Bill Gurley of Benchmark (and one of my favorite macro picture thinkers) has written an interesting post that asks that question of whether VCs Help in Building a Technology Platform. Essentially, he draws comparisons between the strong venture investing and market uptake for open source technologies and the less strong environment around .NET (disclaimer: I built my last consumer oriented software product in .NET and am building my next one using open source, so from a pure technology perspective, I am a fan of both).
His takeaway is somewhat ironic, inasmuch as a few years back, Microsoft spent a lot of time with the venture community trying to "educate" them on which segments are safe for investment and which ones Microsoft will likely expand into (i.e., not safe).
The problem with this approach as it has played out was two-fold. One, Microsoft's "safe" investing grounds were largely niche markets which are exactly the types of segments unsuitable for venture. Two, given the company's historical zero-sum approach to business, when they did decide to buy their way into a market, it generally didn't translate into great financial outcome for investors in the acquired company. Contrast this with Cisco, where the venture community and Cisco's corporate development folks were practically kissing cousins. If you were a venture investor, thinking to the end and working backwards to the present, where would you put your dollars down?
Moral of the story: what you sow is what you reap.
Relative to Bill's question about the role of VCs in building of technology platforms, let me say two things. One, what gets funded is generally what gets built (this is a truism about markets in general, not just tech) -- either because the proof is already in the market, mitigating investment risk or because entrepreneurs read the fund-ability "tea leaves" and invest their time accordingly.
In my experience, VCs are the ultimate thin slicers so to the extent the meme, "Microsoft embraces, extends, extinguishes" sticks, Microsoft is stuck. Same story in open source where VCs can free associate on a built-in community model and open APIs translating to lower initial selling costs, more viral cross customer leverage, friction free upselling opportunities and a generally more fluid and agile ecosystem. And, oh yeah, no 500 pound gorilla.
Not a panacea to be sure, but gravity certainly feels a lot more favorable in the open source arena from an investing perspective.
