When Dan’l Lewin joined Microsoft to head up its Silicon Valley office in 2001, the company was feared in the industry and under investigation by officials in the U.S. and Europe because of its dominance.A lot has changed since then — both good and bad — and Lewin’s efforts have helped Microsoft improve its relationships with its California competitors like Google and Apple, as well as with the local startup community.
We talked to Lewin last week, and here are some highlights of what he told us:
- Microsoft’s presence in the Valley has doubled in the last 10 years, and the company now has about 2,200 employees there, including about 400 working on search.
- He doesn’t scout the Valley for startup acquisitions, but his team has introduced startups to Microsoft business groups who later acquire them.
- The BizSpark program, which gives startups three years of free use of Microsoft software and services, has 37,000 participants after two years, and 330 of them have raised more than $900 million in funding in the last six months.
- He was a classmate of Google CEO Eric Schmidt at Princeton.
- When Lewin was the CEO of Aurigin before joining Microsoft, he had to tell one of his investors that online pet food sales were not a good idea.
Here’s an edited transcript of our conversation:
Business Insider: I see Microsoft at a lot of startup conferences in the Valley. Why are you guys there?
Dan’l Lewin: It’s consistent with the roots of the company to engage the developer community and to make it clear where we can be helpful with various programming tools or platform assets. In light of the evolution of the Web and the underlying Web standards and open interfaces in all of our platforms, we’ve been reinvigorating on the same strategy. So frankly, it’s just more of the same in the modern world.
BI: This comes out of the BizSpark program, right? What’s that program about?
DL: It’s a little more than two years old. We make the offer in 110 countries plus. It’s a three-year use right for all of our tools and server technologies as well as a certain amount of Azure cycles and storage units. The companies entering the program need to be less than three years old when they enter and have less than $1 million in revenue. So as long as they meet those parameters — and they’re private. Those are the three criteria.
Then you get three years beyond [in the program]. So effectively you can be a six-year-old company while still in the program. So you could be MySpace, which we worked with early on in their history and helped re-platform them to Windows from Cold Fusion.
In two years we have 37,000 plus startups in the program globally. About 1,000 plus a month are joining. About 10% of these companies are notable in the sense that they create buzz on the Web. They’ve received financing of some sort. In the last six months of the calendar year 2010, about 330 of the companies in our program raised almost $900 million in financing.
BI: Can you name a couple of success stories?
DL: At the top of the pyramid, we have a program called BizSpark One and these are companies where we do a little more custom engagement based on their potential and their use of our technology. StorSimple‘s on that list. CleverSense. Graphic.ly — that’s an interesting one that DFJ financed that’s doing graphics in the comics industry around the storyline of graphics and comics. Loopt. They’ve been part of the program from early on. I can go on and on.
BI: Is there a venture aspect to the program? You mentioned all companies have to be private. Is part of the program to give Microsoft an early look at a company you might be interested in investing in or acquiring?
DL: I would consider this part of our corporate venturing or what I call open innovation approach, but we are typically not a direct investor.
In the late 90s, the company did a little corporate later stage investing. In the 10 years I’ve been here, we’ve done less, and they’re typically what I would call strategic, in the sense of what we did with Facebook or like what we did with Groove. We’re not an investor in the sense that, let’s say, Intel Capital is a corporate venture investor.
The work we do out of my area is tied to the highest-profile and most-aligned startups that are venture-backed. And we do that in 10-plus countries around the world where venture activity bubbles up from, whether it’s here or the U.K. or China or Israel.
If there is a fit, and there is an acquisition that occurs, the business groups do that, so my group’s not involved.
Those acquisitions that get tucked in to a business group — I say that sort of affectionately — those smaller companies, about half of those we end up helping set up the relationship with the product group or business group that might want to buy over time. But that is a byproduct, not the purpose.
BI: Microsoft is making a big push right now for Azure. It seems like you guys have a real uphill battle there. I’ve talked to tons of companies who are using Amazon Web Services, and very few using Azure. How do you guys counter that and how is Azure doing in the startup community?
DL: We’re doing fine.
It’s not an apples to apples compare point. Our positioning point and value prop with Azure is that of a platform as a service. And we’re almost exactly a year into having commercial availability of the product. A double-digit percentage of the startups in BizSpark are using Azure in various ways. Some of our high-profile or early adopters include this company out of France called Lokad doing some really interesting high-end maths calculations in our cloud in support of supply-chain optimization for the likes of Carrefour and Wal-Mart, things like that.
The natural attraction point for Azure right now tends to be higher level use cases where the platform value is really clear, as opposed to the “let’s go quick and dirty off the shelf and get some storage and compute cycles and we’ll be our own sysadmin.” Amazon has done incredible work and they continue to grow their infrastructure with platform-like capabilities, but most of the startups that go with Amazon, they’re just quickly deploying Web servers and storage capability. And they’re still doing their own administration.
BI: What about Windows Phone 7? Are you trying to get startups to develop for it?
DL: We were deeply involved in the phone work, we ran incubation programs really early on. I think some of the top 20 apps in the app store came out of our programs.
BI: What are the big areas of focus for 2011? What things that are most important to Microsoft?
