Skype

Hang on one sec. I lost my place in my notes. Oh, wait. Actually, can we go back? Definitely compared to T-Time Warner to Donald Trump. I love that. Who got the truth? Is it you? Is it you? Is it you? Is it you? Is it you? Sitting down, saying straight. Another story on the way. Who got the truth?

Welcome back to episode 24 of Acquired, the podcast about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today's episode is Microsoft's 2011 acquisition of Skype and the wild, crazy journey that it took to get there. Ben, you mean eBay's 2005 acquisition of Skype and the wild, crazy journey it took to get there. Or perhaps the Silver Lake Partners private equity takeover with Andreessen Horowitz. In 2009, acquisition of Skype and the crazy path it took to get there. All that and more as we dive into the show. Before we get started today, we want to do a community spotlight.

User in Slack, Swix, S-W-Y-X, pointed us at his company. I believe it is Sentio, S-E-N-T-I-E-O dot com. They are the kind of future of Wall Street analysts. So they have a software platform where you can save time on research, join thousands of investment professionals on a modern and intuitive platform built by former Wall Street analysts. And he lets us know that they just launched their Alexa skill. So check that out if you have an Alexa or go to their website to check it out if you're interested. All right, listeners, now is a great time to tell you about longtime friend of the show, Vanta. So, David, I want to paint a picture that many founders listening will recognize.

You're about to close your biggest customer yet. The product team has hit a bunch of milestones. The sales team built this fantastic relationship. Everyone at the potential customer is fired up. Your legal team has the contract done, but then an email comes in from the security team. Ah, yes. It's usually a very polite email asking something like, before proceeding, could you share your SOC 2 report? Or do you mind sharing your ISO 27001? If you don't have one, that deal just went from closing this month to closing next quarter, maybe. Now you have to go find an auditor, go through every system, write the policies, and then prove that you follow them. Right. Or you could just use Vanta.

They are the leading agentic trust platform, which means that you can connect it to your systems at your company and it automatically pulls all the relevant data and it tells you exactly what's missing for a SOC 2 and ISO 27001 or whichever framework your customer asked for. Vanta gets you through the audit and then it keeps going. It watches your controls every day afterwards so the report that you hand to the next customer is still true. Yep. And even more impressive is the Vanta agent. It continues to run in the background so it can find the issues and draft the fixes. This is the work that eats weeks of an engineer's time before an audit. And now it mostly just gets done before anyone has to ask. And the results are super impressive. A recent industry report says that Vanta's customers see a 526% return over three years and that it pays for itself within the first three months. If you've ever had one of these security emails stall a deal, you know exactly how that math works. More than 16,000 companies now run on Vanta. 16,000. Listeners, there were 2,000 when David and I started working with Vanta.

That's incredible what they've accomplished. And these are companies from large enterprises like Atlassian and Snowflake to the NuGuard, like Ramp and Cursor. We've been fans of Vanta for years. And hundreds, like literally hundreds, maybe even at this point, thousands of acquired listeners have become Vanta customers over that time. If you want $1,000 off, check out Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired. And just tell them that Ben and David sent you.

Cool. Shall we dive into the show? There's a long and rich and incredible history on this one. This story has more drama than something with a lot of drama. A whole lot of drama. I don't know. Will and Grace episode. Yeah. Sounds good. Bravo. Whatever.

All right. So our drama-filled story starts all the way back in 1999 when two guys, Niklas Zenstrom, who lived in Sweden, and Janis Fries, who lived in Denmark, were both working at the Swedish telecom company Tele2. This was early days of the, well, late days of the internet bubble, but very much internet 1.0 bubble. And this Tele2, that's T-E-L-E number two, they wanted to launch a web portal because everybody in those days had to have a web portal and they wanted to call it Everyday. I don't know if it was Everyday.com or whatever.

a swedish uh domain you know uh term ending was at that point in time um but they had just one problem and that was that nobody could develop software at the company and uh or at least nobody could develop good web software and so they had a department in estonia Do you know where Estonia has been? I do. I do. We'll totally dive into this, but when I was at Microsoft, I was fortunate to spend a bunch of time at Skype offices and spend a week in Tallinn at the Skype headquarters there. Skype headquarters in Tallinn, Estonia. Beautiful city. Former Soviet bloc nation on the Baltic Sea. Yeah, and it is wild being there because it is this incredible dichotomy of old and new where you have total Soviet bloc buildings and even the real old, kind of the old city from before the Soviet era in Tallinn. And then these companies like Skype and a lot of the sort of new revitalization in Estonia is a totally... Imagine if you had...

the opportunity to intelligently start a new country today all the decisions you would make and they kind of learned from the best and looked at what's working and yeah i mean this is a company that was part of their country that was part of the soviet union uh until the late 89 yeah and so like there's so much if you ever get a chance to check out um there's a lot of really interesting things that they do as a government that are totally tech enabled like they have uh every citizen has a smart card that they can put into their computer and you can vote online because you have a uniquely identifiable um that's awesome electronic thing that identifies you as a citizen it's super cool wow so 1999 the whole country is 10 years old this swedish telecom wants to make a web portal so what do they do they take out an ad in the local newspaper saying uh advertising a contract job to build this web portal for them and they're gonna pay 5 000 estonian croons per day, which was about $330 at the time. And that was more than the average Estonian earned in a month, apparently. And they were going to pay that every day. So they get a lot of interest, and they end up hiring three developers. Jan Tallinn, we're going to butcher these names. We apologize. Ati Heinjat and Preet Kanslau. We totally butchered that, and we apologize. They end up hiring them. And there's just one more problem, though. They're very talented programmers, but they don't know PHP, which is the language of the web at the time. Yeah, I mean, my problem was that I didn't know PHP, like sophomore year of high school. I remember that. That would have been...

uh like 2004 or 5 and uh i wanted to make like this it's totally irrelevant but like that was that was totally the language of the day right if you wanted to do anything on the web it was like well you know you can if you have a php server running you can drop these fancy tags and do dynamic stuff inside your html and wow everyone yeah i mean for the longest time facebook was all ran in php uh no longer those days are over but back in the day php was how the internet ran so no problem these guys are super talented they just learn php in a weekend uh and they build everyday.com or whatever it was that Teletoo wanted it to be called. It was awesome. Um, so a couple of years, not even a couple of years go by, uh, but, but Zenstrom and Friis, the, the guy in Sweden and the, and the guy in Denmark, um, they decide they want to leave Teletoo and they want to become entrepreneurs, this internet bubble. Um, and this is the heyday of Napster. So folks probably remember Napster. Uh, I certainly do. Um, won't comment on whether I, whether I participated in the file sharing or not. I heard it was great. Yeah. Uh, although I was definitely under 18 at the time, so whatever. Um,

And so they decide that they want to start a competitor to Napster. And it's not going to be just for music. You're also going to be able to share files of any type. So movies, AVIs, and software programs. You'll be able to basically share and read a pirate, anything. And so they decide that they're going to call this Kazaa. Oh, my God. Yeah. When I was doing the research, I could not believe these were the same guys that did the Kazaa. Literally the same guys. So again, they're not software developers. So what are they going to do? Well, they call up the Estonian guys.

