentally, since we launched Gears of War in early November 2006, more than 3.6 million copies have been sold. Many say it’s the best looking video game ever, and has already won lots of awards, including the “Game of the Year” at the Computer Game Developer Conference this month.

I am sure that gaming fans among you will be pleased that Halo 3 debuts later in 2007. As the third chapter in the Halo trilogy, this entertainment phenomenon comes on the heels of Halo 2, which was the largest entertainment launch ever on a single day, $125 million gross, greater than any movie. We are also bringing the Live experience from Xbox to the Windows platform for a connected game experience. Lots of exciting stuff is happening as we bring together our four pillars of connected entertainment — music, gaming, video, and communications. This is where the opportunities lie.

Ballmer’s Take — Going Live, Live, Live

After a brief introduction by me, recounting last year’s activities and providing a glimpse into some future areas of interest, Steve Ballmer keynoted the Summit, talking about our strategy, recent noteworthy acquisitions, and then opened the floor to questions.

Steve talked about the essence of Microsoft — we are a software development company that invests broadly in horizontal scenarios: communications, software management, and enterprise connectivity. Yet looking across the entire company, Steve said it should come as no surprise that the single biggest opportunity lies in the shift to online services. And, as a platform company, it should also come as no surprise that Microsoft is building a “cloud platform” that will form the foundation of how we connect with our partners and customers. He referred to building two new “cores” for the company: online information and advertising, and what he called the modern consumer electronics industry (lots of software, some hardware).

And the Live transformation — this transformation to software plus services is fundamental to everything we are doing. It’s not an MSN issue. Windows will go live, enterprise software will go live, connected entertainment — everything will go live. As Steve said, “Live, Live, Live. Everything is going in that direction.” He said that the ultimate test of our success as a company over the next few years will not be throwing software out for the so-called SaaS model, but really integrating the best of today’s software experiences with the best of today’s service experiences.

Good news for our VC and startup partners: we’re fairly acquisitive today. In 2006 we did 21 acquisitions. Just last week, we signed the definitive agreement to purchase Tellme Networks, a leading provider of voice services for everyday life, including nationwide directory assistance, enterprise customer service and voice-enabled mobile search. Microsoft and Tellme share a vision around the potential of speech as a way to enable access to information, locate people and enhance business processes, any time and from any device.

While all our acquisitions may not be the size and scale of Tellme, we’re constantly looking for companies that can complement our long-term strategy. It’s also safe to say that since we’ve launched Vista and Office, we now have a very large developer organization engaged and focused on next-generation products and services. So while we will continue to be an aggressive buyer of companies, we will also be building. I think Steve said it best in his closing remarks: “I’m excited about the growth and innovation opportunities both for Microsoft and more broadly for the industry. We’re counting on our relationships with VCs worldwide to help us deepen our dialogue with the portfolio companies we should consider."

On a closing note, I want to reiterate that software plus services is a fundamental strategy here at Microsoft — we’re engineering quite heavily in this regard and investing relentlessly. And as I said in the beginning, we consider VCs and their portfolio companies as fundamental to our success too. We want the dialogue and the conversations to continue. Relationship building with VCs and entrepreneurs is key to wiring up the global village, and we’re all for that.

Microsoft on China: Controlled Capitalism at 200 Miles an Hour

Dan'l Lewin — Tue, 13 Feb 2007 00:50:00 GMT

Will invention and genius repeat themselves?

China is a big, big market. We know it, they know it, everyone knows it. It’s an accelerating planned economy trying desperately to stay in control. I call it “controlled” capitalism, but in China it has been referred to as “socialism with Chinese feature” or national capitalism. They have a national directive to build 400 cities with more than one million people — they now have over 100, the U.S. has just 10. They have a large and growing middle class (some 300 million), and highly educated one — they’re graduating a gazillion engineers a year. In fact, there’s a prosperous economy the size of Germany’s $3 trillion economy that already exists inside China — and its people are just beginning to speak up. A Beijing blogger has rallied opposition to a Starbucks in China’s Forbidden City, and it is now prompting authorities to consider closing the café. The blogger who started the whole thing says he likes Starbucks, he just didn’t want it inside a national landmark. It seems China’s middle class is developing a strong voice about its culture and values. This is the new China today. On the one hand, you have the central government control and fast-track growth directives, and, on the other, you have the populace speaking up and giving voice to the entrepreneurial spirit of China. This notion of imagination or what I call “imagine-nation” is alive and well in China — again. I say that because it’s not really new at all.

