July 31, 2003 10:33 AM PDT

Microsoft--the tightfisted giant?

Attention start-ups: Don't go looking to Microsoft for the next round of cash.

The software giant, which a few years ago was willing to invest billions in companies that could spur adoption of new software efforts, has changed its ways. The company, which has said it has no immediate plans to return its cash to shareholders, has become even more reticent to make strategic investments.

"That whole investment strategy is transitioning," said Dan'l Lewin, corporate vice president of business development for Microsoft's .Net efforts.

The handful of investments Microsoft has made in the last couple of years has been for a number of different reasons. For example, Microsoft earlier this week agreed to acquire a stake in force-feedback technology developer Immersion as part of a $26 million settlement.

One reason for the paucity of deals is that Microsoft business units must use their own funds to make an investment, but any later profit from selling the stake goes to the company's general treasury. Business units can choose to use their resources to make an investment, Lewin said, but such moves are relatively scarce and are typically part of a larger business relationship.

The current investment approach differs dramatically from that of the days when Microsoft was willing to shell out $5 billion for a stake in AT&T or when it invested $1 billion in Comcast in 1997.

It also is a stark contrast to Intel's investment practices: The chipmaker continues to be one of the largest venture capital investors around, pumping hundreds of millions of dollars into companies that are taking advantage of new technologies.

Microsoft Chairman Bill Gates said at last week's analyst meeting that his company is trying to stick to the only business it knows: software. He said the company is unlikely to make similarly large investments in the future.

That doesn't mean the company is out of the business development game. Lewin heads up a team that tries to connect promising start-ups with customers and makes sure the companies understand Microsoft's technology plans.

Microsoft has relationships with about 20 start-up companies that are supporting .Net and is looking at 60 to 80 more, nearly all of them backed by blue-chip venture capital firms.

 

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