So they call up the Estonia guys. They're like, we're doing this. We're building a Napster competitor. They come on board. They build Kazaa. It's awesome. And it was indeed quite awesome. Yeah, I remember I was always like at an epic war with my friends on what was better, LimeWire or Kazaa. Because they were both sort of the, they both succeeded in Napster. And Napster gets shut down. And so Kazaa and LimeWire become like the heir apparent. And Kazaa actually becomes pretty quickly the most popular application in the world. Really? Not like the most popular application, period. Yeah, it's like the biggest thing on the internet.

I mean, the Internet is quite small at this point in time, but because I basically owns the Internet. They're like Facebook, which is hilarious to make that analogy, because like thinking about, you know, Facebook's brief detour and Mark Zuckerberg and those guys into doing a wire hog and early days of Facebook and actually being a competing priority. They almost didn't do Facebook because they were focused on wire hog. Yeah. P2P file sharing was the thing, which sounds totally crazy now. But I mean, there actually was some justification for this. I mean, because I launched in September 2000. And like I said, super quickly becomes the most popular program on the Internet. And along with that, massive, massive legal issues.

laying out once again just like they did with napster which i mean this will be the the uh foreshadowing for all of the legal issues that they would go through with skype later oh yeah much more to come um so zenstrom and freeze uh i mean they're riding high right like they have the biggest you know biggest company on the internet but they're also terrified that they're going to get arrested um and uh so they actually sell kazaa on paper uh to some australian business men um with uh uh Yeah, that's all I was able to find. They sell it to some Australian business. There's just no price or... Yeah, it's... I don't know exactly what happened. We call it Lost in the Sands of Time. Yeah, Lost in the Sands of Time. If you know, actually, we would love to hear about that in the Slack channel or email us acquiredfm at gmail.com. It'd be good to follow up. And it may be out there somewhere in the internet. There's so much out there about...

because on the early days of Skype, this show was so much fun to research. So they sell the company, but they keep the technology behind it. And that becomes foreshadows what will happen in a few years with Skype. But so they keep the technology and they start casting about for, well, what else could we do with this incredible peer-to-peer file sharing technology that we developed? And it might be worth a quick detour to just talk about how peer-to-peer technology and file sharing actually...

works at this point in time so the basic structure is that whoever's on the network uh is connected to everyone else on the network and so if you have a file or any kind of piece of data that you need to be transferring um rather than going and downloading that from one server in one location which is how traditionally the internet networking have worked and um and actually once again works mostly this way today um but this was before the cloud uh quote unquote the cloud existed um you could just download pieces of that file from everybody else every other node on the network so um this is why on napster and on kazaa you know songs that were really popular were super super fast to download because if thousands and thousands or millions of users all had that same file on their computers and they were connected to the network you could just download little pieces of it from many thousands of different people instead of downloading everybody going to one spot and downloading the whole file and that's so much more effective because you know then your bandwidth constrained by that one single server um in those days you know you had cdns that weren't you know that were not as established and well built out yet you um you know that the bandwidth issues and performance issues getting it from that that one single server so uh suffice to say um

Peer-to-peer was this total revolution in maybe not the highest availability. There were kind of issues with reliability and some spottiness with it, but in a full distributed peer-to-peer network, amazing if your neighbor had something that you wanted, that you could just one-off grab from them. And so Zenstrom and Freese at this point have sold, quote-unquote sold, but they've retained this technology and they're casting about for what else they can do with it. And they realize, actually, they have this ingenious realization that this same peer-to-peer technology can be used for a bunch of stuff, but for transmitting voice over the internet. And if a whole bunch of computers all running the same...

peer-to-peer software just like napster or like kazah were were online in various geographies around the world as long as you had enough density in particular you know starting points and ending points of calls that were happening you could transfer packets um that contained voice you know across this peer-to-peer network instead of like you know in singular you know kind of routes between one computer another over the internet and and it actually enabled really clear high quality voice calls to be done just for free over the internet. Right. And they would eventually, they actually developed their own protocol for this. You know, it's formally known as the Skype protocol that endured until I think 2014. And from there would sort of establish this hybrid model where they had these direct peer-to-peer nodes like we're talking about and super nodes. So, you know, established servers that were always on and meant to handle that kind of traffic. Yep. So this is now kind of late 2002, early 2003. So they team up with the Estonians again and they start working on an early alpha for what would become Skype. And they decided they wanted to call it Sky Peer-to-Peer.

Catchy name. Super catchy name. But they wanted to abbreviate it to Skyper. Which I think is cool. I wish they'd stuck with it. But I think the issue was they couldn't find the domain name. They couldn't get the dot-com name. Yeah. They couldn't get skyper.com. So instead, they decided to just drop the R at the end and thus Skype was born. Totally. So clean. Incredible at that time that Skyper was not available. But Skype, a one-syllable, five-letter word was. Yeah. That would never happen today that you would go down a letter and that that domain name would be available versus a higher number of letter domain name. Pining for the old days.

um but they do something really right at the beginning too so we talked about how the technology was pretty amazing and that enabled them you know it enabled people to do voice calls over the internet as long as there was a density of people online in both where the call was starting and ending you know around the whole world uh way better than traditional telephone networks um but the other thing they got really right is they made it really simple in the beginning they realized that um kind of just like kazaa and like napster if you were gonna build a huge network of people doing this you had to get you couldn't just have tech geeks doing this you had to make the software so easy that um that everyday people would do it and so there's actually an interview a quote from early skype employee um larry uh at the time and she says right from the start we set out to write a program simple enough to be installed and used by a soccer mom with no knowledge of firewalls ip addresses or other technological terms um and uh and and because of that and also probably because it was free and enabled you to call people in other countries for free when you used to pay a lot of money even domestically was super expensive then

Yep. Yeah. Even domestically, long distance calling was expensive. But think about, you know, in Europe where Skype is based, like calling between countries and people have friends and family that are in other countries and have to pay exorbitant amounts to call them. Yeah. And the telecoms were highly, highly regulated, had a very inflated price scheme where there was, you know, not necessarily collusion, but at least a set expectation of how much you would charge for long distance and routing between networks. And by, you know, pioneering VoIP, really coming up with this idea that like you go around all that entirely. And I think the funniest thing to think about is in the history of networked computing.

everybody that had a dial-up modem, we started with our data flowing over voice lines. And the way that we communicate is literally making sound over those lines. So it was like IP over voice. And then you have the advent of this and where we are today and how every office mostly has phones that are actually IP phones. And now all of our voice goes over IP. It's kind of hilarious. Yeah, I mean, it's like this technology is so much better than the traditional phone system that now the traditional phone system runs on this technology, which is pretty amusing. Yeah, we're actually sitting here in Pioneer Square Labs. We moved into a new office a couple months ago. And all of our hardwired phones that are like our desk phones are all IP phones. Like we didn't even think to.

Why would we like reach out to AT&T and have them set up a, yeah. Totally. So like I said, super simple. free really compelling value prop um so skype launches officially in august 2003 on the very first day remember this is august 2003 so like the internet is orders multiple orders of magnitude smaller than it is today on the very first day they get 10 000 downloads of uh first day they launch get 10 000 downloads of skype by the end of the first month they have a million users i'm so curious how they like on the first day so how do they get the word out i think that that's a little lost to history but yeah it's like there's an app store to be featured on the front page of they did like super early growth hacking, you know, emailed their friends and friends of friends and got the word out. I mean, they also had some benefit in that these were like the Kazaa guys. So, you know, there was a, they were known quality quantities. But still, this is incredible. 10,000 downloads on day one, a million users by the end of the first month, 4.1 million users by the end of the first quarter, and just a hair under 20 million users, 19.8 million users that they get in their first year. Wow.

