Skype Out

My friend @David asked me to revisit the post I wrote about Skype spinning out of eBay back in the spring of 2009 in the wake of the news that Skype is headed into the hands of Microsoft. David quotes this part of that April 2009 post:

But the best thing about this is getting the asset back into the hands of the entrepreneurs who created it and built it. We all saw what happened at Apple when Jobs took back the reins of the company and I suspect Niklas and Janus would not be thinking about this if they didn’t have a strong strategic plan for Skype.

I’ve said this many times on this blog and I’ll say it again. Big companies mostly mess up entrepreneurial companies when they buy them and it really is best that companies like Skype stay independant and run by their founders if that is possible. And it looks like that might be possible with Skype. That makes me happy.

We all know that Niklas and Janus were unsuccessful with their bid for Skype. And it is entirely possible that Microsoft will not end up owning Skype. There are plenty of rumors that don't actually come to pass.

But it is equally clear that Skype is very likely headed toward some form of corporate ownership. And my hope that Skype could stay independent will not come to pass.

When Niklas and Janus failed to conclude their attempted purchase of Skype, it traded into the hands of Silver Lake Partners and a group of other investors. This investor group initially tried to keep Skype independent by virtue of an initial public offering. Skype filed to go public last year but the offering never came.

In the past six months, something changed at Skype and now we see the end game is a sale to another corporate owner. We can speculate on what those changes were. Maybe the public market was not that receptive to the offering. Maybe the company was having difficulty growing its revenues as fast as the public markets wanted. Maybe the investors lost confidence in the management's ability to continue to build and grow Skype as an independent company. Whatever the reasons, Skype's experiment with being independent is over and I am disappointed.

We use Skype every day in our office. It is our videoconferencing system and increasingly our phone system. It works amazingly well. Recent UI changes to the new client have been frustrating. On a Skype conference call yesterday, we were all lamenting the loss of the old client where we knew where everything was. Skype brought VOIP to the masses and I'm very certain that someday we will all be communicating by voice and video over IP, maybe via Skype, maybe be other services. It is the future for sure.

I'm not particularly inspired by the idea that Microsoft will do something great with Skype. But I do think they are a better corporate owner than eBay. The second acquisition of Skype isn't likely to change our daily usage of the service. But it may be an inspiration to VOIP entrepreneurs everywhere to think big and create new services that can someday be as big or bigger than Skype. And that's a good thing.


Comments (Archived):

  1. RichardF

    I love Skype I use it every day, my dd is a Skype number, we use it at home to call relatives in the US. Skype on the iPhone is a fantastic way to get around high priced roaming calls. We use video calling with the grandparents….but when Skype was sold to Ebay it seemed to just stop innovating to any great degree. They have done very little to advance their offering as social networks have started to envelop our lives.Beluga, Kik, GroupMe ….none of them should have stood a chance. I don’t see Microsoft kick starting the innovation either. I can see video calling embedded into screens being a big thing but $8.5bn is a lot of money…

    1. fredwilson

      “none of them should have stood a chance”that is the truth about entrepreneurship broadlyit is about david vs goliath and david wins most of the time

      1. reece

        i’d love to see the all-time record of David vs. Goliath…

        1. markslater

          from where fred sits – he is passing the “juice” to david! he does not see all the other fights that goliath gets in to!but seriously – the skype platform could and should wipe out whole swaths of communications point solutions being built today.

        2. fredwilson

          Hard to compile the data but anecdotal evidence is strong

          1. reece

            haha… good enough.****

          2. Pit Karbe

            Interesting article on David vs. Goliath: actually compiled data on David vs. Goliath in the context of wars over the last 200 years. Goliaths won 72% of the cases. However, when the Davids used unconventional strategies, that percentage shrank to 36%.

          3. Guest

            #awesome thanks for finding/sharing this, look forward to this read

    2. markslater

      As do we – we Skype between families across the pond every weekend. My daughter knows her uncle, auntie and cousins for sure because of this. My older brother got married on wall st this last Saturday and my daughter ran straight up to my younger brother calling his name – thats skype at work.for families like mine who live in boston, new york, LA, florida and london – its absolutely is a wonderful tool.

      1. Dave W Baldwin

        Reminds me of all the ‘doc in a box’ from FL, over to the next ‘robot’ that was on the same line for Grandpa and Grandma to visit with the kids… I just didn’t know how those companies were thinking about shelf life.

  2. Ted Rogers

    I love Skype – we are an international VC fund and use it everyday – but it’s one of those businesses where the extraordinary value provided far exceeds the business model. That’s why Skype can’t IPO and,financially speaking, it’s better off as part of someone else’s P & Lstatement.On the other hand, Skype doesn’t help any acquirer, at least none that I can think of. The conceit about Skype is that it is synergistic with an acquirer’s core business. Ebay made this mistake, Facebook almost did, now Microsoft has. It’s a phone service – a utility – there is no more reason to own Skype than to own Verizon, AT&T or Comcast (probably less, since those companies have other interesting assets). It’s a Hail Mary by Microsoft and it won’t help them.

    1. Steve Poland

      Microsoft also has TellMe, wonder how that worked out. Totally different but telecom-ish.Skype could become more than a utility- they could become a Facebook type of competitor… with IM, voice and possibly a profile and direct messages- “skype me” as we all say.Facebook feels we wont have phone numbers someday, that you will pull out a device and just click on Fred and then be voice connected over to him. That is skype’s model essentially, with support for this “old” numbers model too.

      1. Ted Rogers

        Yes, interesting possibilities but feels like a long, tricky road from here to there.

      2. ShanaC

        Unlikely to happen unless you posit that long term apps are the way to go instead of web apps. What may be interesting is having them take over the “click to call” advertising market.

