REDMOND, Wash. — June 22, 2010 — It’s no secret that Microsoft invests heavily in research to stay on the cutting edge of technology. The company’s research division is one of the largest and most diverse in the world, with a budget of more than $9 billion this year alone.
This sizable investment in research results in a steady stream of intellectual property (IP) assets, and while many of those make their way into the company’s product lineup, many others can be best utilized outside of Microsoft.
Five years ago, Microsoft established the IP Ventures program to open up these internally developed technologies to entrepreneurs and new businesses. The program takes an unusual approach, treating IP assets as currency to invest in emerging companies — facilitating their product and business development while getting new technologies into the hands of consumers. In addition to handing off the technology and related patents, IP Ventures also provides technological guidance and business insight to ensure a smooth transition.
The program is an innovation in its own right, to the point where it’s drawn the attention of the Harvard Business School, which released a case study profile of IP Ventures today (see the abstract).
According to Harvard Business School Professor Josh Lerner, co-author of the case study, IP Ventures is an interesting model that students, as well corporations that invest heavily in research, could benefit from studying.
“Not all of the IP created by Microsoft can be worked into the company’s product portfolio, and other assets have applications outside of Microsoft’s market space,” Lerner says. “With IP Ventures, Microsoft delivers those technologies into the hands of entrepreneurs and small businesses to help them compete in the marketplace in new ways.”
Since its founding, the IP Ventures program has helped support the launch of eight new companies around the world, spanning a variety of industries. Though still in their relative infancy, most are already making significant strides, including Sabi Inc., a children’s learning game company, and Inrix, a Seattle-area company whose service reports and predicts traffic conditions.
Outside the U.S., IP Ventures has assisted Toronto-based PlanetEye, a service that enables consumers and clients to build compelling travel websites, as well as Dublin-based InishTech, which provides licensing and protection services to software publishers and developers.
According to program director Sharieff Mansour, the deals to spin off IP assets come together in a variety of ways, but the key is finding the right fit between the technology, the market and a company’s business plan.
“When you’re dealing with new technologies and there aren’t established players, it lends itself to starting new ventures and creating tangible job opportunities around the IP,” says Mansour. “IP Ventures works with entrepreneurs and venture capitalists to get those technologies to market quickly. The program also serves as a vehicle for the venture capitalist community to work with us in a meaningful way.”
Sometimes the business plan is written to fit a great new innovation. One of IP Ventures’ most successful early efforts involved a company called Zumobi, formerly known as Zen Zui. The Zumobi business plan was built around new Microsoft technology that enabled a cutting-edge interface for consuming applications on a mobile phone.
While the innovation didn’t quite fit with Microsoft’s product plans at the time, Zumobi founder John SanGiovanni felt there was a market opportunity for the technology, so he approached IP Ventures and Mansour for help with building a business around it.
“IP Ventures was essential in helping us get connected with these investors, and providing credibility around the research we’d done,” SanGiovanni says. “They also helped at a tactical level with writing the original business plan and determining the initial value propositions.”
Much has changed in the mobile space since Zumobi was founded in 2006, but SanGiovanni says the company has evolved right along with the market. As the first premium mobile app network, Zumobi is now one of the most prominent publishers of mobile media apps for the smartphone, having built the official mobile apps for MSNBC, the “Today” show, Xbox, “American Idol” and the 2008 Beijing Olympics.
While Zumobi is an example of how IP Ventures works to find a market for compelling new technologies, Mansour says other startups seeded by the program come from the opposite direction — a great business plan that lacks the key technology to make it successful. Mansour says Microsoft’s IP can often serve to assist entrepreneurs who need that crucial missing piece.
Such was the case with Irish startup Zignals. Entrepreneur Pat Brazel was working on a solution to give sophisticated investment advice to consumers in a broad way.
In a new twist on financial services, Zignals offers dealing room quality tools and data so that non-professionals and other finance wonks can build trading strategies and then offer them as a subscription to users of the site, which is open to anybody. The business model is an interesting one — Zignals shares revenues collected from the subscriptions with the people who write the strategies.
“If you’re a super-smart financial whiz with time on your hands to build strategies for trading stocks, we act as your agent, and for investors disappointed with other sources of trading advice, we offer a marketplace where the best trading strategies can be found,” Brazel says.
Brazel says one big challenge he faced in building Zignals was processing huge volumes of data in a reasonable timeframe. That’s where IP Ventures was able to help, with a technology in the Microsoft portfolio that dramatically speeds up processing time.
“Most people are stunned at how fast our performance is when you consider everything that it’s doing,” Brazel says. “And that’s in no small measure due to the Microsoft technologies we used.”
Brazel says the high level of performance is a real competitive differentiator, but it’s not the only thing that makes the Zignals service unique in the investment community.
To create a fast, interactive experience that hadn’t existed for smaller investors on the Web, Brazel and his team built the entire site using Microsoft Silverlight. The result is a very slick, smooth experience that basically gives anyone access to a full-featured control panel for their investments. Zignals also provides complex strategy-building engines that allow people to back-check strategies over time, along with charting, portfolio and alerting tools that people can use to monitor markets.
More than two years in the making, Zignals’ online service officially launches today with an entire suite of financial tools that just about anyone can use. It’s a feat that Brazel says would not have been possible without the help he received from IP Ventures and Microsoft.
“From a technical point of view, frankly it’s inconceivable that any small company could build the stuff that we got from IP Ventures,” he says. “Not only technically, but the number of developers it would take and the investment in research. We’re standing on the shoulders of giants in terms of the technology we got from Microsoft.”
According to SanGiovanni, while his company had the technology in place, the involvement of IP Ventures on the business side was equally pivotal in getting his fledgling company off the ground.
“It’s very hard to approach a private equity investor as an individual inventor,” he says. “It’s incredibly hard to validate a business model in a deeply researched way. Those are the things that IP Ventures did incredibly well.”
As for IP Ventures, Mansour says the group continues to refine how it engages with entrepreneurs and startups. The end goal, he says, is to help develop sizeable, stand-alone businesses based on the IP Microsoft provided. Although most are still in their relative infancy just five years into the program, a couple of companies in the IP Ventures portfolio are getting to that point.
“IP Ventures is about providing access to our innovations, providing a speed-to-market advantage for these startups, and the end of the story is providing successful exits for everyone involved,” Mansour says. “We’ve been patiently waiting for the markets to turn, the companies to continue building value, and we’re nearly at that point.”