Which is, I mean, those are like pretty decent numbers for even like a mobile startup today. Like there are no mobile phones at this point. Yeah, and the fascinating thing about peer-to-peer. There are no smartphones at this point. It's cheaper to, yeah, good point. It's cheaper to start a company with the advent of, you know, cloud hosting than it was in those days where you needed really expensive data centers. But with the advent of peer-to-peer, they could support 20 million users without those insane infrastructure costs that it would, you know, any other company saying like, oh, it's, you know, 2001 and we're launching a company and we quickly have 20 million users. It's like, well, how many millions of venture capital did they raise? Yeah, and they did raise a small amount of venture capital before they launched. Interestingly from Bill Draper, the legendary venture capitalist, and Howard Hardenbaum, who's now.

at august capital uh they were working together at a different firm at the time um and they went over and they'd heard that the kazakh guys were starting a new company and they're like we're gonna give you some money like we don't care what you're doing we're just gonna invest in you because like you're the kazakh guys um so they were the first investors um but then they launched this growth is incredible and so as um as this growth is happening of course every bc you know now in in the world wants to invest and so they raise 18 million dollars from index bessemer and dfj uh after they launch and have this growth um but uh but things are still pretty crazy so like most of the company is in estonia uh where these original developers are and estonians are crazy like that if i learned one thing while i was there i mean i was there in february so it's like you know negative 20 degrees and like people are still like going out drinking and you know just like they get used to it like it's nothing they cross country ski miles and miles and miles everywhere all the time like i walked away with this impression that like you do not mess with an estonian yeah so um you know startups like there's lots of uh you know fun and pressure and crazy times and startups you know still but like this kind of took it to a new level so i think still even to this day every new employee at skype has to undergo an initiation and the initiation is you have to do a shot of um

tequila, sambuca, and Tabasco sauce. I did this. You did this? This is amazing. Yes, there's this bar right outside the old city in Tala. Yeah, this is from day one. Every Skype employee did this. No, wait, this is on the internet? This is on the internet, yeah. Did you see what the shot was called? Yeah, there's like a name for it. I didn't write it down. I don't think English speakers can't. It's hard to pronounce. I'll see if I can look it up while you're.

so the other thing that they do is they install a pool in the boardroom in the office in estonia not a not a pool table a pool what yeah um and apparently they have to like negotiate with the building about like uh building management like whether the floor is going to be able to support this um you know i think it was a kiddie pool but it was still like a ton a ton or two of water that was installed in the boardroom jesus okay the drink was uh it's either mili malaccos or mili milicus i heard it differently from different people but it's like as soon as i saw it on google it's like oh yeah that's amazing you've been initiated i have All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. So, David, here's a question that I do not think most enterprise CIOs or CEOs could actually answer today if they were asked. How many agents actually run inside your business? Yes, I don't think anybody really knows. And of course, then there's the harder questions like what can they access and who gave them that access? And is any of this paying for itself? ServiceNow has an answer to all those questions. The super intelligence control tower.

As friend of the show, CEO Bill McDermott says, it's the one place to see, secure, measure, and help govern your agents' models and workflows across your entire business, no matter who built it. Yep. So, for example, it finds the agent that someone in procurement spun up on their own and then tracks what it's doing and its ongoing cost. When the CFO inevitably asks whether any of this is working and if there's ROI, you'll be ready with a number. And importantly, if something goes wrong, it can detect and revoke access immediately. There's even a kill switch built into the product. And ServiceNow is uniquely positioned for this because they've spent the last 20 years building the operating backbone of the enterprise, from IT to HR, sales, service, and cybersecurity. They know how work gets done, helping support over 100 billion workflows a year.

across more than 90% of the Fortune 500. The world's most complicated businesses, like many that we've covered here on Acquired, already run on ServiceNow. And now they're running their AI there too. If you're trying to turn AI ambition into real outcomes, just go to ServiceNow.com slash acquired and just tell them that Ben and David sent you. so the growth just continues as we were talking about things are growing like gangbusters in june of 2005 they had video calling um which is funny when we think like when i say to somebody i'm going to skype them today instead of doing a call like i mean i'm going to video chat you um right but that wasn't even added until two years after launch yeah oh five it's interesting to think like um fast forward today where like they're they're uh making forays into text chat. I mean, they've had text chat all along, but trying to make that more part of the core experience started with, you know, audio, then got into video, became ubiquitous with video. And a lot of other kind of chat platforms are competing against today that are text and photo based. Like that's not their kind of core and starting place at all. And it's funny to think about like how much like with phones, how primitive text seems and how complicated voice and video seem. But like there was calling on cell phones before there was texting on cell phones. And, you know, text was the third feature of Skype. I think this is...

I'm sure this is something we'll get into more in tech themes and grading. But it is pretty funny to think about that, that text is now the dominant medium of communication, not calling, even though it's more complicated and more bandwidth heavy these days on smartphones. So they launched video calling. That grows also enormously. And so a couple months later, September of 2005, there is lots of interest in Skype and from multiple acquirers. Big companies are interested in buying the company. They end up deciding to sell to eBay for $2.6 billion.

eBay. That was the heyday for eBay, too. Well, it was slightly post-heyday. I mean, this was a couple years after the internet bubble burst. But eBay's still a very large company. And people are like, why is eBay acquiring Skype? And one of the rationales that they give for the deal is, well, people will be able to call each other and verify transactions. The mind-blowing thing here with this is, when we covered the PayPal-Ebay acquisition,

That made so much sense because people were already using PayPal as a major source of payment on eBay. And I'm very curious, did they observe behavior where people were using Skype to do this already? It's really hard to imagine. I have no idea why you would call somebody after they won an eBay auction. To me, it seems sort of like eBay's...

foray into trying to become a conglomerate and like private equity style take on this high growth business that you know has a very pioneering technology and see if they can just you know grow that as an asset inside their organization and like theoretical synergies happen with their other product but to me you know hindsight's 2020 and we can look all smart here being like that was a dumb acquisition but yeah I don't see it. Yeah, I agree. I mean, it would be hard to see this being a smart acquisition regardless. However, it was definitely a dumb acquisition because they made one key mistake as part of the acquisition. And that was much like when when the when the Kazaa guys sold Kazaa and they kept the technology. Once again, they kept the technology. And so they had a I think it was a company called Skype Technologies that literally was just licensing it to.

It was actually a company called, I don't know if it's Jolt ID or Jolted. It's J-O-L-T-I-D. And that was Zenstrom and Frise's company. And they kept the core peer-to-peer networking technology in that company and then licensed it to eBay and Skype. And so as we'll see in a minute, that definitely comes back to bite eBay and Skype too. So the transaction happens. Skype, which is this crazy European company, is now part of eBay based in San Jose.

run by, I think Meg Whitman was still CEO at that point in time. Yeah, this is September of 2005. Yep, September of 2005. Silicon Valley, but very corporate as far as Silicon Valley goes, has been through the dot-com crash and now emerged and is a very large public company. So to say there was culture clash is an understatement. And in fact, in 2006, most of the eBay management goes over to Estonia to go visit the Skype team there and go through kind of like the roadmap and the feature development and the integration plans.

