Inside Microsoft’s New Azure Accelerator — Will Redmond Get The Startup Mojo?

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Back in March this year Microsoft launched its first ever “direct” startup accelerator, based out of Tel Aviv, Israel. That meant it would, for the first time, be an accelerator owner/operator. Dubbed the Windows Azure Accelerator (WAA) it looked, at least on first inspection, to be designed to push its Azure cloud computing platform. Perhaps this was some paper-thin marketing initiative? “Look everyone, startups are choosing to use Azure!” seemed to be the initial message.

Indeed, the move led to some confusion in the market. Microsoft already works with TechStars and all members of its Global Accelerator Network. It also has an ongoing BizSpark marketing programme to push Microsoft products, and numerous R&D centres around the globe. What on earth was going on? Was this going to be some sort of prison for startups, where they would be force-fed gruel and lashed like galley slaves if they didn’t use Azure? It turns out, no, there’s more to it than that. But there is a back story to this move and a strong hint that this single move may, in the not too distant future, lead Microsoft back to its roots and re-inject that essential startup DNA back into the corporate giant.

I took a trip out to Tel Aviv to get under the skin of this new initiative, to meet the startups they are backing and work out why the hell Microsoft would be doing an accelerator.

But let’s look at the detail first.

Housed in the Microsoft Israel Research and Development Center, the Accelerator is part of the Center’s outreach program ThinkNext, a startup engagement program. Run a little like TechCrunch Disrupt, the ThinkNext Summit is an in-house, invitation-only Microsoft conference which has been running for 4 years featuring key MS people, but which also puts 20 startups on stage. It’s also taken under its wing the Microsoft “BizSpark One” program, which deals with about 50 companies out of a broader 45,000 BizSpark startups.

THE WINDOWS AZURE ACCELERATOR

The Windows Azure Accelerator itself is a four-month, biannual program for 10 startups. Featuring over 30 mentors from the industry (from CEOs to investors to marketing experts), startups also get all the usual free software offered through Microsoft BizSpark Plus.

At the end of the programme they get a demo day for investors in Israel and one in Silicon Valley in September.

Running the WAA day to day is Hannan Lavy a former serial entrepreneur and cofounder of United Parents Online which has been covered on TechCrunch. A CTO for the Accelerator is due to be hired. The key point here is that Microsoft isn’t hiring from within its own borders, but bringing in entrepreneurs who can understand other entrepreneurs.

As with most accelerators, the startups get free office space, coaching, mentorship, legal assistance – the usual.

There will be a big focus on User Experience, something Israeli companies haven’t traditionally been strong in and – in something of a first for a Microsoft initiative – Agile and Lean Startup methodology will be promoted.

The specific Azure cloud use element is good for two years (worth up to $60,000) – so in some respects this is kind of an investment.

Now, you’d think the startups would be leaned on to use it. But in fact I saw zero evidence of this. Quite the contrary – when I visited I saw startups happily talking about their iOS or Android apps and working on Macs just as much as PCs.

The startups also get access to customers and advertising/design partners like the giant Y&R ad agency. In reality I spoke with the mentors from these companies and it’s a lot simpler and less corporate than it sounds – what they are getting in practical terms is the time of two key guys from those companies, and their ability to green light anything the startups need.

Mentor David Sable of Y&R says it’s about “giving the startups practical real-life understanding of what they need to sell and to understand what their clients will need.” Sable is accountable for the Microsoft relationship for WPP. He calls the WAA initiative a “strong partnership” which “is a huge value add for us” and that it adds “huge energy to my company”.

Yoram Tietz of E&Y explains: “Big companies have a problem with innovation. The position of E&Y is pro bono. E&Y was chosen as partners because they have a market reach into the Israeli tech market.”

The other mentors on the programme feature many well known names from the Israeli tech scene including Zohar Levkovitz – Founder of Amobee; Guy Schory – head of new ventures, eBay; Moshe Levin – managing general partner, DFJ Tel Aviv ; Shmulik Weller – founder, SundaySky; Gil Peretz, a Neuro Linguistic Programming expert and Adi Diamant, Former funder of Emblaze Systems, now in the Microsoft R&D centre.

SO WHAT”S THE DEAL?

More unusually the startups inside WAA get no money from Microsoft. But then again, no equity is taken either. So, free offices, free mentoring, access to lots of big potential partners. It’s all just a little too good to be true. What’s going on here?

WHAT DOES MICROSOFT GET OUT OF THIS?

It’s clear Microsoft wants to get something out of this relationship but, but it’s also, at this stage, happy to be vague about the outcomes.

The criteria for startups to join WAA is simple enough: they need to have a cloud component, a big vision for their product, they need to be “coachable / mentorable”, be a small team of less that 4 people and be capable of being nimble.

Amongst the startups I met, it was clear they were small, but hard working. After speaking to a few people I uncovered some typical startup behaviour – office hours amongst these guys usually work 11am to midnight, for instance.

