Microsoft Starts Up
The tech
giant’s partnership model shows how large companies can work with new ventures
to drive innovation.
At the Microsoft
Accelerator in Beijing, engineers are developing new technologies that could
transform industries as diverse as automobiles, mobile telephony, and
e-commerce. They are doing so under Microsoft’s wing, housed within the
company’s Asia-Pacific R&D facility. But they aren’t limited to using
Microsoft products: One of the more striking features of the facility is the
presence of Apple computers on the desks of some of the roughly dozen startups
working there. Microsoft is providing a coworking space, technical and business
mentoring, and connections to prospective customers, partners, and
collaborators, in hopes that if a startup’s innovation comes to fruition, it
will be a boon for both parties.
The Beijing Accelerator and others like it around the world
represent the culmination of a strategy that Microsoft has pursued for about a
decade. During this time, Microsoft has rolled out a series of ambitious
partnerships with startups. The business case is clear: Engaging with startups
enables a large corporation such as Microsoft to tap into exciting innovations
just getting off the ground. And startups know that working with a company such
as Microsoft will provide access to the resources, legitimacy, and scope they
need to catapult them into greater visibility and help them obtain new business
opportunities.
But in practice, this type of engagement is challenging to
implement. The asymmetry between large companies and startups, in terms of
power, structure, and decision-making speed, makes it difficult to forge
mutually beneficial connections and nurture them over time. Since 2006, we’ve
conducted more than 100 interviews with Microsoft managers, startup employees,
observers from other companies, and industry experts in diverse geographic
settings, in order to better understand how these partnerships have evolved.
Across industries, as more and more large companies look to these types of
arrangements as a means of gaining access to cutting-edge technologies,
Microsoft’s experience can provide valuable lessons.
The Path to Partnership
Microsoft’s startup engagement journey has been a long one, marked
by considerable learning. Early on, the company developed expertise in
partnering with independent software vendors. But like most of its peers at the
turn of the 21st century, Microsoft did not have any systematic way to engage
with startups. This period also witnessed the emergence of the open source
movement, which provide software that users could freely alter and improve. A
new reality had thus arrived: The availability of free open source tools meant
that software companies — including, increasingly, smaller entrepreneurial
firms — had an alternative to Microsoft technologies. For a company that relied
heavily on other companies building software offerings on top of its platform
technologies, this was no minor threat.
The second half of the 2000s featured a concerted response from
Microsoft. It became clear that merely tweaking existing partnership programs
and extending them to startups wouldn’t be sufficient. In 2008, the company
launched an initiative called BizSpark. The program offered free software tools
for a period of three years to startups that were less than five years
old and that had less than US$1 million in revenue.
Within a couple of years of its launch, thousands of startups
around the world had signed up for BizSpark. From Microsoft’s perspective, the
rationale was straightforward: Typically, for every license sold of the
startup’s product, a license of the underlying Microsoft technology would be
sold as well. And by working with startups, Microsoft could develop
long-lasting relationships with exciting new companies.
A spin-off initiative called BizSpark One, managed from
Microsoft’s Silicon Valley campus, was launched in 2009. It sought to identify
the 100 most innovative startups from among Microsoft’s thousands of BizSpark
member startups. Each member of this select group received yearlong support,
such as strategy advice on the venture’s business model; introductions to
relevant technical teams within Microsoft; and promotion through marketing
channels, including, in several cases, the creation of company
mini-documentaries. All this support came from a designated portfolio manager
on Microsoft’s BizSpark One team.
By 2012, managers at Microsoft’s research facility in Israel had
recognized the potential for working much more closely with promising startups
— and for a shorter period of time — than the BizSpark One program allowed. The
major difference in the new accelerator model these managers wanted to develop
was that startups would be physically located in a Microsoft facility for the
duration of the partnership. This would allow for more face-to-face interaction
than was possible in the long-distance relationships of the BizSpark One
program, saving valuable time for both parties. Managers in Microsoft’s
research unit in India quickly warmed to the idea, and joined forces with their
Israeli counterparts to promote it to Microsoft’s U.S. headquarters.
Accelerators were launched in Tel Aviv, Bangalore, and Beijing.
Each was located in a strong Microsoft research facility, in a city with a
vibrant or emergent startup scene. (The Bangalore Accelerator has since
outgrown its space and moved into a separate building.) In 2013, after
promising results from the original group, accelerators were launched in
Berlin, London, and Paris — three of the most prominent startup hubs in Europe.
