Yesterday, Google got into the microISV funding business when it announced Google Gadget Ventures Google Gadget Ventures will be funding microISVs in two ways:

1. “First, we’ll invite promising gadget developers (individuals or businesses) to apply for $5,000 grants to fund further development. These are not loans or equity investments; they’re simply grants for gadgets that already have a thriving user base and we think have potential for even more improvement. To be considered for a grant, your gadget needs to have more than 250,000 pageviews per week, and you need to provide a one-page proposal on how you’d like to improve your gadget. This is a no-strings-attached grant; we won’t ask for repayment of any kind. We simply ask that you work on your project in good faith.”
2. “Secondly, the program will make $100,000 seed investments in companies that either start as a Google Gadget or have a large Google Gadget component. In order to be eligible for a seed investment, you must have received a $5,000 grant, and you must propose a plan for making your gadget financially sustainable.”

More info:

• The PR.
• The Blog Posting
• The Site where you apply.

A $100,000 (or even $5k) sounds like a lot of money if you’re a microISV - and it is. Carefully spent, $5K could launch a microISV; $100k is funding most microISVs could only dream about. But in the VC Funded Startup World, $100k is a 2nd rate consolation prize. And $5K? It’s not even worth having a power suit meeting over. Make no mistake; Google is aiming to fund microISVs. Period.

But why is Google doing this? With 331 (as of this moment) Desktop Gadgets, the new Powered by Google Gadgets for Web Sites, it’s not like Google needs more reference projects to show off what Gadgets can do in Google Desktop or the web.

I can see at least 3 very good reasons why Google has decided to start funding microISVs directly:

1. Death of a thousand cuts. For a tiny sliver of the cost of some sort of Windows-Google ad campaign, like the Mac-PC campaign, Google can inflict a thousand little cuts to its main enemy. A little functionality here, a little bit of mindshare there. No one microISV app is going to be noticeable - but enough cuts add up to some serious bloodletting.
2. Changing gravity. Many microISVs “orbit” one or another super large software company - Microsoft, Google, Adobe, FaceBook - come to mind. By changing (or at least announcing they are changing - it will be very interesting to see the actual follow through on this) the economic pros and cons for microISVs more in its favor, Google in effect increases it’s gravity and pulls these companies and developers closer to it and away from it’s rivals.
3. Starving the elephant. Microsoft has not been idle in the “Gadget Space” - There’s presently 378 Windows Vista Gadgets listed. Google would not be unhappy seeing that number stall. And if you’re a developer thinking about creating a gadget, that $5K for free is going to be very, very tempting, let alone if your idea grows legs and does well. Nor has Microsoft corporate done that much to fuel the growth of gadgets - when the second entry in Google for “vista sidebar gadgets” is a page done by Microsoft New Zealand listing 10 kiwi-centric gadgets, that tells me two things. First, yet again, the people out in the boonies of Microsoft’s dominion are working incredibly hard and second, yet another project at corporate has lost its way.

It will be very interesting to see what - if any - response Microsoft makes to this innovative Google move.

[tags]Google Gadget Ventures, microISV[/tags]