In return for this social contract, Microsoft gets to plug into new ways of working and new trends in technology. Yes, it could get those in other places, like the Valley, but not in such an intimate setting. Indeed, if the startups in WAA choose NOT to use Microsoft technologies, then guess who gets to pump those guys for information directly about why not? Microsoft gets to work out how to fix these issues much simpler way than if they had to engage with startups outside of any Microsoft connection.

It’s true that Microsoft wants to encourage more entrepreneurs to build their cloud-based applications using Windows Azure – but the reality is subtler than that. As I worked my way through the people involved it became clear that they have big plans for the place. And it’s not really just about Azure – it’s about connecting with the startup vibe and informing wider strategy.

Perhaps that’s better done outside of the stuffy confines of Redmond, in a venue spitting distance from Tel Aviv’s gorgeous beaches. But this is no holiday camp.

BUT WHY ISRAEL?

The background to this is instructive. Microsoft has been in Israel since 1991. It created the first R&D centre outside the US in Tel Aviv. Microsoft’s R&D Center houses 550 engineers. And while there are now 45 R&D centres globally, only three are considered “Strategic” ones. They are located in India, China, and Israel. While the former two are – how can I put this? – cheaper to run, Microsoft maintains its R&D centre in comparatively expensive Israel.

The reasons have been expounded up so many time they are barely worth repeating, but for the record: Despite its small 8 million population, Israel has the third latest VC spending in the world according to the OECD and is third only to Silicon Valley and New York in total numbers (not per capita). It’s number four in the world in patents after Taiwan, China, Japan and the US (even though many patents in the US were originally developed in Israel, according to the WEF Global Competitive Report 2011-12). Israel has the largest number of tech startups traded on the NASDAQ. It has 4 of the top 30 computer science universities in the world. Of course, it goes without saying that the reasons for this tech proficiency are obvious: it’s a country with few natural resources, surrounded by enemies and on a constant state of near-war footing. Unfortunately, there’s nothing like a cold war to accelerate innovation and the heady mix of Israeli culture and national army service ends up producing a lot of technically proficient people, as was documented at length in the book Startup Nation.

WHERE DID THE WAA COME FROM?

As Zack Weisfeld, Senior Director of Strategy and Business Development at Microsoft’s Israel Development Center, tells me, it was out of this startup-driven R&D centre, plus the ThinkNext programe, that they came up with the idea of the accelerator. (Weisfeld is a startup veteran who was at Modu and M-systems, acquired by SanDisk in 2006 for $1.6 billion).

They were no longer talking about just innovation, but “innovation excellence” and “fast productisation.” Out of this R&D culture came the die of “rainmaking” – literally seeding the clouds. Clearly there was a missing link to achieve this: they needed the mojo of startups. And thus came the idea of the Azure Accelerator, says Weisfeld.

Gradually people inside Microsoft listened to these siren voices. They needed more than R&D – they needed new blood. They needed the special energy bright by startups, and an accelerator was born.

They also realised startups want more interaction with large corporates in a more collegiate atmosphere.

Admittedly the stock markets might disagree with him but, as Weisfeld told me: “It’s not about Windows versus iOS versus Android or whatever. It’s more complicated than that. It’s not about selling more Microsoft Office licenses.

“It’s really about working across all platforms. Azure is not the main target of the accelerator – it’s about being more connected to startups, trends, ways of working,” he says. Eventually this helps impact MS in other ways. Although the only requirement with the Azure accelerator is to use Azure, he says, startups can use anything else they like including open source tools and other platforms like iOS. “Working with startups gives Microsoft a better chance to compete in the future.”

“People forget Microsoft is still a huge tech company and innovator. It suffers from a bad reputation in some ways, but this initiative shows it can work with startups.”

As Weisfeld says, Microsoft getting access to fast-moving, agile startups “makes us better”.

NEXT UP – THE XBOX ACCELERATOR

The Windows Azure Accelerator is just the first of, perhaps, many more. Weisfeld says that while WAA is the first, others are likely to follow globally.

More interestingly, the next one will be in the same building as the Azure Accelerator and will focus on the Xbox.

Yes, Microsoft already has a ‘Kinect Accelerator‘,which is a venture run with TechStars in Seattle. But TechStars takes its usual 6% equity stake.

This Microsoft-run version will be quite different. This Xbox accelerator will sit next to the Azure Accelerator and right next door to the R&D centre. This makes plenty of sense – the special technology associated with Kinnect comes out of Israeli ‘Machine Vision’ engineering, and guess where Machine Vision is a speciality? Yep, the Israeli Armed forces.

CAN THE WAA IDEA SCALE?

What stuck out eventually about the WAA startups I spoke to was that they were all from Israel. Technically speaking, that needn’t be the case, and I was told the WAA had had applications from 10 countries globally. However, practically speaking, startups don’t get funding to come and live and work in Israel. That meant the gene pool was going to limited to startups from Israel, or even just Tel Aviv.

On the plus side, I was told that in the future the WAA “will be happy” to house startups from other counties, and even “regionally”, so long as they could fund their 4 months in Tel Aviv. Personally, I took this as code for ‘other countries in the Middle East’ – quite some leap of faith for an Israeli initiative. I was also told to “watch this space” on that front.