The Greatest Untold Story

Before my trip to Beijing last November for the Innovation Summit, I picked up a book recommended by Joe Schoendorf of Accel Partners called “The Genius of China, 3000 Years of Science, Discovery, and Invention.” It tells an amazing story that it refers to as “one of the greatest untold secrets of history — that the modern world in which we live is a unique synthesis of Chinese and Western ingredients. Probably more than half of the basic inventions and discoveries upon which the modern world rests come from China.”

Modern agriculture, modern shipping, decimal mathematics, modern music, paper money, umbrellas, wheelbarrows, chess, horse stirrups, brandy, and even the essential design of the steam engine. All came from China. Lacquer, the first plastic, from China in the 13th century B.C. Circulation of the blood, 2nd century B.C. The first compasses, 4th century B.C. My point is this; The Chinese have dominated the world economy for centuries — except for two. Guess which ones those are? What will the 21st century bring? What’s the opportunity? Study the past. The Chinese society has been based on invention and genius for centuries, and there’s every reason to believe that the future will repeat itself.

Opportunities For Those Who ‘Understand’

So what are the opportunities in China? Everyone is looking. VCs are pouring in money. For the first half of 2006, there were 85 deals and $757.9 million invested in mainland China – more than double the past two years. And a fact that surprised me, China is NASDAQ’s fastest growing source of new listings. And China now ranks number two in PC shipments, number three in servers, number one in cell phones, number five in developers, and number two in Internet users — still representing less than 10 percent market penetration.

As I said in the beginning, the constant refrain I heard again and again in meetings this November was the unique advantage China has just because of its sheer size. br>Naturally, multinational companies from all over the globe (including General Motors, General Electric, Motorola, Ford and Starbucks) are ’very’ active in China, not the least of which is Microsoft.

And from our vantage point, however, the opportunity is for those who “understand” this market. Read the book called Guanxi. It is essentially the tale of how Microsoft set up its business and research center in China. My key take away from this book, and the people I’ve met and worked with in China, is that it’s all about relationships. (Where have you heard that before?) Of course, in China, relationship building and partnerships are all subject to the Chinese way. After all, this is [controlled] capitalism. And if you think about the trade, commerce and industry that have driven China’s success over the centuries, technology was the driver then, and it will be the driver for the future. China knows its history, and is going back to aggressively charting its own course. And we’re playing our role too, as we do in more than 99 other countries around the world where we do business.

Microsoft in China

Our history in China involves a commercial presence and a well-known research center, Microsoft Research Asia (MSRA) as well as an Advanced Technology Center (ATC) that takes research ideas and turns them into products. The MSRA lab in Beijing — our second international facility and our first in Asia — was established in 1998. As with other Microsoft Research labs, the talents of its researchers will largely guide the research focus of the Beijing lab. Today, more than 150 researchers are developing next-generation multimedia applications and Asia-specific computing technologies such as adapted user interfaces and language-conversion systems.

During my trip to China in the fall, I participated in the Innovation Summit that we held in Beijing with key stakeholders in the Chinese software ecosystem – government, academic, ISVs and other partners. The goal of the summit was to understand the Chinese government’s priorities for innovation and to share Microsoft’s approach and how we can contribute to the development of the software economy. At the Summit, Microsoft IP Ventures announced the first-ever licensing of technology to two different Chinese software companies.

Our strategy in China is three-fold: we want to help fuel a strong local software economy, help China become globally competitive, and accelerate rural economic development. China is clearly eager for our help and others’. They especially need help with skilled marketing and management people and go-to-market strategies for building companies — relatively new concepts, at least in this latest century.

So, how do we navigate this new playing field? Here’s our assessment on the challenges and opportunities, and a review of what we’ve done to date.

State of the Chinese Software Industry — Trends, Observations, Risks

The domestic software industry is still not healthy — despite its dazzling software parks (more on that later) and its government commitment to developing a software industry. A few notable exceptions include Kingsoft (with its recent $72 million investment from Intel Capital; a Chinese Fund named New Horizon; a Government of Singapore investment fund; and companies such as Sohu (a Chinese new media company); and Baidu There are opportunities, but not without risks — and these are amplified by China’s size.

Piracy remains an issue — making entrepreneurs reluctant to build software-only businesses. Software-plus-services or software-hardware combinations are more attractive
Most Chinese software companies are still small —a few large ones are attracting attention, but those are exceptions.
Another issue is the lack of reliable payment methods for SaaS offerings. In fact, a related issue is market liquidity and financing transparency. China has a ‘tricky’ infrastructure for banking and financial services.
Another issue, highly educated software developers with nowhere to go to gain real-world experience in the nascent Chinese software industry. China needs a critical mass of large and successful companies to change this situation.
Experience-based skills such and management and marketing are lacking.
And Chinese cultures and traditions make operating there challenging, as Starbucks is finding this out. With China’s non-homogenous marketplace and customers — cultural differences abound, not just in language, but ways of conducting business, negotiating contracts, and closing deals. It’s all pretty foreign to us.

