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Skype and the madness of management teams

October 02, 2007

The definition of the verb to skype has officially been expanded:

skype (v): 1. to make a free telephone call over the internet. 2. to seduce a large company into making a reckless investment in the irrational hope of a payoff in the indeterminate future.

There have been many postmortems on eBay's confession that it was skyped by Skype. But the best explanation can be found in Meg Whitman's own premortem from more than a year ago. Asked whether eBay would succeed in "monetizing" Skype, the hardnosed chief executive provided this remarkably fanciful answer:

Well I certainly hope we’re gonna be able to monetize it! ... If you have the largest ecosystem, then you will be the one who will actually figure out the long-term monetization model ... And we already have some ideas; there’s already a number of trials in place ... And so, that’s why we were so excited when we saw Skype because I said, you know what, there’s something here that will unlock the Skype business ... So, people will understand as we deliver the results, and you know, I have great confidence that this was a smart thing to do ... So, we’ll see.

So, we've seen.

Up to now, the excitement over Web 2.0 has failed to stir much interest among the investing public. In stark contrast to the dotcom bubble, ordinary people are not rushing to throw their savings into the new Silicon Valley startups (although they may be happily using their services). The crowd is, for the time being anyway, behaving rationally. It has not convinced (or deluded) itself that giving stuff away over the Net is a path to big profits, no matter how many ads a company slaps on its pages. The tech companies that have managed to capture the investing public's imagination recently - Google, Salesforce.com, VMware - are businesses that actually charge other businesses for their goods or services. "Free" is a great model for corporate inputs; it's less great when it comes to the outputs.

If madness exists anywhere this time, it is inside upper management teams like eBay's, which have managed to convince themselves, under the influence of hype and hope, that buying eyeballs - or in Skype's case, eardrums - is itself a strategy. "If you have the largest ecosystem, then you will be the one who will actually figure out the long-term monetization model." Translation: If we buy it, the money will come. Or: If we don't buy it, the money will go to one of our competitors.

Top executives are paid extravagant sums to act as rational stewards, but they are as flawed as the rest of us. Boardrooms are not immune to extraordinary delusions.

Comments

Wow -- you got props from fake steve jobs for the skype article you wrote when the deal happened.

That's gonna help the ole ranking :)

Posted by: dubdub [TypeKey Profile Page] at October 2, 2007 01:53 PM

This whole revaluation is more about the big boys (yahoo, skype, microsoft) putting facebook valuation into perspective. You see, the big players are not going to stand by and watch facecrook spout off about platform/10billion valuation ect.. They are on the ropes now withthe ny attorney general and microsoft does not want to pay premium valuation. So, in the scheme of things, ebay is sending a message to jahjah, facebook, and all the up and comers about their dreamy billion dollar valuations....it ain't gonna happen...this will make any cash raised by the up and comers more difficult to negotiate...

Posted by: jccodez [TypeKey Profile Page] at October 2, 2007 05:28 PM

all true Nick but i can't help but think that the wrong company bought skype. imagine if Nokia had bought them or even Verizon or even Google.

the price didn't make sense but neither did the buyer

Posted by: Fred Wilson [TypeKey Profile Page] at October 2, 2007 08:53 PM

Fred, Yes, that's a good point. eBay wanted to see Skype as a potential commerce-support tool, which made sense for eBay but didn't make much sense for Skype.

Posted by: Nick Carr [TypeKey Profile Page] at October 2, 2007 09:48 PM

Nick,

I'm a bit surpiserd: I was taken aback by the price then, but I remember your explanation

About CEOs being eary: well, he couldn't really talk about the projects in great details, and eBay is still the first of all the cool start-up with the cool kids--he couldn't mumble away with the usual corp speak, and tried to be warm and fuzzy. Not a big deal, is it? You are not blaming Google founders to goof around, are you?

Posted by: Bertil [TypeKey Profile Page] at October 2, 2007 11:13 PM

Nick,

I'm a bit surpiserd: I was taken aback by the price then, but I remember your explanation was the one considered as the best. Namely, eBay was scared by AliBaba: their Chinese equivalent, which insures most of the B2B operations there. Having a cheap phone service appeared the next best thing since AT&T started wiring office building a century ago, and the closed software with possible back doors though a small Estonian company was a concern.

About CEOs being eary: well, he couldn't really talk about the projects in great details, and eBay is still the first of all the cool start-up with the cool kids--he couldn't mumble away with the usual corp speak, and tried to be warm and fuzzy. Not a big deal, is it? You are not blaming Google founders to goof around, are you?

Posted by: Bertil [TypeKey Profile Page] at October 2, 2007 11:16 PM

It's the Gartner approach: there are 6bn people in the world, almost all of them can talk, 20% will talk online, they might spend $7 a month on telecoms, 65% of which will be over VoIP..... and so on...

I'm still waiting for the guys who wrote Sendmail to buy themselves a small country :-)

Posted by: Thomas [TypeKey Profile Page] at October 3, 2007 07:23 PM

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