For here’s the rub. For a global organisation like Microsoft, should we not ask the question: is Microsoft’s first direct accelerator too focused on one country? Surely it ought to be the case that for a huge organisation like Microsoft to start a brand new accelerator then it should be one to all comers not just to Israeli start ups?

It’s a delicate question which is perhaps best understood in the context of Israel’s powerhouse technology centre – one which almost rivals Silicon Valley in hard-core technology and innovation.

The signs are though, that despite it’s all-Israeli makeup – Microsoft’s first ever direct accelerator is likely to be the first of many, as we’ve seen above with the Xbox initiative.

CORPORATE ACCELERATORS – THE NEW NEW THING

The WAA is clearly part of a wider trend. OK, you haven’t seen Apple or Facebook open accelerators, and nor are you likely to. But while Google hasn’t opened a direct accelerator it is certainly dipping its toes into the water. It recently started Campus London, a large building in London’s high tech cluster in the East of the city which houses accelerators and co-working spaces. Meanwhile, Telefonica is rolling out its Wayra incubators globally, while Deutsche Telekom announced its hub:arum incubator for Berlin this month.

But in truth it feels like the more corporate the company culture, the more need there is for this kind of initiative.

NEW MOJO FOR MICROSOFT?

Ultimately, though, I think what we are looking at here in Israel is a kind of prototype accelerator, the model for which will inform Microsoft’s roll out of similar initiatives.

It’s interesting that one of the key missions Microsoft’s R&D center is to look at social networking and monetization – that means social startups need to be part of the equation. And social startups are clearly in this first tranche at WAA.

Perhaps all this activity will inform Microsoft’s future direction as a company. Or perhaps some corporate drone will dismiss it as a flight of fancy, and they should just concentrate on selling more Office and Azure products.

Only time and – many more startups – will tell.

THE STARTUPS AT WINDOWS AZURE ACCELERATOR

Durados
Durados is developing a cloud database application generator without coding. It basically generates templates for any kind of cloud app, like workflow or CRM. It’s aiming to launch on Microsoft’s Azure and Google Apps Marketplaces.
Founders: Itay Herskovits, Relly Rivlin

Evento
Evento is creating a Facebook application initially which makes it easier of events to go viral on social networks and address the problem that about 40% of event tickets go unsold due to lack of exposure. They are targeting sports, entertainment, music, and culture events run by SMEs. You get a lot more management options than the Facebook event application including live maps of stadiums and theatres where you can book a seat. They take a cut of the ticket booking, which is taken from marketing budget not the ticket sale. The system also finds your friends and places you near them in the venue. It’s designed to rewards people with virtual or real goods to incentivize people to spread the event socially. Closest competitor is Ticketmaster’s “Seat New Me” just on the web, but it’s not social. Launching around August with a sports team in the UK.
Founders: Ophir Zardok, Harel Shemer

EverCloud
This Cloud Services Broker (CSB), offers enterprises the ability to dynamically expand on-premise enterprise applications, such as Microsoft Exchange and File Servers, to public Clouds. The multi-tiered SaaS platform maintains communications with the
private Cloud via a proprietary protocol.
Founders: Yuval Rapaport-Rom, Gadi Rapaport

MediSafe
People who consume medication often forget taking their medication or over-medicate, especially if they are elderly. (In the US, over 30,000 people annually die as a result). Scan the Barcode on the medicine packet, and then MediSafe syncs someone’s medication routine with other members of the family. So when your daughter forgets to take her medicine at school, you receive an alert about it. She has to ‘check-in’ that she’s taken the medicine otherwise the Android app alerts the parents. Of course, this works for anyone.
Founders: Omri (Bob) Shor, Rotem Shor

Vidit
Vidit is a cool technology for collect videos taken by many people at a single event. Using a video synchronization algorithm it synchronizes and edits all clips into one. The result can be a rock concert from hundreds of angles in the crowd. The user that uploaded the video appears in the final video incentivising them to create more. A feature also allows you to pick which angle you like best. I’ve seen it and it sort of blows you away.
Founders: Eldad Bercovici, Elad Gariany

AppsFlyer
A Mobile Apps Marketing platform that helps App-Developers, Brands and Adagencies to track and optimize their user’s acquisition funnel. In plain English, this is a analytics for mobile app advertising networks for an app publisher to work out which networks they are getting their best responses from.
Founders: Oren Kaniel, Reshef Mann

Twtrland
Founded by four brothers and with 500k monthly users, Twtrland analyses Twitter profiles for influence on topics. Check out your profile and you may be surprised.
Founders: Eytan Avigdor, Noam Avigdor, Guy Avigdor, Lavi Avigdor

RotaryView
RotaryView lets you take 2D photos of an object and turn them into a 360° / 3D image. This helps online vendors grow more quickly. You just shoot and upload the photos.
Founders: Gev Rotem, Ofir Shefer, Gal Rotem

Stevie – Stealth mode company
WebTalk – Stealth mode

Disclosure: Travel costs to Israel were met by Microsoft