  3. LIAD

    Curious about which other companies also have parasitical elements to their business model.The larger Skype’s network gets, the less reason users have to purchase Skype credit – which I assume, at least currently, is their core revenue driver.——Founders everywhere..Want to cash out $1.2bn the *2nd* time you sell your company? Just withhold a key technology license when you sell it the first time.

    1. fredwilson

      i was going to write about that “parasitcal” issue as you call it but i don’t have any data on that. i asked the former CEO about this at dinner last week and he was sort of dismissive of it as a big issue

      1. LIAD

        I don’t see how it can’t be a big issue.Their revenue is derived from the limitations of their network size. As the network grows – this revenue channel must fall.The number of people in the network is inversely proportionate to the number of people who need Skype credit.

        1. gzino

          Meanwhile Skype value to end user increases in proportion to the square of the number of Skype users and that’s more important, especially because those users are increasingly on mobile devices.

          1. LIAD

            that’s the point.when it comes to the (financial) benefits of network effects – end users and skype are on opposite sides of the table

          2. gzino

            ok can’t disagree in terms of today but if skype was successful in becoming top platform agnostic communications provider then think skype and skype users would quickly be at same side of table, with quite a feast in front of them…hence think skype sees current situation as means to an end?

          3. LIAD

            the blogs have been talking today about Skype being a social network and how MSFT just got hold of something with more nodes than Facebook.Whilst it is obviously a social network, foremost it’s, like you say, a communications utility. As long as MSFT remember that and don’t try to ‘improve’ the product by adding ‘pokes’ – all will be good.Huge opportunities by opening up the platform and letting the devs in.

          4. kidmercury

            i think for the most part all soc nets are like that. a million little soc nets will be worth more than an all encompassing one world soc net.

        2. fredwilson

          I agree completely

        3. ShanaC

          depends on how you use it- they’re blocking off video calls from many phones in the US. So international cell calls do become cheaper even if everyone is on skype

      2. Nik Cubrilovic

        according to their filing, Skype grew to 13% of all international calls in 2010 – up from 8 and 7 in ’09 and ’08 respectively.

        1. fredwilson

          That’s the kind of data I did not have at my fingertips when I wrote thepost and why I didn’t bring this issue up

    2. Guest

      Admit total cluelessness regarding the ‘parasitical’ element comment. Can you explain further please?

      1. LIAD

        On the one hand they are trying to grow their network and get more and more people using Skype.By doing so however, they erode the primary reason people pay them money — to talk to people outside the network.

        1. Guest

          OK, I got that part. I thought there was something else in the ‘parasitic’ element meaning that I was missing (tech speak or something – there is loads of tech speak of which I am unfamiliar). Thanks for replying so quickly. #appreciation

    3. David Semeria

      Excellent point. I can’t think of any other service with similar economics.That said, I don’t think it’s the underlying reason people don’t buy Skype credit. In my view they don’t make the value proposition clear. If they said that calls on average cost (say) 50% less with Skype then it would be more persuasive.The fact is Skype has only a marginal advantage over the Telcos when the call must be terminated over fixed/mobile voice connections (ie the the call initiates and gets routed over IP)

      1. Fernando Gutierrez

        Yeah, it’s a terrible to thing to have contrarian interests like that… not the same, but any company selling exclusivity finds itself with a similar paradox: the more they sell the less exclusive. They usually have other values, but that one would be gone.

      2. awaldstein

        I knew you were a marketer at heart David….unrealized value is no value at all.

        1. David Semeria

          I suspect marketing may be a little like computer programming – many people understand the basics, but few are truly experts.We can all learn* a lot from you Arnold.* For those who don’t know Arnold held important marketing roles at companies like Atari and Creative Labs

          1. karen_e

            Let’s have an Arnold post or two, perhaps? Maybe he could talk about lessons learned at Atari and Creative Labs: case studies. Signed, a marketer toiling in the trenches.

      3. Jonathan Balkin

        I think there is a huge collaboration / virtual conferencing Microsoft can exploit from an enterprise perspective. Yes – it will be on the XBox, WP7, and PC but I think the real value to Microsoft here is that ability to integrate a popular customer platform with Outlook, Powerpoint, Word, Excel to really start being able to collaborate with people on the development of content – face to face.Plus, with so many PCs out there if Microsoft was able to launch a facetime type product pre-packaged into the OS – that would be huge and the advertising revenues could justify the acquisition. As Microsoft shareholder for over 10 years this is the first exciting thing they have done in a long time that could really affect their brand.

        1. David Semeria

          Given the manner MS overplayed its hand when it dominated the market – similar to the mistake Apple is making now – people are rightly skeptical of their ability to regain the market’s trust.Then again, there is a burgeoning sensation that the leopard is changing its spots…I think the way they handle the Skype acquisition will be a key indicator of how much they are willing to change.

        2. Guest

          I just recently acquired MSFT shares (outside of mutual fund holdings); I am hopeful about the integration prospects you mention above but I am far from giddy. I will be a bit patient. On a more cynical front, last week apparently MSFT had cash ‘trapped’ in overseas banks now it appears to be ‘trapped’ in Skype. 🙂

          1. Jonathan Balkin

            I agree, it’s definitely premature to get giddy – but they have had hoards of cash for so many years and finally it seems like this is a synergistic acquisition.Although Microsoft doesn’t have the most successful integration track record this appeals to both enterprise and consumer markets which touches their core business and desired future growth market…Maybe in Q2 2012 MSFT will break $30.

    4. markslater

      paying to talk is over. their revenue future has to be beyond that model.

      1. LIAD

        I’m interested to know how much real deep-tech is behind the business.I understand their proprietary knowledge is a large factor of their success.I’d like to know what that’s worth in $’s and C’s – what do you think their future model could be?

