I spend a lot of time thinking about which big VC outfit I will court for my startup, NexussPlus Inc. (a Delaware C Corp). And I have been thinking about this for many years. Some startups take a long time to get off the ground, if the sole founder is also a regular working stiff . . . That’s me at 63! Working for money to pay the bills but not working too much so that I can actually move forward, even incrementally, with “The Work” or my life work (writing books and getting NexussPlus off the ground).
So how do Google Ventures and Microsoft Ventures compare if you are looking for seed capital or, if necessary, a later injection of cash?
Let’s start with how both of these companies make money.
Alphabet makes well over 85% of its money from advertising. And advertising is never going to go away. In a way, you can say Google’s ad dominance is an advantage for advertisers. Why look for a rival ad platform (and Meta is almost the only other choice for digital advertising), when Google and Meta have the best tools and also the best understanding of consumers across the planet. They have the data and they know what they are doing. The only threat to this online ad industry dominance is government regulation. And the biggest jurisdictional threat comes from the EU. [The US might want to regulate this industry so new players can play but not likely.]
Microsoft, on the other hand, makes 85% or more of its revenue from selling stuff to consumers and enterprise (and a fair bit of gov contracts too). Microsoft makes decent coin from advertising but it’s not their bread and butter, more like a small percentage of their overall annual revenue (especially since Balmer was replaced by Satya Nadella, who is Gate’s Tim Cook: smart, steady, and cautious enough . . .).
So the question any startup founder must answer is: “Who should you go to bed with to maximally ensure the success of your startup? Google Ventures or Microsoft Ventures?
The answer depends on your startup. Are you trying to sell to consumers or biz or gov, or all three (like my startup, NexussPlus). If consumers are your future customers, then Microsoft Ventures is the smart bet. They sell to consumers and they sell to businesses (aka enterprise).
If your startup is a new technology or breakthrough for the evolution of the internet or anything else, then Google Ventures is the best choice. But don’t expect GV to help you to sell your idea to consumers or biz. Gov? Maybe but let’s not get ahead of ourselves . . .
Alphabet, strangely enough, only has two major consumer-facing acquistions in their history: Nest home control devices and YouTube. YouTube is used by consumers and, as of 2023, consumers are actually paying YouTube for ad free subscription. Bouyah!
But YouTube is really just the the #1 video platform worldwide. Vevo? Just not a global juggernaut like YouTube but excellent quality to be sure . . . [Vevo is owned by Universal Music Group (UMG), Sony Music Entertainment (SME), and Abu Dhabi Media. So good luck with trying to unseat YouTube in this century or the next . . .]
Alphabet is really just “the” internet utility company: advertising expertise and dominance; Gmail; search; Google Maps . . . Alphabet’s cloud division sells to businesses but lags well behind AMZ and MSFT in 3rd place. No matter!
Google “runs” the internet and its tools are the “best” (this is hard to dispute). And they definitely understand consumers better than any company on the planet, though a few mega Madison Ave and UK ad agencies will beg to differ.
But there are also “new giants” at the online ad business table. Amazon, Apple, TikTok and Walmart are learning to steal more and more market share from Google and Meta . . . Afterall they sell to consumers directly every day everywhere!
THE TRUTH IS THAT GOOGLE DOESN’T REALLY SELL TO CONSUMERS! AND THIS SEEMS TO BE A MASSIVE MISSED OPPORTUNITY. WHY?
Alphabet knows so much about consumers that you’d think they would be good at investing in monetized services and products for consumers (enterprise businesses are not consumers but they nearly always depend on consumers for their revenue).
Think of the global upper-middle class (UMC). Aren’t there things, exclusive things, that Alphabet can create from scratch and sell directly to consumers and business? You’d think so but it just isn’t true.
Microsoft, on the other hand, may not understand consumers as well as Alphabet, but they make nearly all their money from consumers. And I am one of them with my annual Microsoft Office subscription. Microsoft’s cloud division is also big and #2 worldwide and it’s customers are nearly 100% businesses (consumer facing businesses).
But looking at all this from an UMC perspective, we can say that the UMC relies on Google more than MSFT. But how can that be? Let me show you . . .
Let’s begin with me. I’m not UMC (yet) but I use Google products and tools much more than I use Microsoft products or tools . . . I have 3 Gmail accounts, my consulting business for travelers going to Japan (the entire country, since 1990) relies heavily on Google Maps and my Google Business Profile on Google Maps. I use Google Voice but I also use Skype to Skype Out (and Skype belongs to MSFT) . . . And my data is backed up by Google though I have a Windows laptop. Google makes everything easy or easy enough. MSFT? Not so much and their documentation is still not as good as G’s or Apple’s for that matter. [Apple, BTW, is a 100% consumer facing company; and yet they are a cypher for venture capital, as they mostly acquire . . . and early . . .]
Pretty much everyone from the top 1% to the bottom 30% or more use Google’s tools and services. Why wouldn’t they? Even Nadella has publicly stated that MSFT just can’t compete with what Google does for maps, translation, email and a lot more!
And yet . . . and yet . . . Google could make a lot more money if they had premium products for extra busy or extra privacy-conscious consumers . . . But they don’t and they probably never will. And why?
For one single reason: Google’s initial business model was give the tools away for free and make a killing from selling ads for anyone, anywhere in the Western world . . . So, it’s not easy to pivot to something new. That’s how RIM | Blackberry and Nokia fell from heaven . . . They just couldn’t change to the way Apple and Jobs clearly illuminated and dominated. This is true of many businesses. They just can’t reinvent themselves.
And here, again, Microsoft has proven itself to be different, at least for the last 9 years (after Steve Balmer stepped down in 2014). Microsoft under Nadella is a very different company when compared to the Balmer days (14 years of days!). MSFT has grown up and gotten smarter about staying agile. And this brings us to OpenAI.
OpenAI had to run their AI training programs with a firm that had the cloud resources and that didn’t have the AI edge Google has long enjoyed (and still does to a great extent). And OpenAI felt that Google’s cloud could not be trusted, given that both firms were competing in the same space.
So, what was OpenAI to do? Of course, they went to be with MSFT’s cloud. Only an idiot would have chosen Amazon’s cloud. And MSFT recognized the opportunity fast, real fast. And now they more or less own OpenAI outright evening if they only have 49%. Smart and aggressive and totally about the consumer and how much it will pay for AI additions to MSFT’s treasure trove of legacy software products (there are better text editors than MS Word but no one has heard of them and likely never will!).
So which VC outfit will I try to seduce first Google or MSFT? The answer is neither in my case as my first choice is still BMW iVentures, which is the 5th largest luxury car maker in the world and they can sell my service to their consumers: BMW owners . . . But if that fails the MSFT is next on the list for their deep customer relations worldwide . . . And the winner is???
Learn more! My name is Ian Martin Ropke and I love to write, invent, create and go further . . .