Microsoft shares its secrets

Following a 2003 policy change in the way it deals with its intellectual property, the computer giant this week launched Microsoft Intellectual Property Ventures, which will work in conjunction with venture capitalists and entrepreneurs to license 20 technologies to startups and small companies.

Microsoft didn’t take over the computer world by divulging any of its secrets. But as part of an overall intellectual-property licensing push begun in December 2003, the tech giant this week launched Microsoft Intellectual Property (IP) Ventures, a formal program that will license 20 technologies from its research division to entrepreneurs and small businesses.

From a capitalistic standpoint, it a nice approach—build a program around all this unused technology and make money off of it.

Lucinda Stewart, partner,         OVP Venture Partners

The six-person division will not only oversee the process of licensing to startups, but will also help educate and train entrepreneurs in the use of these technologies by giving them access to the researchers that developed the technologies in the first place.

What’s interesting about the IP Ventures initiative is that it was formed in consultation with 10 venture capital firms, including Advanced Technology Ventures, Insight Venture Partners, MDV-Mohr, Davidow Ventures, and OVP Venture Partners; Microsoft also worked with research universities Stanford and the Massachusetts Institute of Technology (MIT). Going forward, IP Ventures will work with these firms’ management teams to match eager entrepreneurs with the appropriate Microsoft technologies.

Microsoft has in the past typically cross-licensed only with larger companies. The IP Ventures unit, however, will actually focus on starting brand new companies revolving around the raw technology being generated in Microsoft’s research labs.

Because the company will be working with venture capitalists and entrepreneurs, it will depart from the traditional fee-based licensing model. In exchange for its technologies, Microsoft will receive equity stakes and royalty payments, and will create remuneration structures that are flexible for entrepreneurs raising capital in the early stages of their companies’ development.

“They’ll be giving out a lot of tech nuggets that never get backed into their products and never see the light of day,” says Lucinda Stewart, a partner at Seattle-based OVP. “From a capitalistic standpoint, it a nice approach—build a program around all this unused technology and make money off of it.”

Some of the technology areas available for licensing include artificial intelligence—face detection and tracking; security—ID cards incorporating biometric information; and gaming—gesture-based text input and device navigation. Stewart says having the technology already researched and developed accelerates the path to market. “Instead of backing two guys with a crazy idea, you get something that’s already been worked on for 12 months or more.”

Microsoft says it will eventually license out hundreds of internal technologies via the IP Ventures program. David Kaefer, Microsoft’s director of intellectual-property licensing, admits that it is inevitable Microsoft employees may spin out these technologies themselves. But he maintains that the company’s researchers are more interested in base research rather than in running companies, and that Microsoft still offers the best resources for them to advance in their fields.

Given that Microsoft’s software and systems are so prevalent everywhere in the world today, many Microsoft products have to function alongside non-Microsoft products. The creation of IP Ventures, therefore, was foreseeable, as technological coexistence meant Microsoft eventually had to collaborate with other companies anyway.

“Startups need hand-holding and training in the transfer of these technologies in order to take them and innovate on top of that,” says Kaefer. “[IP Ventures] creates a more formal structure for this, rather than just throwing [the technology licenses] over the fence.”