Um, you know, that doesn't, doesn't go, you know, the Skypers aren't too excited about that. But then in the evening, um, they, they decide they're going to throw it. The Skype team's going to throw a huge party for this, uh, for the eBay guys coming over. And, um, and so they throw this huge party at the hotel where, where everybody, where the eBay team is staying. And, uh, the party ends, apparently Nicholas Zenstrom, um, uh, we read this on the internet, so it must be true. Uh, he gets behind the bar, starts pouring everybody's shots, unclear if they included Tabasco or not. Uh, and, and then he gets on the bar and he's, he's still, you know, he's pouring shots for everybody and he yells out what happens in Estonia stays in Estonia. And, um, and, uh, the, uh, ends up like everybody, eBay, Skypers, they all jump in the pool. Uh, they're all like fully closed at this point at the end of the night. Well, it turns out it gets caught by news crews in Estonia and it's on like.

local television like ebay and skype like management basically trashing this hotel uh so then of course they have to pay for it all and you know this is not like the corporate culture that that ebay uh signed up for so good party to me yeah it sounds like a pretty good party uh i kind of wish i was there but um but the ebay management did not so a couple years go by you know skype is still growing super super fast uh we get to 2009 um and wall street's like so skype is at this point um the fastest growing part of eBay, the vision within eBay. Boy, that's a story we've heard before. PayPal. Yeah, exactly. Skype has over half a billion users around the world at this point and is quite profitable and making a lot of revenue. In the third quarter of 2009, Skype itself did 185 million in revenue. But it's just not a fit within eBay and Wall Street is pseudo.

is saying that they should spin it out or do something that makes no sense. And so they start working on a transaction that we referenced earlier where a consortium of private equity firms and Andreessen Horowitz, which had just been founded by Mark and Ben, are going to invest directly in Skype, spin it out of eBay. eBay will retain a stake and end up valuing the company about it what eBay bought it for a few years earlier. Because I think somewhere in the middle there, October of 2007, eBay did a write down internally of the value of Skype. Yep.

But there's still one problem again, which is that Skype doesn't own the IP. And they're just licensing it back from Jolted, from Zenstrom and Freeze. And so what happens... zentrum and freeze actually sue both ebay and the investor consortium uh sue to stop them using the technology uh and there's this whole big and this is all playing out in public ebay's a public company so that's totally roadblocking totally roadblocking you know there's a chance that skype could just die like one one very real path was that they couldn't use the technology anymore um that they would just have to shut the whole thing down um and like i don't that's not realistic right they're gonna settle well right so the other another potential path that uh the ebay and the skype team was furiously working on is develop an alternative technology to power skype but Um, again, really hard to do that because the peer to peer technology is kind of the core of how this works. Um, and, and then the third option is settle with them. And that's really, I think, you know, what was going on was, um, was the founders were, um, basically trying to, trying to, um, you know, they, they wanted to invest in the deal and did end up investing in the spin out. Um, but so they do eventually end up settling and it's interesting what happens. So they give, uh, jolted, um,

10 percent in skype as part of the settlement uh skype gets so they get 10 equity stake skype gets the technology so finally the actual technology becomes part of skype the company um and uh and the founders also get an 85 million dollar cash payment but what's interesting is they then also invest 80 million dollars into the spin out so i guess net the cash comes out about even for them but they can then get another roughly four percent of the company so they end up with 14 percent of skype post spin out uh ebay retains 30 percent and uh the investor group gets 50 56 percent of skype Also interesting as part of the deal, Skype itself, at this point, Nicholas has a venture firm in Europe, which is quite a good venture firm called Atomico. Skype ends up investing in Atomico's second fund and investing in Ardeo, the streaming music service that was also started by them. Both of these as part of the settlement. Wait, was Ardeo an Atomico company or was Ardeo, who started, what's the connection there? Zenstrom and Freeze started Ardeo.

No way. Yeah. They had a third act. And they had a fourth act, a company called Juiced, which was going to be a peer-to-peer video streaming, basically disrupting television. And Skype didn't invest in that, but they agreed as part of the settlement to promote Juiced on Skype. I don't know how they would promote Juiced on Skype, but it was a part of the settlement. Wow.

Super interesting. This is a crazy deal. But it works out. So the spin-out happens. October of 2010, Skype hires Tony Bates, who is a star at Cisco, to come in and be the CEO. And before that, in June of 2010, Mark Gillette, who was an operating partner at Silver Lake, became the chief development officer. So those guys, you know, this is where the folks at Microsoft start to become familiar with these names, people who are there now and have been for the last five years or so. Both played huge roles in sort of the integration and leading the Skype division inside Microsoft. Yeah, huge roles. And so in these couple years in the interim,

Tony and the new management team basically focuses on totally restructuring Skype. So integrating the technology that is now finally part of Skype into the company, modernizing it. Classic and super well-executed private equity play. Incredibly well-executed. I mean, I don't know if we're going to disaggregate the grades of all of these acquisitions here, but I think this definitely is making a case for getting the highest marks. They also realize at this point it's obvious that mobile is going to be a thing. So they really push Skype for mobile, getting on iOS, getting on Android.

The business does great. And then just a couple years later, in May of 2011, so actually less than two years after the spin-out happens from eBay, Microsoft shows up. And finally, we get to the end of the story. $8.5 billion acquisition. Microsoft announces in May of 2011 that they're acquiring Skype. At that point was their largest acquisition ever. Just until LinkedIn? Just until LinkedIn. And looking at, just to recap, September of 2009, Skype is valued at $2.75 billion in the private equity takeover. And then...

when you look at this microsoft acquisition may have 2011 so what two under two years under two years later essentially six billion dollars almost six billion dollars of value creation um now granted i mean there was a lot of pain that they had to go through to get that but hey that's a pretty good payout for everybody yeah and i mean value creation defined in the terms of which i guess is how you define value but um value is whatever the highest bidder is willing to pay um because if you truly look at the intrinsic value i mean it grew tremendously in terms of user growth under uh under um Silver Lake, but boy, you know, Microsoft paid 32 times Skype's operating profits. Yeah. So when Microsoft acquired Skype, uh, had 700 million users and in 2010, the full year of 2010, uh, had done 860 million in revenue and 264 million in operating profit. Um, so it's still having a very rich price paid by Microsoft, but it's something that I think kind of gets lost in this, all the ups and downs and roller coasters of this story. And, um, all of these transactions were reported so much in the press is Skype is actually a really, really good business.

Yeah, absolutely. I mean, we focus on this, you know, the valuation play of like, basically eBay sold it for what they bought it for after some tumultuous years. You know, the private equity days, they tripled it in less than two years. But you're right, you know, as an independent business, you know, I don't know if it's actually worth $8.5 billion in 2011, but like, fantastic business. Yep, fantastic business. And eBay, you know.