        1. markslater

          you know i am replying to you in this window and next to it is a skype window where you can see a conversation going on – over a very BIG PROBLEM we are having on a GETABL feature. one person is in the Ukraine, the other in Miami – and me in Boston.There is no way you can quantify the value of that. But the point is – there is such tremendous secondary value in communications platforms – how do you monetize? twitter has the same problem i think.Its very hard with unstructured discussion data – it becomes easier when you insert an intent variable. 😉

          1. Sebastian Wain

            “…there is such tremendous secondary value in communications platforms – how do you monetize?”The first thing is to integrate it in the Microsoft ecosystem. Microsoft is strong offering a “complete” infrastructure, so you can’t leave their tools easily. That’s add value, don’t know how much money, but I am sure that value is there.

          2. Shyam Subramanyan

            Agreed. In a way, this issue affects Facebook also. Discussions are tough to mine / extract intent. That’s why Facebook ads are profile driven and not as much the current conversation.

          3. markslater

            thats why they are the school yard. groups are forming outside of the fence that are going off to do stuff. thats where the commerce is going to happen.

          4. Michael Elling

            @markslater, interexchange carriers figured it out in the 1980s with AIN solutions such as 800, calling cards and VPN. They tied the communications event to the commercial transaction. Advertising such as google is an inexact form of that. Facebook and groupon are the next iterations. I believe that 80% of all traffic/sessions will be subsidized/underwritten by enterprises. Imagine MSFT bundling up all it’s enterprise messaging/communication with skype and then spinning it off.

          5. markslater

            hmmm – not sure i am clear. could you ellab a bit.the way we look at this at getabl is – if someone gestures an intent to our service – that becomes a transactable action that (ideally) flows through our toll booth. and paid for by the businesses.

      2. ShanaC

        SAAS, access to certain features (multiconferencing?)Historically, videoconferencing money has been in the equipment, and (if you haven’t transfered over yet) renting special landlines….

        1. markslater

          why would i pay cisco when its free on skype?

          1. ShanaC

            camera quality/encoding quality is much better

          2. markslater

            i dont need that though – i am a small scrappy start up.

  4. Avi Deitcher

    I find the rationale for the acquisition interesting. It is either for the technology – highly unlikely, as MS has enough to do it – or for the users, likely particularly in the mobile space. Windows Mobile is a dying business (or on life support, which MS has enough cash to provide for a long time). Skype has >600MM users. That is very tempting to them.It would not be beyond MS to buy it for mobile, then make it available exclusively on Windows Mobile, yanking it from iOS and Android. While that would upset many users (to put it mildly), it would only drive innovation in the space; others would jump in. Apple already tried with Facetime, but they are probably not the best for it. In the short-run, I would hate to lose Skype on my iPhone; in the long-run, once bought by MS, it is probably for the better.An interesting aside: back in 2005, eBay bought them for $46/user; MS just bought them for $14/user. If nothing else, despite the higher price tag, MS got a much better deal.

    1. Guest

      Interesting data acquisition price/user.*** Update 8:49AM CDT: Here is some updated user information per a GigaOM article at…”Peter Bright of Ars Technica questioned the price of the deal, which comes down to more than $1,000 per registered Skype user.”This amount seems to be quite different from the source in your initial post Deitcher. I wonder what is causing the difference? ***

      1. Avi Deitcher

        Of course, it is only valuable if they are buying them for the users, not for anything else. But that is what it appears to me.*** Update:The last public figures were >600MM registered. At a purchase price of $8.5BN (last I saw), $8.5BN/600MM = $14.17/ registered user.I wonder of Bright was looking at active user. If so, that is a factor of 70, which would imply 8.5MM active out of 600MM registered, or 1.43%. That seems *way* too low to me.

        1. Guest

          Yeah, I saw some numbers last night but I didn’t do research on user base to do your calculation then. So, it was nice to see you had already done this.

        2. William Mougayar

          Buying users is such an old trick that hasn’t worked for Microsoft if you start back with their historical acquisitions of Internet properties.Sure they can buy users, but can they keep them?

          1. Guest

            Your question William is exactly why I dislike too much emphasis on User-based valuation metrics. However, in this case for some unknown reason I am intrigued by the $14/user Deitcher calculated. I don’t know if it is good or bad I just have this really big HUH going on with this deal.Of course you are correct, large company acquirers often have difficulty keeping what they purchase via acquisition (either customers or internal talent). I would love to see a geographical representation of Skype’s global user-base as well.

          2. Avi Deitcher

            I would tend to agree. Taking it the next step: have there been *any* successful “buy the user” acquisitions? In general, most people register and use a service – paid or free – because the service as it is gives them benefits, whether intrinsically or due to network effect. But once you try to monetize it by changing, you run the real risk of alienating the base and creating an opening for a nimble competitor.Makes me think of the Salesforce-Heroku acquisition. Thoughts on that? Different kind of customer base, but…

          3. ShanaC


          4. William Mougayar

            They got the users, but did they innovate around that? (NO)Hotmail has stagnated at best. They had millions of captivated users, and they saw the potential power of that community evaporate.So, now they are going after another community of users.

          5. ShanaC

            i keep wanting to say, this time is different, alas it probably isnt

      2. JohnDoey

        It is $1000 per PAYING Skype user. They have 8 million paying users. Most users do not pay anything, they just make free PC to PC calls. They have 150 million ACTIVE users, total.

    2. fredwilson

      Love the per user math. But is that per active user or per registered user?

      1. Avi Deitcher

        It is per registered, not per active. The latest public info I have seen is >600MM registered users as of about 18 months ago. The same for the 2005 numbers before the eBay acquisition. I don’t know what the active numbers were back in 2005. On the one hand, could be the same 5-10%; on the other, that was early days, and early adopters tend to be more active, so could be higher.For today, I have seen numbers of anywhere from 30MM-60MM active users floated around now. If you have any better numbers, would love to hear them.

