VCs yawn at Microsoft ruling
By Georgie Raik-Allen
Redherring.com, November 9, 1999
Copyright © Red Herring Communications
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"If the Microsoft [Nasdaq: MSFT] decision was an earthquake, it would
register 2.5 on the Richter scale, not a 7.5," says Charles River Ventures
partner Ted Dintersmith. Mr. Dintersmith's view is shared by many people in
the venture capital community, which gave a collective yawn in response to
Judge Thomas Penfield Jackson's finding Friday that Microsoft is a monopoly.
Andrew "Flip" Filipowski, CEO of Divine Interventures, doesn't care about
Judge Jackson's findings of fact. The court case "is one of those things
that will continue on for another three to four years, so why will it
matter?" Mr. Filipowski asks. "By the time the case is resolved, the world
will have passed it by in terms of relevance."
PULLING ITS CLAWS IN
Venture capitalists agree the ruling and any reduction in Microsoft's
competitive muscle won't significantly change the way they do business,
partly because of the decision's timing. "It's ironic this decision came
down at a time when the Wintel [Windows and Intel (Nasdaq: INTC)] alliance
is at its weakest point in a decade, alternative operating systems are
emerging for new digital devices, and Microsoft has failed to dominate in
the area of content or the dot-com retail space," says Bay Partners VC Jim
Wickett. "The only thing they have is a monopoly on the desktop, and that's
becoming less and less relevant." Having faced increasing scrutiny over the
past few years, Microsoft has already curtailed its predatory instincts; it
started developing strategic partnerships with smaller technology companies
and increased its business development activity in Silicon Valley, Mr.
Wickett says. "Two or three years ago I wouldn't have invested in the same
space as Microsoft, but in the past year I've been less worried about
competing against them," Mr. Wickett says. "Now if I see Microsoft in a
space, it indicates there may be a strong market."
Sonja Hoel, general partner at Menlo Ventures, agrees. She says, "The
company got its act together a couple of years ago when all of this
started." Ms. Hoel now praises the software giant for its business
practices. "I'm probably the only venture capitalist in Silicon Valley to
say it, but I think Microsoft is this country's greatest asset," she says.
"The company developed so much technology, expanded the PC, made it
affordable, educated and trained many engineers, and led to the creation of
many new companies," Ms. Hoel adds. "Microsoft enabled the U.S. to own the
PC and create the world standard."
OPENING DOORS
Generally speaking, many VCs think that because Microsoft inhibited
competition and innovation, the recent decision is good news for the
technology industry. They say early-stage technology companies will feel
less pressure and have more breathing room as Microsoft further cools its
aggressive business practices. "The decision should lead to a more level
playing field," says Promod Haque, general partner at Norwest Venture
Partners. "Smaller companies are less likely to be bullied." Todd Dagres, a
general partner at Battery Ventures, expects more innovation in areas
Microsoft has traditionally dominated. While Battery Ventures was reluctant
to invest in markets where Microsoft competed, the firm now considers
investments in software that extends beyond what Microsoft offers on the
desktop and the Web, he says.
Paul Maeder, managing general partner at Highland Capital Partners, says
there were formerly areas his firm would "skirt because of concerns about
competition." These included software applications, Linux, alternative
operating systems, and the "plumbing of computing," such as mail systems.
Not anymore. Venture capitalists generally are more interested in areas
where Microsoft's desktop dominance makes little difference -- for example,
Internet retailing and services markets. "We've invested $120 million in
dot-com, Internet, and service companies this year, all areas where
Microsoft doesn't really compete," Ms. Hoel says. "We don't want to do
investments in areas where Microsoft is playing, and we don't have to."
Lawrence Aragon contributed to this story.