We've been pretty hard on them, I think, justifiably so thus far. But they did make quite a bit of money on Skype because they sold a 65% share at the spin out, but then they retained 30%. And so when Microsoft bought Skype, they made roughly back the same value that they, even just from that, pretty close to the same value that they paid for Skype in 2005. That's totally lost to the narrative. I mean, the intelligence of eBay to hold on to that much that had...

had future growth ahead of it outside of ebay yeah i mean it was never a question that a this was great business and b was growing super fast even through all of this tumult yep um and so to be clear there's no more partial ownership after this microsoft really i mean they clean out the cap table they're the full owner they have uh which usually is what happens in an acquisition but i guess third time is the charm for escape yeah yeah well i mean we're used to um yeah it's kind of shocking what happened with ebay i was gonna say like what we normally see with the tech company is they want full and complete control because they're gonna integrate the product and it's gonna become like you know you As we're doing research, we look into Skype today, and it's impossible to get clear numbers on how the Skype business is doing because it's been so integrated into every fiber of what Microsoft's doing. And that's kind of the normal story. People look at it like an asset that they've acquired, that they move into all these pieces of their business, not this independent private equity-owned thing that another tech company kind of owns and the founders kind of own. There's management put in place to clean it up and get it ready for sale. Well, I think that's part of the reason why Wall Street was clamoring so hard for eBay to spend Skype off in the late 2000s because they reported it as a separate division. It was a completely separate company. There were no synergies with eBay, despite...

whatever uh whatever they may have said at the time of the deal um but it was really clear that there was a lot of value locked up in that company yep yep so at this point uh skype's former ceo tony bates is now the the uh president of skype reporting directly to microsoft ceo steve balmer um they have 663 million global users and uh you know it's it's time to do the integration it's uh this is in the the um i remember this vividly when the one microsoft memo came out that um we the company was going to reorient to more of a functional organization under uh under under steve um since then obviously satya has come in microsoft's taking a little bit of a different or tremendously different direction um and but what's interesting um you know and then we'll move on to i feel like we've talked a little bit about acquisition category already but um I don't know if you remember, you know, there was a lot of when Bomber announced that he was going to retire, there was a lot of speculation about who the next CEO of Microsoft was going to be. And Tony Bates was pretty at the top of the list. You know, it was Tony Bates. It was Alan Mulally from Ford until he went and joined the board of Google. Yeah, right. Good way to disqualify yourself from becoming CEO of Microsoft and unclear that he ever wanted the job. Maybe that was how he stated he didn't want the job. And Satya. But Tony was a very, very legitimate candidate to potentially, you know, become the next CEO of Microsoft. Yeah, that's right.

He's actually a GoPro now. Really? He's the president of GoPro. Huh. Yeah. It's probably worth talking a little bit about what's happened at Microsoft since the acquisition. So for a long time, you know, let's talk about what's going on at Microsoft during the period of the Skype years. So they had Office Communicator that was part of the Office suite when you subscribed and you entered an enterprise engagement. And, you know, you got Word, Excel, PowerPoint, Visio, the entire Microsoft Office suite. There's obviously varying levels of that that would come with Communicator, which I believe in 20...

i'm gonna get the date wrong but at some point was rebranded as link which was uh something that never i mean that was a an enterprise offering that um people who had a communicator in their workplace then knew okay we got link and that was not never a brand that was on on consumers the tip of consumers tongues and um in acquiring skype then there was this like very interesting you know dichotomy of well we've we've been building this thing called msn messenger which was our consumer offering for a while there was office communicator which became link now we have skype so there's sort of these like three different chat looking things that all seem to sort of do the same thing and it's taken probably three or four years to really start to narrow that. So MSN Messenger has been killed. Link is dead. It's formally, you know, changed into and using kind of a mesh code base, but Skype for Business. So there's Skype for Consumers and Skype for Business for businesses. And, you know, this is in Outlook.com. When you log into your consumer mail offering, you see Skype automatically is there. There's all sorts of apps for every platform. It's baked into Windows. It's really kind of like across the whole Microsoft ecosystem at this point. Yep. And let's not forget, a year later, Microsoft acquires Yammer. Yes.

in all of its glory all of its glory you know enterprise um social or enterprise mass communication uh that transcends email is and will be a thing it just was not in the form of yammer yeah that was just is it yeah it's kind of an interesting product in the early days well it's interesting go for it um you know i feel like we're bleeding a little bit into tech themes here but um You know, Skype was really well, I'm just gonna say we'll talk about more techniques later. Skype was really the first both business and consumer internet product, you know, and really, really, in many ways, both foreshadowed and was the wrong instantiation of Slack to come, you know, I mean, Slack is a business product.

but very, uh, also used by consumers, super user-friendly, super, super user-friendly and Skype's very similar. Um, I think it was more a consumer product and the business model was more for consumers than enterprises, but it was the first, I don't know if it was the first, but it was a great example of a crossover product that, uh, businesses, I mean, I do many calls with, you know, with startups, uh, I do as, as Skype video chats. Yep. Yeah. It's, uh, I wouldn't say that it was the wrong product. I think that video, audio serve a different purpose than what Slack is, or glorified IRC chat. Slack is expanding to become communication and the fiber that exists between employees that's more than just chat, but that's really their core competency. And the question is, who will own communication in enterprises going forward, and what form will it be, and will these things be combined? Are we going to see a Skype-like product and a Slack-like product merge, and are we going to see that happen?

Let me say this, right? Slack gets Skype-ified and Skype gets Slack-ified at the same time. Well, I think these things are both happening. But it's interesting, the path that Microsoft has kind of taken since the acquisition with Skype, we were talking about this before the show, is not a unified path. I mean, there's Skype for X, Skype for Y, Skype product derivative Z. It's very confusing, whereas it's unclear what product that Microsoft and Skype are offering today that I would use for what use case. Whereas you look at Slack, on the other hand, it's just Slack. There is one product. There's no Slack 4.

One front door and everything is integrated into Slack, but it is one user experience. And then you can do everything from within that one user experience. And I think that is just speaking on personal preference, but I think also speaking for most. users out there i would so much rather have one superior user interface and customer experience that i can accomplish many things from than i would oh am i stealing your thunder here i'm just like this is maybe it always comes back to ben thompson it's integrated versus modular and like like it just like it's going to ebb and flow and it's going to be advantageous to be bundled and it's going to be advantageous to be unbundled and then it's going to bundle in a new way and it's going to keep going back and forth and like we're about to see bundling i think and these you know we'll see this stuff get recombined and then we'll see get rebroken out again when that's appropriate but Yeah. All right, listeners. Now is a great time to talk about one of our favorite companies, Lagora, the agentic operating system for legal work. Yes. Most of you have dropped a contract into a chatbot by now. But as a lawyer, how far can that really take you? It's never seen your firm's precedents. It doesn't respect confidentiality. And you can't check where its answer came from.

So Lagora's founders approach this the way that great founders do. Early on, the team moved into the office of a big law firm in Stockholm and learned, for months, how the work actually gets done. A couple of thousands of enterprise customers and 100,000 users later, they still work that way. They employ 100 legal engineers on staff. These are lawyers sitting inside of firms and legal departments to deploy Lagora onto live situations like the deal closing this week or the policy review due Friday. The product has gotten very powerful in a short period of time. A year ago, the goal was a good answer from a chatbot. With a Lagora agent, you hand it the work and it comes back with a plan.

Tasks like running diligence on a data room or reviewing a new vendor contract get completed inside the tool you use every day, like Microsoft Word, and against your own precedents and playbooks. Every finding is sourced, the lawyer directs the work and signs off before the system executes any steps. Every legal team can get access to the same AI models, so the models themselves do not give you an edge. What you can do with your own data, people, playbooks, that's the whole game. Today, over 100,000 legal professionals at more than 1,800 law firms and in-house legal teams in over 50 markets use Lagora. And when Lagora goes head-to-head with its top competitor in a pilot, it wins 70% of the time.