    3. JohnDoey

      No, Skype has about 150 million users, but only about 8 million are paying users.For perspective, that is about the same number of users as Apple FaceTime, which is less than a year old, but all FaceTime users are paying users. Also, FaceTime is profitable and Skype is not. And FaceTime is all open standards, any vendor can create their own implementation, there is nothing to license from Apple, whereas Skype can connect only to Skype. And FaceTime is much easier to use. There is zero setup on phones, and on devices without phones, the only setup is telling it which of your email addresses you want to use as your “phone number.”So Microsoft paid about $1000 per paying Skype customer. I don’t know about you, but I’ve paid maybe $150 per year to Skype, tops, and their margins on that are not great.

      1. Avi Deitcher

        In response to your post, I thought, “maybe my numbers are totally off,” and went to do some more research.1) At eComm a year ago, their CTO touted the number 560MM registered.2) Their S-1 filed with the SEC in Aug 2010 has 560MM registered as of June 2010, and 8.1MM paying (hence the $1,000/user number of below).3) The amendment to that S1 filed on 4 Mar 2011 shows 663MM registered, and paying as 8.8MM.

  5. JimHirshfield

    What’s changed that justifies such a higher valuation for skype?

    1. Tom Labus

      MSFT willing to pay.

    2. fredwilson

      More users? Different market?

  6. Carlos N Velez/Lacerta Bio

    I share the disappointment and concerns expressed above regarding Skype. It almost feels like we will lose Skype, as it gets buried into clunky MSFT software. The combination of Skype and MSFT video games makes some sense. But, can you imagine Skype embedded into MS Office? Or the even slower Outlook? I would think Skype integration would slow these programs down even further. I suppose if MSFT continues to push Office & Outlook into the cloud with a SaaS business model, then integrating Skype would not cause issues, but this is MSFT we’re talking about here. I remain unconvinced that MSFT will drive Skype innovation. Perhaps it’s time to have a closer look at iChat?

  7. Alexander Ainslie (@AAinslie)

    Instead of an IPO, Skype could have reverse-IPO’d into Opera and combined into a platform + dev ecosystem. Then used paper to acquire a mobile payments co. such as Payfone (love their disruptive angle on mPayments) and other useful component co’s. Oh well. Wishful thinking!

    1. Pascal-Emmanuel Gobry

      Huh. Striking idea. What would have been the end goal?

  8. David Noël

    Thanks Fred for your thoughts. I love Skype and share your disappointment.Speaking of VOIP entrepreneurs: if you ever get the chance to meet Tomaž from, meet him 🙂

    1. fredwilson

      I met Tomaz recently. Impressive entrepreneur

      1. David Noël

        Love listening to him talk about web telephony 🙂

  9. William Mougayar

    Of all the Internet voice calling systems out there, Skype still has the best voice quality. They have figured something that others haven’t when it comes to VOIP.Let’s wait to hear about MS’s plans for buying them. Microsoft certainly has a 50/50 chance to screw them up.

    1. Laura Yecies

      totally agree on the voice quality ip therein fact we find that skype on my macbook air works better than the expensive speaker phone in our conference room – it adjusts better for the distance of people to the mike

      1. Timothy Meade

        Interestingly enough, Google just bought the company I believe is responsible for that, Global IP Sound (GIPS).

    2. JohnDoey

      Apple FaceTime sounds better, but doesn’t work over 3G or with voice-only calls yet.

  10. bojanbabic

    As soon as I’ve heard news I’ve started imaging how Skype would become vehicle for driving revenue for existing Microsoft products. This is great opportunity for guys like Twilio to double down on Microsoft ability to destroy acquired company.

  11. Tom Labus

    There’s still a spark in MSFT that could be good for Skype.You see flashes of it with the WP7 at times.

  12. Keenan

    I’m not entirely surprised at this move. This is an enterprise play. It’s a UC (Unified Communications move) Microsoft has been the number 3 player in UC for the past few years behind Cisco and Avaya. UC is a growing part of both Avaya’s and Cisco’s business.By buying Skype, it appears MS sees a chance to kill two birds with one stone. First strengthen their enterprise UC offering and two keep Avaya, Cisco and even Google from getting Skype. Any of those scenarios would have been a pain in Microsofts ass.To understand this move, I think we need to be thinking enterprise first, consumer second.

    1. William Mougayar

      Slightly disagree. VOIP/UC is not a killer enterprise app anymore. That market has been decimated by the consumerization of this technology.

      1. Keenan

        Whether UC is a killer app is debatable. UC adoption inside of enterprises is slow. That being said UC purchases by enterprises is growing. This means revenue from UC is growing. What isn’t debatable is UC is still a very relevant space.Gartner:

        1. ShanaC

          So inb other questions: Where does UC go next for corporations if it is becoming consumerized?

  13. Vincent van Wylick

    Typo: Skype Out = Skype’s Out.I don’t see the endgame for this going well. Microsoft clearly sees a space in the category of voice/video over the web and perhaps over mobile, but they aren’t spending 8 billion to make a business out of what Skype is currently making money on. They want to integrate the technology for better or for worse. And that does not bode well for the current users of Skype (and businesses that build on top of it).Hopefully, there are (or will be) alternatives that are as userfriendly (especially in terms of firewall navigation) and as international that will replace Skype. The opportunity is there…

    1. fredwilson

      The title was purposeful. I want people to make the association you made.But I didn’t want to make that call directly

    2. JohnDoey

      “Skype Out” is the name of a Skype product. The title is clever.

  14. William Mougayar

    This has been confirmed ….via Gizmodo “Microsoft’s said that Skype “will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities.”Don’t fear that Microsoft will cruelly snatch Skype from your Android or iPhone, however: “Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.”I’m trying to remember – are there current examples where Microsoft supports non-Microsoft platforms well and with continued innovations? Just asking, not being facetious.

    1. Kasi Viswanathan Agilandam

      In medical equipment industry it is very customary for the three giants GE, Philips and Siemens to buy and kill small extremely good product companies. It is quite possible all three have a common fund to do that.