The following year, Microsoft launched an accelerator in Seattle, its own backyard.
Each of these accelerators provides its startups with four months of access to
technological and business infrastructure, mentoring, and network-building
opportunities, culminating in a demo day attended by Microsoft managers and
partners, as well as external investors.
In parallel with its in-house programs, in May 2015 Microsoft
launched BizSpark Plus, which enables the company to work with more than 200 of
the world’s leading startup accelerators. Through this program, Microsoft
provides up to $120,000 of credits to use Azure (Microsoft’s cloud computing
platform), technical support, and guidance from technical evangelists to help
growth-stage startups bring their products to market.
Pushing Boundaries
To make its startup partnerships work, Microsoft employs a quality
we find in the most innovative companies: creative realism. That is, it goes
beyond existing norms in unconventional ways, but still operates within
reasonable constraints.
Microsoft sets explicit guidelines and expectations for its
startup partners, but keeps things flexible by looking for context-specific
ways to add value. For example, the accelerators are technology-agnostic.
Startups are not obliged to build their offerings on Microsoft technology
(although they are certainly encouraged to do so through the offer of free
software and cloud services). Microsoft recognizes that not all startups are
sold on its platform technologies, and that the best startups are unlikely to
be attracted to a partner program that limits them to working on a particular
platform. Microsoft also takes no equity stake from startups in its
accelerators.
Microsoft adapts its accelerator “curriculum” to local conditions.
This is critical when rolling out a partnership program globally:
Companies need to have some policies that apply across the board and others
that recognize the challenges and opportunities unique to each location. In
China, for instance, Microsoft works closely with national and local government
officials, who are the primary source of incentives and resources for
entrepreneurship and innovation.
On a visit to the Bangalore Accelerator in February 2016, we
learned that Microsoft had begun sharing its expertise with a strategic
partner. It helped the India-based conglomerate Reliance Industries set up
GenNext Hub, an accelerator in Mumbai. It is “powered by Microsoft” but not
directly run by it, an acknowledgment of the resource intensity of operating an
accelerator effectively in emerging markets. Given the breadth of Reliance’s
business interests, it is not surprising that the technology-based startups in
this accelerator represent a range of sectors, including healthcare, finance,
and retail. In May 2016, Microsoft announced a similar arrangement in Shanghai
— a new accelerator formed in partnership with electronics company INESA and
the local government.
Microsoft has looked for additional ways to embrace creative
realism in its partnership model. For example, the company seeks to make the
most of its global footprint by tapping into lessons learned from different
groups. Managers at the London Accelerator told us that they had recently met
some of their counterparts from Asia, whose accelerators had been in operation
longer, and had benefited from the exchange of ideas. And the company has
recognized that the startups that “graduate” may continue to benefit from its
support. In the Bangalore Accelerator, it created space that alumni could use
on a first-come-first-served basis.
An Innovation Ecosystem
The Microsoft Accelerator and BizSpark programs constitute the
bulk of the company’s startup engagement activity, which also includes M&A,
app development programs, and industry events. Microsoft also recently
established a new corporate venture group, Microsoft Ventures, which provides
an additional channel focused on making equity-based investments in startups,
augmenting its own product and technology efforts, harnessing emerging trends
as early as possible, and placing both strategic and financial bets with
early-stage companies.
Success stories among Microsoft’s startup partners around the
world suggest that its efforts have paid off. In the U.S., StorSimple, a cloud
storage company that was named the 2011 BizSpark Partner of the Year, was
acquired by Microsoft in 2012. Testin, a Beijing-based startup that was one of
the first graduates of the Beijing Accelerator, currently claims a valuation of
more than $500 million. A South African startup, WhereIsMyTransport, which has
partnered closely with Microsoft since its conceptualization, relocated in July
2015 to the U.K., where it has established useful links with Microsoft’s
British subsidiary. WhereIsMyTransport now has access to a more sophisticated
startup environment — one with a more diverse set of potential partners and
funding sources — as well as a stronger regulatory system for intellectual
property protection, all of which lead to greater possibilities for it to
launch into global markets.
As multinationals compete to build their own innovation
ecosystems, understanding how to engage effectively with startups becomes
critical. The next big idea may come from your internal R&D, but it is just
as likely to be found outside, developed by the talented engineers and
entrepreneurs spread among the world’s innovation hot spots.
by Shameen Prashantham and George
S. Yip
http://www.strategy-business.com/article/Microsoft-Starts-Up?gko=5853d
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