A demo is one thing, but what matters most is an associate who reaches for it at 2 in the morning during a closing, or whether a general counsel trusts what it says before the board meeting. So if your legal team wants to check it out, whether you're at a firm or in-house, go to lagora.com slash acquired, and be sure to tell them that Ben and David sent you. I want to move on to acquisition category. Okay, let's move on to acquisition category. So I'm going to call this a product acquisition. There is technology in there. Well, it very definitively was not a technology acquisition a couple times. Yes, yeah. It certainly was more of a technology acquisition this time than it was the eBay time around.

The reason I don't think it's business line is because they bought it at such a high multiple of what their operating profit was that they weren't just going to buy and cash flow this thing. They were buying a product to integrate into the rest of their ecosystem and create a stronger offering across the board. This was an acquisition done where this product was being greatly sought after by both Google and Facebook. There were acquisition rumors swirling for about half the price of... of what they got bought by Microsoft for for months before this. And so, you know, in a competitive environment where video streaming technology is not yet, or video chat technology is not yet commoditized, we're still two years away from Google launching Hangouts. You know, this is a product that has a lot of users, is growing fast, and can really be integrated to beef up somebody's offering. And Microsoft decided it needed to be them. Yep. I totally agree. It's interesting, you know, I think the eBay acquisition...

really was a business line acquisition i mean it was totally separate it was reported separate it was a very different product um but uh but the microsoft acquisition i think is very clearly a product acquisition and now with the integration that you've seen into all parts of the office suite and other areas within the business yep um okay what would have happened otherwise it sort of is interesting to look at like the rise of hangouts and and like uh competing video chat and void products like it doesn't feel like skype is this sort of one and only the way that it used to be yeah i don't know if you feel that way too this is totally totally anecdotal but like i i'm when someone says like we should hop on a skype call it ends up being a google hangout pretty often or in an enterprise case often a zoom uh call um oh yeah blue jeans yeah blue jeans or zoom um i found that zoom actually tends to work the best out of everything um but uh i think this is interesting i want to talk about this in the context of what would have happened otherwise because yes you're right there were lots of rumors that google and facebook were looking at skype as well when microsoft bought them which i just think is super interesting and also comes back to this crossover nature of skype um

microsoft primarily acquired skype i think for the enterprise side of the business more so than the consumer side of microsoft's business um and uh and you see that you know it was actually it was our friend kurt delaney who uh when he was president of office who led the acquisition so it's actually being done through office um at microsoft and then think about like what if facebook had acquired skype like and then it would be primarily a you know a consumer facing product and the fascinating thing about it is facebook had just launched like a skype a white label version of skype inside um inside of uh facebook messenger so philip sue i think led this project which is like the the overlapping people in this is incredible so when i um was doing the garage at microsoft philip had started one of the most legendary projects of all time and he was like a you know constant garage tinkerer guy and worked on all kinds of cool stuff he ended up leaving to go to facebook um he runs uh engineering in the facebook london office now but before that um did a uh led the project to integrate Skype calling, which wasn't called Skype calling. It was just like video, video calling into newsfeed. Yes. Yes. And so then, I mean, that left all these questions of like, well, is this their first, like, are they just doing a little bit of a deal now so that, you know, they can acquire them, which, um, you know, didn't, didn't quite end up happening, but interesting proof of concept there. Totally. Um,

Now that we're hearing what would have happened otherwise, I think it's worth bringing up the issue of repatriating of capital and what that currently looks like for U.S. corporations. We've been hearing a lot about it in the news recently in this kind of political race that we're in about companies can't bring this national travesty that we're in. Yes. God, I can't even think. Sorry about that. So.

In thinking about what could have Microsoft done with a lot of this capital they had overseas, it had been a long climate of not being able to bring it back to the US without paying huge taxes. Skype is a Luxembourg corporation. It's a pretty great way to, in looking at what foreign businesses could we buy that would integrate well into our products and give us this boost into communication. They needed a consumer and to boost their enterprise offering in video chat and calling. It makes total sense when there's not a lot of better things you can do with that capital. Yeah, I think this is a great point. And also...

you know something uh we don't know exactly how microsoft thought about this and how much this played into it but ben as you pointed out some of the rumors that were circling about other players google and facebook acquiring skype the rumors were at a much lower price right um was microsoft willing to pay a lot more because they had all this cash overseas that they needed to uh that they needed to put to work certainly a much healthier balance sheet than uh than facebook at least at that point yeah i mean this is uh was facebook public facebook was public at this point i think it would have just been let's see what was the facebook that's an easy uh no facebook was facebook was a private company at this point um not public uh so would have been certainly possible for them to do an acquisition of this size uh but quite difficult right and and honestly that's one thing i'm going to keep in mind with when grading this acquisition i mean i think that um it's the the super skeptical lens that i had on coming into today was microsoft spent 8.5 billion dollars with skype and seriously like how are they gonna earn that back like you know it's it's so far from being something that they can just cash flow uh it's

growing, but it was already a pretty huge business with a massive percent of the VoIP calls that were made globally going through it. It wasn't something that I thought had that much more growth left in it, nor did I believe Microsoft was going to accelerate that. It's done well. It's grown the way that you would expect it to grow. when you think about like in the context of what else could they do with that cash and was this the best thing or one of the better things they could have done with it? Certainly better than buying treasury bills. Yep. Great point. Really great point. I guess the other thing we should cover on before we move out of what would have happened otherwise, you know, I think there was a path and a very viable path for Skype to go public and be a standalone public company again. That's right. That's right. And then what is this? In 2010, Skype filed with the SEC to raise $100 million. Yep. They had actually filed to go public.

filed an s1 uh and i think that was probably the plan at uh spin out when when silver lake and uh andreason and the other folks uh invested in skype it was was that you know with some cleanup uh led by tony bates and others um that that this could be a standalone public company yeah on detect trends uh i think that It's interesting. There's a good foray from what we were just talking about. It's interesting to note for listeners that we keep seeing this pattern over and over again where a company gets bought right when it was about to raise a bunch of money, like Instagram, or somebody's out looking to do a roll-up strategy, and then they get bought because an offer was put down on the table to stop them from doing that roll-up strategy. And in this case, it was they were preparing an IPO, and that made them a really great takeover target. And it's really interesting to see, that's my first tech theme, is that a lot of times, whether it's you're about to make acquisitions, you're about to IPO, or you're about to get bought, there's a...

There's a little bit of a leverage game going on where you pursue concurrent tracks at the same time in order to make sure that the pressure's on for whichever one you want to happen to happen. Back when I was an investment banker, we used to call this a, quote, dual track process. Dual track being one track, an IPO, and one track being an acquisition. And you're absolutely right. These things totally play off one another. And the fact that it is known that you are preparing to go public, you filed your S1, it's out there, that has a way of drawing buyers out of the woodwork. Yep. Yep.