      1. kidmercury

        yes. this happens in every industry and is a by-product of excessive concentration of wealth, which IMHO is caused primarily by public policy (i.e. govt).

        1. karen_e

          What a sad fact, Kid.

        2. Kasi Viswanathan Agilandam

          110% agree on that fact.that is killing competition not by competing but with money and they justify that with the quote “In WAR and LOVE ALL IS FAIR”.

    2. Fernando Gutierrez

      I’m not a user and can’t judge about innovation there, but Exchage integrates quite well with Blackberry and iPhone (don’t know about Android).

    3. JohnDoey

      The only one I can think of is Microsoft Office for Mac, but that predates the Windows version, and Microsoft did attempt to use it as leverage to get Apple to kill QuickTime in the 1990’s.Microsoft doesn’t play well with others. They fundamentally don’t want to compete because they know they can’t.

  15. Peter Sullivan

    A little off topic but I love Skype, but I hate that its done through a client window, so 2005. Skype needs to be browser based. I find myself using Google Voice much more often now because of that.

    1. Fernando Gutierrez

      Same for me, calling from gmail is very convenient. I read somewhere that the reason for needing a client is that they are more intensive in memory or processor, due to encryption and the voice quality. Or maybe they’ve just been lazy.

      1. Peter Sullivan

        Encryption is only used for Skype to Skype calls otherwise its useless. Once it hits a landline or cell tower encryption is dead.

  16. markslater

    Skype continues to be an amazing tool for me – i used it for my last company where my role was daily calls with Vietnam, and Indo – and we use it all day everyday at Getabl with some of our developers in the Ukraine.its hard to quantify the value i have received from using it. By far the most of any technology in the last decade if i were to compare to the alternative usage method and its costs.

    1. WC Bracken

      Agree. We are in the BPO and Call Center spaces, so using Skype to talk with people in India, the Philippines, etc. is great. We receive GREAT value from the technology. That being said, not sure I have ever paid anything for that value…

    2. fredwilson


  17. markslater

    Twilio – WIN!prey on the destructive powers of the gargantuan dinasaur!

    1. Timothy Meade

      I’m not sure I get the strategy for Twilio here, I love the API of course but it doesn’t seem to be the thing for building more traditional UC applications. Maybe there’s something with the salesforce tie-up I’m missing? Also, where’s the SIP/widget endpoint? Mobile support??The other issue I’ve had is it’s difficult to create mashup-style startup sites and pass the costs on to the users (or try to do some freemium thing). I’ve been considering a few ideas similar to Twilio, as in, build a SaaS for startups in other spaces and really love the enabling nature of the technology and business model.My current project/site/startup is not in the telephony space at all, though oddly enough @twilio follows both me and @jobitr on Twitter 🙂

    1. fredwilson

      Pooh. I’m gonna read that now. I love ben

    2. fredwilson

      Starting with some lil Wayne!!! Ben’s the man

      1. RichardF

        He is – although he could do with implementing Disqus on his blog

  18. Mobile Phone

    I hope Microsoft will take Skype to another level rather than just simply charging everyone for there Skype accounts!

    1. fredwilson

      Wow. I need that scott. Thanks!!!

      1. Fernando Gutierrez

        That’s like going back to XP after Vista was launched (or even today)… maybe they are a good fit after all!!

        1. JohnDoey

          The “downgrade.”

  19. kenberger

    I came close to becoming the CTO of Vonage in 2003. Right when Skype was born. Vonage pointed out that Skype is not SIP-based, and thus couldn’t take advantage of open source and other standards-based advantages. But they also knew they’d have major competition re execution.Skype was a huge champion of Freemium from the start (vs Vonage’s subscription model). Skype built an incredible brand identity (including a name easily used as a verb by millions).

  20. Alex Murphy

    +1 on the UI. It is really frustrating to lose key features. If anyone on this list knows someone with influence on the product at skype, please ask them to put this back!

  21. baba12

    Where is the fiduciary responsibility to the shareholders in all this. Paying $8.5Billion by MSFT in cash is blasphemous and I am not sure how MSFT will get this money back from this acquisition. All the talk of how it will integrate with MSN and Kinect, how it will allow for MSFT to play in the enterprise markets and compete with Cisco and Google voice.I just don’t see how they will really integrate into the MSFT eco system.In this the only ones coming out smiling are those who get the $8.5Billion. Android phones will have a Google voice client, ios will have a google voice client/Apple facetime and win7 mobile will have a skype client and it may not do much as the Nokia MSFT partnership flounders As Mr.Wilson states their growth has stalled and they are still not profitable.If you have some shares in MSFT through your 401k plans you are screwed as it will drop further in value. The MSFT board is spineless gutless and is willing to over pay for something that may not really pay out.

    1. Guest

      baba12, I understand the concern but I am not ready to call out the lawyers just yet. LOL. Acquisition integration is one of the toughest things in business I think (and it rarely works out) but time will tell. I am encouraged by the fact that Skype’s team seems to be willing to craft a meaningful product through previous changes. We will see if that will to win continues given the new arrangement … and lofty price tag.

    2. PhilipSugar

      $1 per share in cash. They earn $5 a share, if they got rid of bloat that would be $10. Disburse another $5 for cash on hand. That’s $16 today…..and let people pick what they want to do not force them to “buy” the IPO of Skype.The problem with tech is nobody want to milk the cash cow and go onto the next thing…….management that didn’t start the company want to bleed it to death.

      1. Alex Murphy

        This is a big problem, and it exists at every level.

  22. Jonathan Berkowitz

    Would be an interesting boost to their mobile platform if greater integration between skype and windows mobile gives them a platform to compete with Facetime on the iPhone. Hard to imagine a mobile platform in the future w/o video calling.

