Posts Tagged skype

Skype: An option for a brain drain

UPDATED 12:01, Monday June 27, 2011:

According to Silicon Alley Insider, the executives who were let go will be receiving some/most of the equity compensation in question.  While it’s still difficult to know exactly what’s going on or the motives behind it, it’s still a good illustration how bad publicity and the appearance of impropriety can travel very quickly.  I still think what I wrote below applies: the changing tide of compensation, and how it’s perceived in the market, could severely stifle innovation in this country, at least as much as any tax, levy, or tariff.

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A few weeks ago news broke of Microsoft’s purchase of internet VOIP/VidOIP service Skype. At the time I wrote about what the strategic play might be for Microsoft, what they might consider doing with the service, and how I’d like to see it incorporated into my work digital lifestyle. Now, a few weeks later, news about Skype is again breaking acrosss the interwebs, but this time it paints the service – and specifically it’s management team and a key investor – in a much different light.

Sunday morning Michael Arrington wrote on TechCrunch about stories of Skpe employees being terminated and their stock options being reclaimed by the company (he uses the word “worthless” in the title). Rob Beschizza at Boing Boing had similar thoughts on the matter (he invoked the word “screwed” in his title). Over on AVC.com, Fred Wilson had slightly more tempered thoughts on the matter but does recommend the entire system be rethought.

The intricacies of employee stock options in general and these stock options in particular aside, there’s a larger issue that Skype and Microsoft need to consider. Whether or not it’s true, it appears as if Skype terminated a bunch of people just before a big payday and then took away one of the major incentives that convinced the person to work at Skype in the first place. What’s more, they did it in a way that has been called disingenuous and perhaps even actionable.

At some point, the current Skype management team is going to want to start another company, and they’re going to have this reputation to overcome.  Their other investors are going to want to invest in another technology company, an organization who’s employees might flee the moment the deal is announced. Ninety nine times out of 100, acquisitions and investments are for the people, not the technology.

We talk alot about the impact of taxes, tarrifs, levies, and other monetary vehicles on innovation and advancement. But what of the impact of this type of behavior on technological innovation? Silicon Valley, one of the major hotbeds on American innovation, has long depended on the promise of equity compensation in lieu of cash. If employees no longer trust equity compensation, start-ups and small businesses might be forced to switch to more traditional cash-based compensation, which could severely limit their ability to bring enough people on staff to get things done as quickly as necessary, thereby stifiling technology innovation.

The people that really have to be carefule here are Microsoft. If Skype’s people start to view their options as completely worthless, then there becomes very little incentive for them to stay. Since the talent should be at least as much of a concern as the technology in any acquisition, Microsoft could find themselves holding a shell of a company worth much less than the $8.5B they paid for it.

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8.5 billion? DOLLARS?

New is breaking across the interwebs of Microsoft’s purchase of VoIP provider Skype, the audio and video conferencing tool that has always had a hard time defining a truly profitable business model.

Much of the commentary I’ve read thus far is either very critical of MSFT paying that much for Skype, fearful that MSFT will do to Skype what it does to, well, everything they make (MS Windows Vista Ultimate Home Small Business Premium Deluxe anyone?), or that MSFT will make Skype proprietary/paid/non-free.

The more interesting question, I think, is what does MSFT get from the deal?  Andy Ihnatko has a good take on the different reasons “Very Big Tech Company A [buys] Tech Company B.”

Microsoft makes operating systems, business software, and consumer hardware and Skype helps them out in all three of their businesses. Now, Windows can offer its developers a videoconferencing toolkit for enhancing pretty much anything they’ve got going; Microsoft Office now has fundamental tools for business conferencing and online collaboration, and the Xbox becomes a phone network.

As Kris pointed out before, good marketing and good business are much more than just good ideas; they’re all about the execution.  Unless you can turn those great ideas – and in MSFT/Skype’s case, the great potential – into flawless execution, then you’re just stacking up scribbled-upon cocktail napkins … which is fun, right up until the point that you run out of money.

Hopefully MSFT and whatever remains of the Skype team (assuming that the MSFT lawyers negotiated their payout clauses correctly) can turn the potential into some good execution, because I for one would love to see them actually deliver on the promise.1


  1. As an avowed Apple fan-boy, you might read some sarcasm in this sentence … I can assure you that there is none. I honestly am looking forward to what MSFT can do if they can just get out of their own way first.

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