Another tech trend is the rise of the mega acquisition. So this seemed absolutely insane at the time. I mean, 8.5, like it was... I worked around a lot of, there were a lot of cynical people in my group when I worked at Microsoft. And a lot of lunch conversation was people counting the number of things, like how many Skypes something was. Like, oh, this is an eighth of a Skype. Or pointing out, making crazy jokes about what a huge number this was and how it was never going to pay off for the company. And it turns out it's actually less than half of a WhatsApp. It's so true. It's less than half of a WhatsApp.

consumer chat, broadly defined, also includes Snapchat. And, you know, like, they weren't going to become Snapchat. They're on a very different path for that. But, like, could they have become WhatsApp? I mean, WhatsApp's value prop is that you could very inexpensively communicate across... It's amazing. It's the exact same value prop. It's just for text, not for voice. Exactly. Inexpensively communicate across political boundaries and avoid the tax of the telecom. And, like, it is exactly that. And you look at, you know, that, what, $22 billion... Yeah, just fully valued given everything that went into that deal.

future episode coming soon at some point what's that i just don't think we have enough to decide yeah i think we need to wait a little bit but anyway like looking at like could skype have become whatsapp like did they did they falter by not becoming whatsapp or was it just a different era yeah i mean um it was totally a different era i mean i think so my tech theme um this may be a good second to it um it is uh you know skype on the one hand it's kind of sad that i feel like this is a company that has never fully realized its potential um given this crazy corporate history that it has uh however the growth of this company and the like product market fit um that happened is pretty incredible especially when you go back to the context of when skype was started in 2003 and launched in 2003 and the kind of growth that it experienced and like what were you doing to like i was in i was uh i was uh graduating from high school and starting my freshman year of college in 2003 and i owned a tablet pc like you know nobody had ever heard like there were palm pilots you know like but there was no there were no smartphones you know the global internet most people in america didn't even you know i don't know if it was most but certainly a large portion didn't even have broadband right

And so you couldn't use Skype if you didn't have broadband. And like, think about that and did addressable market and yet how fast it still clearly grew. And so the tech team that I had is there was a really great, actually, ironically, right at the same time that the Microsoft acquisition of Skype happened, Bill Gurley wrote this great blog post called the I believe the title is all revenue is not created equal. The keys to the 10x revenue club. And it's a great post. It goes through 10 points of like, what is it that makes companies that are valued highly by public companies valued by Wall Street at 10 times revenues or higher? Sort of these elite companies like what are the factors that separate them from other companies? And he includes a slide from an early Skype pitch deck.

uh in uh in one of his points and um this slide is just amazing uh the point that girly is making is um that companies that tend to be valued very highly they grow on the back of organic demand versus heavy marketing demand is what he says and so you know a lot of companies you think about this and we see it in startups all the time um you know your unit economics quote unquote may be working but if you're paying a lot of money to acquire every user that you're um that you get to your product you're gonna have to pay spend a lot of money to build that market and win that market Skype never spent any money on customer acquisition. It was all organic. It was just pure product market fit. And so the slide from the Skype pitch deck, they're comparing themselves to Vonage. If you remember Vonage, you know, was the Skype competitor in the day. And Vonage advertised all over, you know, national television in the US. And the slide just compares Skype's cost to acquire a new user and Vonage. Vonage is $400 that they're spending per new user. And Skype was one tenth of one cent.

And, uh, because they had, they had no costs for every call. It was, it was a complete peer to peer model. They had no server costs. Um, and they were spending no marketing. And so this thing could just grow and grow and grow. And there were no limits to it. Um, which is pretty amazing. It's, it's super rare to find these kinds of businesses. Um, and again, like I said, you know, Skype, uh, kind of, I don't think it's the credit it deserves as a product and as a business, uh, because of this corporate history, but, um, but, but the growth is just impressive. Yeah. Yeah. Yeah. All right. On to grade the acquisition.

I'm giving it a B-. Which acquisition are we grading here? I'm grading the Microsoft acquisition. I thought it was going to be way, way, way harsher. And in fact...

i didn't know i was gonna do this episode years ago but like i would have called it like a d in 2012 and it seems like um over time it actually is getting integrated it takes a long time because it's a big ship to maneuver but like it's the right move to have skype and skype for business and not have you know versions of link and messenger and totally deprecate communicator like it's the right move it was an amazing use of that capital considering other options that they could have done with it um and Unless, of course, we see some kind of like big break where all the U.S. companies in the next few years are allowed to bring the cash home. But I don't really foresee that happening, bringing home a reduced tax rate. And on top of all that, I think having this consumer offering and a little bit of that consumer DNA with all the Skype teams that have built this product leaves them fairly well positioned for whatever's about to happen in the enterprise communication market that Slack has pioneered. You know, I'm sure they wish it looked more like Slack right now and less like the kind of like slow, steady growth of Skype. But, you know, if Skype teams is a real thing, I'm excited to see it.

Yep, yep. I definitely agree with that. Yeah, it's interesting to think about, you know, think back to one of our early episodes with Kurt Delbeni, talking about accompli and Wunderlist and sort of recreating the Office suite and a particular Outlook on mobile. And I got to wonder if, you know, and Kurt led the Skype acquisition when he was at Microsoft the first time. I got to wonder if the experience with Skype informed some of the things they did differently with accompli.

And in particular, you know, making Javier, who is the CEO of Accompli, head of all of Outlook, not just Outlook Mobile, but empowering him within the organization to really remake. And it's still a work in progress and will be for a long time. But I think Outlook has made huge strides from the massively bloated, super old school piece of software it was before the acquisition to still really bloated, but, you know, much nicer designed and clearly making strides. And, you know, it's my most opened app on my iPhone where it is today. compare that to skype where yes tony uh stayed at microsoft for a little while and was in the running to perhaps become ceo but then he left and also ultimately not like a product guy right also ultimately not a product yeah he was like a turnaround guy yeah um and uh and i think the lack of any real leaders you know corporate leaders um within skype that could come in and champion that and and champion a product division for skype as part of microsoft um has really hurt them yeah the heroes of skype are gone and the heroes that are talked about in skype and the talent offices and otherwise are the original founders yeah and like the dudes from the newspaper ad yeah and i mean you even go yeah right you can go you look at the way the destruction that work now like it's it's under redmond leadership i mean it's it's all over it's these distributed offices in like six or eight places around the globe but like longtime microsoft people that they report up to that um you know they're running it like the the next evolution of link which you know makes a lot of sense but it's it's uh

you know, it's very different than the accompli acquisition. Yeah. So, and thinking back to what Kurt was saying, um, you know, that realizing that ultimately a lot of these things really are about the people, um, you know, that's what was not there in the Skype acquisition, uh, as good as the product is and the product market fit and even the financials. Um, so I think I actually net out at the same B minus, like, um, would have been a bad acquisition, but for some of these other factors we mentioned, like finding a use for foreign cash, um, it actually being a good business, but just so relative to the potential that it has, um, not yet realized. Yep.

okay uh let's move on do some quick follow-ups and hot takes uh so follow-ups uh from our android episode uh google recently held a big event and launched the google iphone otherwise known as the google pixel and uh sort of unapologetically so like their marketing copy mentions like the iphone or at least their press release copy does and it's it's um It looks really good. All the reviews are super encouraging. Someone here at PSL got one earlier today, so I'm excited to play around with it tomorrow. But looking at the pictures, comparing it against the iPhone 7, not counting the portrait mode stuff, all the flaws that I notice in the iPhone photography over the years where it flattens things too much and it loses some details and it doesn't have the incredible high contrast in the textures. The Pixel's phone looks really, really good, and I'm excited to play around with it. And aside from all that...

there's like um there's a niceness to that hardware that we haven't seen in um non-apple devices devices yeah in a long time it's interesting uh a couple things for me one we in our android episode you know we're like the mobile wars are over google and apple you know are not fighting each other anymore and then a month later you know google comes out with like the most direct shot at apple that they've taken in a long time um but i still think the the but it's interesting in that episode we talked about the days when samsung was just like unabashedly copying the iphone design wise i'm ripping this off from everybody needs to go listen to uh the most recent episode of the talk show with john gruber uh with host or with guest ben thompson of course we can't go an episode without mentioning ben thompson of course um uh but This is John Gruber's line, but it's like Samsung always acted like Apple never existed. Like, oh, Apple? Never heard of them. But look at the new phone that we invented. It's life to unlock. Beautiful new design that we came up with. And Google's just not treating it like that, right? And the really interesting thing, and again, totally go listen to that podcast episode, but Ben and John point out this really great point that this is a potential change in business model for Google, not only because they're selling hardware and they normally are the, you know, they just make the software and then the OEMs make the hardware, but...