    1. JohnDoey

      But Microsoft could have just built their own FaceTime client for a few million at most. There is nothing to license, FaceTime is just a chorus of existing ISO open standards, most of which are already in the hardware of Windows Phone devices, like H.264 video and AAC audio. Then Windows Phone users who called an iPhone or iPad or iPod touch user would just see a video button to add video to the call. Considering there are more than 1000 iOS users for every Windows Phone user, that is an attractive feature for Windows Phone.Skype was initially positive about enabling FaceTime integration, then went quiet about it, likely when they realized FaceTime totally commoditizes video calling by making it vendor neutral. Better to shut up and sell to some rube like Microsoft.

  23. paramendra

    Skype is perhaps the Friendster of VOIP. A successful Skype would say, buy a smartphone like you buy a PC, and as long as you can get WiFi, you got a phone. Bye bye Verizon, AT&T, Sprint.

    1. kidmercury

      yes. the acquisition by MSFT pushes skype into the MSFT phone/mobile/communications system rather than allowing it to pursue its own disruptive trajectory, which i believe would have been far more valuable for users and profitable for shareholders if this trajectory could have been successfully actualized (which i think is a realistic possibility given the quality of skype’s product and their entrenched user base). i view this acquisition as a losing deal for everyone except shareholders who profited.

      1. JohnDoey

        Once again it is not Microsoft shareholders who profited.

        1. kidmercury

          right, i was referring to the shareholders that purchased skype from ebayand then sold it to msft. andreessen horowitz is one of the firms thatparticipated in this and profited accordingly, as ben horowitz discussed onhis blog today. that blog entry is linked to and referenced elsewhere in thecomments on fred’s blog entry.

    2. JohnDoey

      An iPad 3G with Skype is an example of how a smartphone should work. Pay for the data plan, and use Web browser, email, or Skype as you please, no voice minutes or text plan. $30 per month.

      1. paramendra

        30 per month should be all you need.

  24. iamronen

    I wonder if Skype’s apparent (… proprietary protocol approach ultimately nudged it away from wider/diverse adapation/application and into corporate hands?Skype is the last non open-source element in my computing environment … I didn’t think it could go any lower then that … now that Microsoft has it!

  25. JLM

    It is pretty clear that Microsoft is willing to stick its toe into almost any technology wave that it thinks it can catch and make something of. They have the money to do it. Also the herd is thinning just a bit and with them and Apple as the alpha male pack leaders, there is nothing else much to do with their cash anyway.They are the ultimate “packagers” and “bundlers” willing to spread the width and depth of their package in order to obtain, develop and retain an existing customer base with an eye toward selling the razor blades rather than the razors. Why not?In some ways this goes back to the recent discussion of CTA v LTV. An MS customer has an almost certainly increasing LTV because as they continue to develop their basic software package, almost all of their customers continue to buy it to stay up to date if for no other reason other than maintenance.I think it is also interesting that almost everyone on this blog has something NICE to day about Skype. I like Skype myself and if it were to be bundled with MS Office and all the other MS products we use, I would be just fine with that.And, yes, I would expect to pay a few bucks for something that is almost free just now.I also think that MS has increased its pace just a notch or two recently. They don’t have to be entrepreneurial if they just keep buying the output of the Nation’s best.

    1. Guest

      Random thought on free digital stuff. 🙂 We give away everything thats Made in the USA for FREE so that we can SELL stuff that is MADE IN CHINA and by McDonalds. Transfer of Wealth and Obesity.

      1. Guest

        I am more than a little concerned about the ‘culture of free’ we seem to perpetuate. I sometimes think we are moving to a world where 10 companies make things and thousands of companies give away their ‘product’ and sell advertising to the 10 companies. 🙂

    2. Guest

      Agree with your comment about even being willing to pay a little something.[ UPDATE: By the way JLM, now that we have made this statement on Fred’s blog someone from the traditional media will report that MSFT/Skype users indicate they would pay for Skype going forward O.O I have heard multiple reporters quote various blogs on today’s events, ]

    3. markslater

      here are some counter thoughts:MSFT has failed in 4 major tectonic shifts that have occurred in technology in the last decade. Cloud apps (big fail), social (big fail), mobile (massive massive fail), search (TBD) but my bet fail. Nokia is not going to save windows mobile – they missed the smartphone boat entirely – its SS android and SS IOS.But the most staggering and worrying fail to me is how they missed the boat on taking their core business apps and clouding them. they sat back and watched the operating system get sucked in to the browser vortex and get re-anchored by things like search. They should have concluded that productivity apps follow the operating system and they should have done everything in their power to re-invent productivity in the cloud. Instead they allowed the likes of google to do it and a whole ecosystem of cloud productivity tools. (just go try Prezi, or docstoc, or go look at the apps available on – i thought when they bought groove – they had drunk the coolaid – i was wrong – now the nutters are out of the compound and running amock all over Office.They may have a great enterprise business anuity, but skype is not enterprise – was never intended to be – its built for SMBs and consumers. An area that MSFT has no clue about. If you dont believe me – go and use Google docs – once you really use these apps in a company collab environment – you’ll have that aha moment – its not even close.Excel aside (its just a superb program IMO) – all other office apps are now firmly in the cloud. they aren’t attachments, they are links. I saw somewhere that companies like twitter have been built entirely on the google apps stack (gmail, docs etc)Watch for any mention of google apps take up (in the next 6 months) – i’ll bet it will amount to a stagerring encrochment on Office. i am not with you JLM on skype and MSFT because i’m not with MSFT.

      1. JLM

        What a very well reasoned and thoughtful comment. I should send you a tuition check. Thanks.I will quibble w/ you just a bit that the Google docs is anywhere near the level of professionalism as the MS Office Suite. I have looked at the Google approach and have found it very encouraging but just not yet there for my application of running a multi-state multi-unit operating business. And I want it to be there.The cloud is still going to be a problem for a while for folks who have other security considerations — public companies.I would close by saying that I am not advocating MSFT as “the” solution at the cutting edge but rather that the sales momentum and penetration they enjoy as the “safe” and comprehensive solution may allow them to “bundle” Skype in such a manner that it broadens their customer base.I suspect that almost every failure you note is correctable in the long run.Nonetheless, I cannot disagree or dismiss your well reasoned and thoughtful presentation. Thanks.

