Ross Mayfield's Weblog

Skype is the Nokia of Estonia

J?ri Kaljundi has a great post on what the Skype deal means to Estonia. 

While I join everyone in congratulating Skype (Jeff has posted some good comments and links to other blogs on this) and all the great people there, there are many reasons why the Skype deal is also of great importance to Estonia and Estonians. It should be a big push to start new successful tech startups and for enterpreneurs to look more actively at international markets, something that has been very limited until now...

True, you can say Skype is not Estonian per se, having its holding company in Luxembourg (tax reasons?) and big part of management and marketing in London. Still over 80% of the employees are located in Tallinn, and all of the product management and software development as well as other technical functions are done here in Estonia. Pretty good for a country with only 1,35 million employees and a total headcount of less than 5-8 thousand IT people in the country (my very rough estimate). ...

Actually, Skype is even more of an Estonian company than most realize, as the majority of founder stock is, perhaps the best measure.  J?ri suggests rightly that Skype will be the reference model for Estonian companies in how they source the best international talent and expand abroad.

I'll add this, Skype could prove to be the Nokia of Estonia.  A few years from now, when deal earns itself out, Skype could diffuse a generation of tech entrepreneurs and investors.  In Nokia's case, many of them started companies that were later brought back into the fold, benefiting the company and the country.  A unique capability cluster is being developed here in VoIP, P2P, Security and Social Software that will give rise to new startups.

Again, the primary risk for this scenario is immigration reform and cultural tolerance.  The former is policy and the latter systemic.  Reflecting upon my own experience, it's not easy for the expats who do get in.  Expat networks provide a kind of support group, and seeing how I'm in the business of supporting groups, I wonder if Social Software could come to aid.  Would anyone see value in an expat wiki as a resource for informing and connecting?

Business as Usual at Skype Estonia

Had a nice visit to Skype Estonia.  Apparently they have been very good at keeping the secret about acquisition rumors, and I'll have to respect their privacy, but can share a little.

I thought everyone would be drunk by 4pm on the day of a big exit, as is more than typical back home.  But on an internal webcast they emphasized eight times that it was business as usual.  And it was.  Since I visited in November, they have almost tripled their team and were growing out of their secret location. 

While hanging out in the kitchen, I found a copy of the Manifesto for Agile Software Development. Nice.  Guess this is where I can slot in the wiki plug, Skype has always run on wikis inside (and another well known communication tool).   Maybe the first significant exit for a wiki-based company?

One of the guys I was hanging out with is the father of blogging in Estonia.  His offspring is still relatively small, about 1 thousand active blogs, but my sense is that may change soon, especially with Share Skype as a corporate communications case.  The work Lenn Pryor is doing with the Skype developer program is pretty significant, they have more to do, but this is one API-based developer program that is starting to make sense.  Joining eBay increases the scale of the platform and community that holds it responsible.  Quite different from the small startups that try to position themselves with proprietary APIs as a platform when they have no community.

Meg Whitman apparently mentioned in the conference call that Estonia was seen as a key pool of talent.  This is absolutely the case, but the labor market for the best people is really tight, which brought up my key issue of how open Estonia should be.

When I visited last year I had the sense that this is where the real hacker entrepreneurs were.  Committed for the love of the product, respect for the technology, interest to understand social patterns and a vision to be fulfilled.  This time there were new faces amongst the backdrop of a very big deal.  In a couple of hours they are all headed to celebrate, as they should, maybe I'll stop by.

The Simple Reason eBay bought Skype

In two hours, eBay is holding a conference call about buying Skype.  I'm visiting the Skype guys in Tallinn a couple of hours later.  Lot's of folks are scratching their heads.  I have no inside information, nor really want it, but can offer a simple explanation that the market seems to be missing -- that markets are conversations.

Pierre Omidyar once explained to me that one of the smartest things he did when starting eBay was to not constrain communication around his market -- by publishing email addresses.  He was suggesting to me that we open the Socialtext Customer Exchange, but the core insight is more valuable.  Back when I was running a B2B exchange, this was considered a contrarian move.  After all, it let buyers and sellers circumvent your transaction fees in some cases.  But letting go of control fosters liquidity.  Especially when you couldn't possibly structure communications to fit all transactions.  Today I would venture that most of the communication on eBay's transactions are out-of-band.  Other communities with emergent liquidity such as Craigslist succeed by enabling even further out-of-band communication.

Skype will provide eBay a communications platform for the other half of it's market -- the conversations.  eBay will enhance the liquidity of it's spot market, gains a business with great fundamentals, positioning for yellow pages business, further infrastructure for billing, payment and -- identity.

UPDATE: it's a deal at $2.6 billion in cash and stock with a potential 1.5b earnout.  Skype earned $7m in revenue last year.

UPDATE: Read John Hagel's analysis and thoughts on high multiple management.