DL: Working with young companies and entrepreneurs, it’s Azure, phone, and IE9. We’re definitely interested in other things as well. We end up dealing with startups that are doing interesting things with hardware or batteries or microphones that could be part of new reference designs that we have. There are people exploring the Kinect kit.
BI: How is Microsoft perceived today in Silicon Valley versus when you started working for the company in 2001?
DL: I think we’ve made some good improvements across the board. We have increased our physical presence. We’re at about 2,500 people doing development in the Valley from what was maybe 1,200 10 years ago. So we’ve grown our presence.
We have made significant strides in terms of our efficiency and level of outreach. We’ve been very purposeful and responsive in working with the venture and startup community. We opened the front door of the facilities — these are all things we did after I got here — the facility was open for about a year, and after that we really put in place an outreach and structured program to affiliate partners.
We now have I think a set of programs, products, and services that are much more interesting to the startup community. In the early part of the decade, we were not as ready with our service-based platform assets. With the launch of Azure and the work we’ve been doing in that area we now have things that are much more relevant to the community.
We’re doing exciting R&D work down here as well, things related to all the Xbox silicon engineering, all the voice and interactivity associated with Kinect is done down here, our voice platform, a lot of our TV work is done down here, search, 400+ engineers doing search work down here.
BI: There’s a serious talent war going on down here. Does having an office here help with that?
DL: Having a presence in the Valley is helpful, it’s highly competitive. In the Valley motivations vary, but there are certain places where you can go and work on things that are of personal interest to you. We actually have a lot of interesting work down here, 15 different groups, probably 10 big ones, chunky ones. To the extent that you want to see your work have broad impact, we’re doing a lot of interesting things that have broad impact, whether its search, voice, NUI [natural user-interface] stuff, Xbox, our Mac Office team is doing just fine, Live services.
BI: Is part of your work down here managing relationships with competitors-slash-partners like Apple and Google?
DL: II have a group that pays attention to those relationships. At the end of the day, the particular business group that needs to be connected, they usually are pretty well connected. You mentioned Apple, there’s the Mac Office team, they’ve had years of interaction with Apple, they don’t need any help. When we’ve licensed our protocols, ActiveSync and things like that, the legal regimes and licensing work, the legal teams do that. We did our cross-licence with Sun some years ago.
There’s a level of paying attention everything companies need to know about Microsoft. We have to pay attention to security companies and what they need to know relative to Windows. I have a team that helps in that process, but because I’ve grown up down here and have a broad rapport with a lot of people, I get personally involved. For example, when we started doing different work with Google — Eric Schmidt and I were classmates in college, so I say, “where do I go and talk to somebody because we’re doing things with IE [Internet Explorer] and you need to know about them.” Once they’re set up I get out of the way.
B!: Do you think there’s a bubble in Silicon Valley startups?
DL: I’d say yes for the most part. I don’t know that there’s a bubble in terms of big front-runner, first-mover leaders in each space. If you say what about Facebook, what about Twitter, what about Zynga, what about LinkedIn, I don’t think there’s anything bubbly about that at all. First movers with highly capable technical leaders and financiers and advisors, they’re going to keep growing. If they raise money at a big, big valuation, more power to them, they’ll use that capital. Whether they grow in to that valuation in terms of a public valuation or second market valuation, only time will tell, valuations go up and down.
In terms of the large large number of companies that are financed that are followers in that space, there’s not that much money being spent because the infrastructure comes along because of what we’re doing with Azure or Amazon’s stuff. There may be a lot of bets being placed.. There’s good experimentation, that ferment is all good.
So I say yes with a caveat — there’s always more froth than there is meaningful outcome, but the froth is now less expensive. The really big waves and things that are happening, they’re meaningful. They’re not trends, they’re real.
BI: So when you say not trends but real, you’re comparing with the late 90s?
DL: In the late 90s a lot of money went into these things. I was actually running a company then, and it turns out unbeknownst to me some of my investors were invested in some of the the online pet food things. I said something derogatory about that at one point, and somebody said “well, you don’t understand the dynamics of the pet food industry.”
I said, “No I don’t, but I do understand my pet, and I understand the following principles. The network, whether it’s the Internet or the phone network, does one thing really well — it reduces distance. If it were a good business to truck pet food to my house, the phone network would have removed that distance quite nicely. Because my dog is really brand loyal, once he likes chicken and rice, I don’t get him anther brand because I don’t want to buy 40 pounds of something he doesn’t want to eat. It’s not a hard problem for me to pick up the phone and say truck me 40 pounds of dog food. If that were a good business, the phone network would have done it just fine. Those kinds of things, people got a little over engineered.
I don’t see that going on now. I see lighter-weight experimentation that’s not expensive, leading to some breakout interesting companies.
We are going to see consolidation in the venture business, you’re seeing the change int he angel and super angel kind of behaviour. The recent NVCA [National Venture Capital Association] data is an indicator of that, I’m on the corporate board of the NVCA so I do track that.
But I’m enthusiastic on the frothy nature and experimentation. I think it’s bubbly but it’s supposed to be, and I don’t think it’s out of whack.
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