        1. markslater

          i guess my little fishbowl is not multi state, multi unit so i cant appreciate that!And for sure there are alot of APPS in the cloud that still have a “toy”feel.

          1. WSQ Capital

            The way I see it, Microsoft had to acquire Skype, to get the right mix of office-productivity and communications tools a small business requires. If they hadn’t they would have lost that entire market to Google Apps+Voice. We wrote a quick post about it at:

          2. markslater

            yep – just read it. your first comments about the SMB – i think Google has already won.

  26. PB

    If you are MSFT equity owner, you must be more than a little distressed that they just spent 8 billion of your dollars on this acquisition. Whats amazing to me is that MSFT spends a really high proportion of their revenue on R & D, and they have so little to show for it. Steve and the MSFT board needs to find a replacement for Balmer as soon a possible

    1. karen_e

      Interesting perspective.

    2. Guest

      I would not call it distress but I am casting a leery eye and watching closely.

  27. Jan Schultink

    MSFT + Nokia is in desperate need of ammunition. They loaded up today.I have moved all my business calling (except non-US mobiles) to Skype last month on a global unlimited plan. As a 1-person operation I can experiment, be ahead of the pack. There will be huge shifts in the way we talk, plus big implications for operators. Finally “Skype” could just replace the uncool “Windows Live” brand altogether

  28. matthughes

    Nokia, Skype, Microsoft…Device, platform, software…a lot of pieces are in place for a game changer.Whether they can really execute is a big question –

    1. Michael Tupper

      I believe this to be the most relevant and insightful comment here!Nobody is really considering the intangible value / effects of wrestling more power away from the mobile operators. That’s of paramount importance still.

      1. fredwilson

        yes, if anyone uses win7 phonesi don’t see it in the data yeti am watching closely

        1. Michael Tupper

          I didn’t say I have a lot of faith that MS will be successful in this facet, I just believe it to be the most relevant angle of the whole MS/Skype/Nokia combo…Current data seems to give me reason to not have too much faith and also back your claims.  Here’s a note on that:http://www.businessinsider….However, one would think MS’s ~90% market share of desktop OS and their inherently upper-hand in the ability to integrate Desktop>Mobile usage/apps via the OSs would be significant enough to keep them in the game.

  29. Adam Besvinick

    I think at the end of the day, while on the surface it may not seem like a perfect match, it’s a good outcome for both parties. Read more here:

  30. Shyam Subramanyan

    What if Skype becomes the default “dial tone” on Nokia/Windows Phones? That’s the only possibility that I can get excited about – A phone whose primary calling interface is Skype, works the same anywhere in the world – all I need is data connectivity. Skype cannot make this happen on their own, but with Microsoft and Nokia, it might just happen.

    1. VonSloneker

      I completely agree.Softee has been piling up stakes in comm/entertainment and spectrum holders for ten years. Doubtful that this was always the end game, or NetMeeting would have been resurrected long ago. Whether they by purposeful steps or stumbling bass ackward into it any progress toward “Skype default dial tone” is extrememly exciting for MSFT. It would be long overdue, but would get the trust busters all fired up again.

    2. JohnDoey

      That is what Apple is doing with FaceTime. You dial as usual, but instead of a regular call, you get a VoIP FaceTime call. And you can also dial an email address to reach devices that do not have phones in them. However, no carrier will allow it over 3G because of that, so it is Wi-Fi only. Microsoft has even less leverage with carriers. And only a small and shrinking minority of Nokia phones even have data plans.

      1. Shyam Subramanyan

        Huh? Nokia is still #1 in market share for smart phones internationally with their Symbian OS, although they have been dropping steadily. I’m guessing that at least a majority of these devices have data plans.Four years ago you could not put anything on the phone that carriers did not sell you. Today you can. I believe carriers will just be data pipe providers in the future. If Microsoft/Nokia can provide a compelling Skype-based product that intersects with this new reality, who knows what might happen…

      2. Fernando Gutierrez

        In Europe most carriers do allow voip over 3G and in Android you can default skype as dialer if you want. The problem is that for voip you need a good connection and when you are moving that’s not always possible. Also, when calling to mobile phones usually the carrier plan is cheaper than skype out (here we pay more to call to mobile lines, which can be recognized because they start different than the fixed ones, but do not pay to receive calls).

  31. Matthew MacDonald

    My trouble with the purchase surrounds the strategy of the play. It seems like these days, companies like Microsoft (generally not known for being overly innovative) are buying “cool” ideas or companies to develop their offering. Does skype really fit with Microsoft’s offering or is this their attempt to try and integrate a platform within their existing programming like Apple has done with iChat..?Either way, I don’t see the fit and I think Microsoft (in this case at least) is trying a little to much like the nerd on the playground wearing his older brother’s MJ high-tops…

  32. Alexey Aylarov

    VoIP entrepreneurs are already working on something )


    Question:Does anyone know the destiny of companies (as a % basis) that MSFT buys that either compete with their suite of products/services or to complement them.. WHOSE SYNERGIES FAIL? I frankly don’t remember a lot of press about companies they bought that didn’t work out that they then sold. Do they just ‘blow them up’ or put them ‘on the shelf’?

    1. JohnDoey

      They assimilate them.Microsoft still makes almost all their money from the two Mac-heritage 1980’s products that they later protected in the 1990’s with illegal business practices: Microsoft Office (1985) and Microsoft Windows (1986). Excel was an acquisition, and maybe PowerPoint was, too, but if it isn’t part of Windows or Office, they lose money on it for a while and then kill it.