Google Assistant right now appears to be only available on the Pixel. It's actually not part of Android. The Google Assistant is part of the phone and not part of Android. I think this is by far the most interesting part of this announcement. So walk through this. In a world where you use an AI, the AI is there to give you answers, not options. And Google's business model is predicated upon...

giving you options some of which are sponsored options and in this voice world like the user experience of this we're shifting to you know when banner ads didn't work on mobile and we had to figure out what like now we're shifting to this world where like search result ads don't work when people are asking their phone stuff so google had this incredibly profitable business model and now this there's a chance they might need a new one if this thing that they happen to be very good at which like this is like the googliest technology of all time is creating this this google assistant um this thing they happen to be incredibly good at is incredibly bad for their business model. Yeah, man, this is technology cycle disruption at work here. Right, right. So then they look to Apple for like, okay, what's a good business model where we can leverage the things that we're good at? And it just so happens that it might be that the things they're good at being Google Assistant, maybe they just have a really high margin. Maybe they just sell phones that include the Google Assistant. Yeah, super interesting. So go listen to that podcast because I'm totally ripping those ideas from there and that is like such a good astute analysis. Very astute analysis. Hot takes. Interestingly to me, I think the, interestingly, the least interesting thing to me that we are going to talk about today is

AT&T and Time Warner. Yeah. I mean, it's 1999 again. What's all is new. And my senior research paper was about net neutrality. 42 pages of arguing why that is the most relevant and terrifying aspect of this. It just keeps coming back. And I every time we get closer to, you know, the telecom and the content and a gigantic content provider being aligned like this, you know, scares the crap out of me. Yeah. But I mean, I think a little bit like.

god i hope uh knocking on wood um you know it's a little bit like this election cycle like it's like you can't fight the forces of history and like you have these um wait say more about that how does that well like uh that um politically like we are moving towards uh a much more progressive society like that's the direction that history is moving um and if you're gonna fight that you're gonna be on the wrong side of history uh and just like that in this case you know net neutrality is the future and content will be unbundled and facebook is worth more than every uh old traditional media company combined and that is the future but what's interesting is that even though you know we can sit here and say like that's the you know the right side of history um at times like these these forces pop up that are total reactionary conservative um you know go back in time make america great again um and like hopefully they will lose right but i know that you just compared like at&t and time warms merger to donald trump i did that i just did that yes yeah the slogan of this like year-long process of fcc approval of this thing is going to be make america great again yes all right we should just leave it at that um let's talk about the wire cutter oh wait that um uh we'll link to this in the show notes but i um i tweeted a link to this article the other day that had an awesome graphic of baby basically the baby bell is getting built back together it is so interesting to look at like the the

AT&T breakup and kind of the reassembly of the Terminator 2 robot into its former glory. And it's super interesting to see how that works. I feel like I should say one more word about what I meant by Make America Great Again. time warner has many good businesses within it and it will continue to be decent businesses especially hbo probably really good one but like by the minute so good by the minute um that world just becomes less and less relevant like who watches linear television programming anymore um you know movies are also undersea like there's the old world media companies and the types of content they produce like just don't have as important a place in a snapchat world you know I like it. Okay. The Wirecutter. New York Times. Yeah. Great for them. God, The Wirecutter is awesome. And I don't think I've bought anything of significance that was not researched on The Wirecutter or The Sweet Home in years. Such a great site. And I'm an unabashed fan of The New York Times. And it's great to see them land in one of the media institutions that has figured out how to come into the modern era. And like to your point earlier, go with the version of the future. And I think like.

the New York Times had it a lot easier than many smaller regional papers because they were truly a destination site. They had a brand built up. People were going to go there without having someone, without someone needing to share content with them. You just go to the New York Times because it's the freaking New York Times. But like, love seeing how progressive they are in, you know, experimenting in VR and buying sites like the Wirecutter. And there's, we're just watching before we were diving into the show. There's a great interview with, it's Brian Lamb, right? Yeah. With Brian Lamb talking about how he loves doing what they do with the Wirecutter because rather than writing news, he's writing something that just helps people. He's like,

This is a thing that people find continual value in over and over again. We figured out when to refresh it, what to refresh it with, how to tell people that we've refreshed the guides. And we just build a solid, long, many multiples of hours longer than anybody would ever take to write a piece. And it's a phenomenal piece of content that's super engaging that actually helps people. And I think it's interesting what we'll see as they start to bundle it in more with the New York Times, coupling some of these buyer's guides with more investigatory pieces. And the example he uses is like...

It's like, why can't anyone make a good Wi-Fi router is the investigatory piece that someone writes. What happened with the Samsung Galaxy Note 7? Right, right. But then coupling that with a buyer's guide for wireless routers or phones, like what is actually the one that you should go buy? And I think we're going to see, you know, the continued evolution of digital journalism.

all right with that should we do a carve out we should um although i feel like i'm just sitting here doing carve outs for the last few minutes uh i read uh finally got around to reading the super long form piece from the new yorker called sam altman's manifest destiny oh it's a great article yeah it's like it's interesting so for a little background uh sam took over y combinator from paul graham um and sort of like revamped the whole thing made it significantly larger opened up new divisions hired a whole bunch more people and um frankly expanded the scope of the ambition significantly hugely yeah and it's you either really buy into it or you think the pieces of mega puff piece but no matter what reading it leaves you with this mindset of a widened ambition and thinking about like oh i've been thinking too small and it's it's uh i love when things reset my perspective like that so highly recommend it yeah really really good piece also highly recommend it regardless of what you think about yc or about sam and i fall on the side of like i think um everything sam's done is is um i'm on team sam so yeah i agree like um the

Not everything he's doing will work. And that's the point that you can't be to have that scale of ambition. You know, you need to be comfortable with failure. And that's eminently laudable. May the failures be colossal and the success is even more so. Yeah, totally. Great piece. Go read it. My carve out for the week. Super fun one. One of my really good friends from business school, Jake Saper, who is a venture capitalist at Emergence Capital, is the star of the hottest thing to hit the Bay Area and Silicon Valley since Silicon Valley. And that is Soma the musical. No way. Yes. Which.

Ironically, Jake is the star of the show and he plays the entrepreneur in the musical. Opened and ran in San Francisco last week and was a huge success. So big shout out to lots of articles. You can go read about it. We'll link to some. Big shout out to Jake and very, very well done. Hopefully coming to a Broadway stage near you soon. That's awesome. Yeah. If you want to see a great show or talk about Enterprise Sass, go talk to Jake. Yeah, totally.

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