Despite these challenges, China is building out its infrastructure — in a very big way.

They Built the Parks — and People Are Coming, We’re Helping

There are 23 or more software parks in China, situated in 35 High-Tech Zones as defined by the Ministry of Science. These grand, modern complexes are always linked to local universities and the local economy. They also include residential areas, research facilities, and high-tech manufacturing space. As just one example, Jinan (in the Shandong province on China’s Eastern Coast) boasts almost 3 million square feet of office space and covers 1.4 square miles.

I can’t overemphasize the importance of the public sector and the government relationships. While China’s economy is shifting to a market model, the public sector is the major stimulus for the software economy. They drive a lot of business through their own projects, and they also approve vendors and set standards. Several agencies affect software, including the Ministry of Science (MOS) and the Ministry of Information Technology, but the most influential and prestigious is the NDRC (National Development Reform Committee).

Our Microsoft Innovation centers are designed carefully, and in partnership with the Chinese government. The projects at our Microsoft Innovation Centers are government-assigned, but must have a sustainable business model. We now have 17 centers throughout China, with four more coming, and currently have a presence at 16 software parks.

Microsoft Innovation Centers help enable the software ecosystem by helping entrepreneurs, academics, and ISVs understand what it takes to go-to-market. They also help cultivate an environment of innovation with our hands-on technology labs and resources (again, translating the ideas into marketable products). And finally, the centers provide an environment for technology and business to meet — whether in special interest or industry groups, or mashups, we’re creating a home for the ecosystem.

For example, at the Qilu Software Park that I visited in Jinan, we were invited by Director Xu, head of the park, to develop an industry cluster and build a Microsoft Innovation Center right in the park, instead of with a partner, as we do in Chengdu. Qilu Software Park, founded in 1995, is one of China’s first software parks. It is a massive center with some 500 companies in the park with approximately half having a software focus. At 6.5 square kilometers (2.5 square miles) and with 10.7 million square feet of office space, it is slated to become the largest software park in Asia. It’s quite a spectacular place — star trekkies fans would love it! The central buildings are in a large ring, or circle formation. The main building in the ring is a three-story tribute to Star Trek — it features glass floors over a printed circuit board motif and doors that slide into the wall with a low ’whoosh.”

While there, we met with ministry officials. I was impressed by the insight, conviction, and pragmatism of the government officials. They are intensely aware of the fragile state of China’s software economy, and equally convinced of its importance to China’s future. The partnerships with local universities are impressive as well. Approx 4,000 students attend the university's satellite campus in Jinan park, and they have built partnerships with 20+ universities on jobs and employment initiatives. Xu sees the software parks helping the software ecosystem in the following ways: local investments in infrastructure, technical support and training, and industry partnerships and cooperation.

Other Strategies for Building the Local Software Economy — Find a Partner

Another key insight that came out of my trip to China is the importance of having a partner in China. For instance, outsourcing is seen as a way to provide a larger pool of experienced technologists and business people. Another interesting strategy is what the team at Jinan Software Park refers to as Enterprise Unions. This is where a group of companies in a single industry all combine to work together to define the industry, and work with the government to define standards in ways that would work internationally.

Clearly, software and services will be very important in China. It lowers the exposure to illegal copying of software (less or no software to copy), offers China-wide and international reach, and is significantly enabled by China’s brand new high-capacity WAN and wireless network. We recently opened our first SaaS Incubation Center within the Suzhou Software Park — it’s a good example of how we’re working with government agencies to stimulate local software economy.

Two interesting software and services companies in China: Digital China in Suzhou is an ISV committed to shipping a production-quality SaaS solution using Microsoft technology. Appeon is another forward-thinking ISV in China. It wants to launch a software and services version of its solution for Chinese dental clinics.

These are just some of the additional trends taking place. We have a number of goals designed to accelerate software opportunities for Chinese software companies.

First, help China become globally competitive.
Second, help China build a strong Intellectual Property Rights (IPR)-based economy that values commercial ‘legal’ software.
Third, help China accelerate rural economic development.

And we’re just getting started.

There is a huge signal-to-noise ratio in China so you have to be smart as an entrepreneur to figure out whom to partner with — and who really has the expertise you will need. Don’t go alone. And don’t be naïve and think that you’re entering an immature, or ‘so-called emerging’ market. The emphasis is definitely on the so-called part of that statement — which means, given the development now underway in China, you may be in for a surprise.

Next week, the Chinese ‘year of the pig’ or Ding Hai begins. Happy Chinese New Year to all.