  34. J.R. Sedivy

    I find the new Skype client frustrating as well. Somehow the old client just felt much lighter, less intrusive, yet more functional.

    1. JohnDoey

      They saved Microsoft some time by screwing up the UI before the purchase, or Microsoft would have had to do that later.

      1. J.R. Sedivy

        Maybe the revised, intrusive UI is what attracted Microsoft to Skype 🙂

  35. jay janney

    VOIP seems to me to be a commodity–I suspect MS overpaid for Skype. I’m not a skype hater, I use it a lot, but I wonder how MS can profit from this.My sense is that skype doesn’t know how to explain their customer proposition. My wife (a professional, but not a techie) loves the phone-in feature. When I teach overseas, I rent a number ($18 for three months), and it’s a local call for my wife. She doesn’t want to skype, she wants to call me on the phone. Yet among my colleagues and students, almost none of them know about this feature.

    1. JohnDoey

      Yeah, they have very few paying users. You have to sort of get a certificate in Skype just to navigate and understand what they offer.

    2. Fernando Gutierrez

      You should also try Jajah. For that type of usage is great. You start the call from their website or smartphone apps, but they make a local call to “normal” phones in each of the ends of the call. You can also set up local numbers that are deviated to other phones so you can dial local and get someone on the other side of the world.

    1. JohnDoey

      No.A key part of YouTube is you can put a YouTube video in any Web page, and play them on any device. Skype only video chats with Skype.

      1. paramendra

        I did not mean literally. I meant could Skype be a successful acquisition….

  36. VonSloneker

    Poor man’s Telepresence. Just as Great Plains is a poor man’s Oracle/SAP Financials.Alternatively, the ghost of Microsoft NetMeeting

    1. Guest

      Hahah; that is a funny analogy actually. And the use of “poor man’s” as an adjective is extremely hilarious because it is a long running theme my wife & I use regularly to describe things we make or come across. Gave me a GREAT laugh just now!

      1. VonSloneker

        At your service my liege 🙂

  37. alanp

    Fred, do you know if the JoltID IP that scuppered eBay has gone to MSFT? Can’t see a confirmation anywhere.

    1. Morgan Warstler

      +1 I went looking on that tonight myself.

  38. Rohan

    I felt some of their changes have been excessive and seemingly change just for the sake of change. And that seemed to hint that they were trying too hard and hence, appearing commercial. Like Facebook.

  39. Morgan Warstler

    My wish is that Niklas and Janus, are part of the deal, and they take a big role at MSFT. Like rouge free agents who report directly to Ballmer – make Ballmer sit in a room with those two and hear them agitate for boldness weekly if not daily.Let them be told, “Be Smart & Tricky,” and then get the hell out of the way. All Ballmer has to do is consistenty overrule anyone who argues with them, let them touch everything on the consumer web side of the business – not Azure, not Office, maybe not even XBox… but let them at Bing, Hotmail, IE, mobile…Task them with creating a FREE version of Windows focused on that stuff tell them to exploit every advantage an OS has go dominate – piss off ISPs, Google, Obama, Europe.They have devices down, they really do, so they’d happily work with the basic kernel and they’d think about the “cloud” differently than most everyone right now.Pay them mind boggling upside if they move the stock price.Anyway, that’s what I wish.

  40. newdisc

    have you thought mayb Janus and Niklas were part of silverlake. The IPO was a rouse to flush out trade buyers and let them bid against public company multiples……….Tho spot on with “goodbye to skype Kultur” and “welcome 2 hopefully nu kids on the telco voip block” 🙂

  41. Jeremy Hattingh

    Missing the point as usual folks ? Skype will become a BANK for mobile transactions.

  42. Youssef Rahoui

    I would love to read some deep journalistic coverage of this because I really don’t get why the founders could not keep the company as it was and run it for a while.This is such a great company! They almost have it all: market domination protected by network effects and a free version, technology, scalability, IP, brand, great founders, market trends in their favor, etc.

    1. Youssef Rahoui

      Funnily enough, I just came across an article (in French) revealing why Google did not buy Skype when eBay was out to sell it.Eric, Sergeï and Larry were interested and about to say yes but during a top level meeting, Wesley Chan, the head of Google Voice, made successfully his case against buying Skype (after heving met them).Basically, he criticises the technology (P2P, dubbed “old”) and states the fact that Google’s core technological orientation was the cloud, which would be at odds with Skype’s.

  43. John

    Viber is better than Skype. Get on board.

  44. OurielOhayon

    on the new Skype Client being terrible: totally agree. I came back to the previous one. This was such a bad move from the company which was never adressed well. You could feel the company lost it at that point.Another indicator, there is a huge thread on getsatisfaction about the birthday notification being forced to users on skype (which you can t turn off) it is amazing to me that no one at skype ever even answered that thread…

  45. Chris

    Wondering if any other users are having trouble reading this blog on their Blackberry?

  46. amrithaa2011

    hi, what is going on up next after acquiring the Skype by MS…???

  47. BuyGiftsItems

    The first thing is to integrate it in the Microsoft ecosystem. Microsoft is strong offering a “complete” infrastructureKamagra

  48. Jacob Slevin

    I have little to comment on eBay’s loss or Microsoft’s gain (although I think Microsoft potentially landed itself a really valuable property).I do want to share that I’ve been “using” skype for my business for three years now. When first subscribing for a virtual phone number, voice mail, etc. (as we didn’t want to bother with Verizon or Time Warner until we were going to be stationary in an office for a considerable period) the service consistently disappointed. Today, I’m on skype all day, conducting phone conferences, multi-user video conferences, and more. It’s really more stable than most of the solutions I in fact pay for. Curious to see what direction it will potentially take under new leadership of sorts.

  49. Project Management Certificati

    Groups are forming outside of the fence that are going off to do stuff. thats where the commerce is going to happen.PMP Exam

  50. fredwilson