So it’s finally resolved. The Skype spinout from eBay will involve Skype’s founders as investors and board members while contributing a cash investment. Skype finally owns the core intellectual property required for Skype to operate at its current cost levels. eBay gets the cash they were looking for but 5% less of the new Skype. Canadians still get to invest $16.75 each through the government operated Canada Pension Plan. Marc Andreesen gets involved with another major Internet play. Mike Volpi and Index Ventures are out of the picture. Lawyers and consultants are probably heftily rewarded for all the litigation activity leading to the final resolution. Incessant speculation on Skype Journal’s Skype 5.x Public Chat about how to get around JoltID’s Global Index software will finally cease (well, maybe).

While I have put links to several posts leading up to the resolution below it has been most interesting to read various bloggers comments on the resolution and the future direction for Skype:

Phil Wolff at Skype Journal sums up the numbers in his post, Sold! The Bullets and values the JoltID intellectual property at $275 million. (Phil gets credit for the graphic above, by the way.)

Om picks the winners and losers on My Thoughts on the Skype Settlement: Winners & Losers Scorecard. He points out the “great spin quote” from Silver Lake as a leftover from the “PR spin” days prior to the transparency that comes with social networking. Come on, guys. We’ve all seen the depositions and emails. As for the future, Om comments:

No Silver Lining?: One person who I totally feel for is Silverman, the current CEO of Skype. He gets to run a company which will have the looming presence of its founders.

Whatever the press spin might say, the new investor group is like a poisoned well. It will be a polarized group, always looking over their shoulders. Silverman is going to need to keep a lot of people happy, and those board meetings with nearly two-dozen people aren’t going to be fun, either. But as Biggie Small once said:

“It’s like the more money we come across, the more problems we see.”

Both Kara Swisher at All Things Digital, in All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders, and Dan Primack at PEHub, in 5 Skype Questions for Marc Andreessen, interviewed Marc Andreeson of Andreeson Horowitz. The common statement about his relationship with Niklas and Janus:

We have not been in business with them before, so we don’t have any baggage at all. Our view is that they’re two super-creative founders. We’ve known lots of legendary founders, and they are all different and have things that make them unique. We include ourselves in that from past experiences. We view ourselves as a pro-founder firm, so we like the idea of founders being involved. It’s a net positive.

Martin Varsavsky. CEO of FON, a company partially financed by many of the same players in the Skype sale, restricts his comments to his thoughts on the future of Skype – where is Skype vulnerable?, where are its strengths? – in Why it may make sense to buy Skype back. His overriding statement:

Skype is simple. Michael Arrington and all of Silicon Valley may find Google Voice amazing but is the average global citizen ready to use it? Massively use it? You download Skype, you find your friends on Skype, you talk. And, if you don’t find them, you Skype out. And when you talk you can also do video. I LOVE video calls on Skype. I used to use them for people I really cared about, relatives, close friends. Now I even do business calls on video with Skype. It just gives you more of a sense of what is going through the other person´s mind. And Skype is the leader on video quality. So simplicity plus video may be a good way to beat flat plans from telcos and avoid being Tivoed. If the video services can migrate to mobile phones Skype is on to something.

Andy Abramson, in The Skype Suit Is Settled-Now Business Can Get On, comments:

I’m just glad the suit is settled between eBay and Skype. Now a lot of things that have been held back can finally move forward. In many ways the settlement is a good thing. The return of the original founders means disruption will continue, and new ideas will flourish. It also means Skype as a business or brand will now have a chance to prove its worth.

Alec Saunders, in eBay’s big mistake; Why the JoltID license was inevitable, concludes:

The lesson in all this? Deals involving technology licenses and acquisitions are common in business. When acquiring a technology asset, buyers must acquire the necessary control needed in order to protect the business.  Either buy, or license in perpetuity, what you need to prosper. Unless your intent is to immediately begin work on a substitute technology, a license for core technology that needs renewal is a sure way to find yourself caught by the short-hairs in a future negotiation.

The bottom line is that Skype is now in a position to focus on building future communications software and services without the distraction of depositions, legal wrangling and media curiosity. Provided he can navigate through a 23-member board with diverse interests and experiences, Josh Silverman can build the real communications software business of providing infrastructure for conversations while having a wealth of technology and business connections available in an advisory role.

Previous Posts:

Om’s trail:

• Skype, Founders Settlement in the Works (Nov. 1)
• Further Details Emerge As Skype & Its Founders Close to Settlement (Nov. 3)
• Skype Founders Fight Their Way Into the New Skype (Nov. 5)
• My Thoughts on the Skype Settlement: Winners & Losers Scorecard (Nov. 6)

Kara Swisher (All Things Digital):

• Volpi and Index Ventures Out of Skype Deal, the Lawsuit-Happy Founder Twins In (Nov. 3 with lots of links to related stories)
• I Love the Smell of Settlement in the Morning: Skype Founders Set to Get 10 Percent, Option to Buy Three Percent More and Two Board Seats (Nov. 3)
• All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders (Nov. 6)

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• Skype Founders Re-Found in Settlement (marketingpilgrim.com)
• Skype founders win back share (guardian.co.uk)
• Andreessen On Skype: “This Is One Of The Most Important Companies On the Internet.” (techcrunch.com)
• eBay’s Skype sale gets go-ahead with settlement (news.cnet.com)
• Confirmed: Skype Founders Settle With eBay And Others, Get 14% Stake In Skype, Not 10% (techcrunch.com)
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• 17 Million Canadians Will Have an Interest in Skype’s Success (voiceontheweb.biz)

While participating in an interview session earlier today at the National Retail Federation’s annual Shop.org summit in Las Vegas, eBay CEO closed off questioning about the pending sale of Skype with “… there’s nothing new on that; this deal’s going to close.” AuctionByte’s Ina Steiner put out this video on her post, eBay CEO: Skype Deal Will Happen, Open to PayPal Spin-Off:

The Cy.Talk blog, in eBay CEO says Skype deal “is going to close”, reports:

Backstage after the presentation, Donahoe showed Reuters an excerpt of an email message he received that morning from eBay Chief Financial Officer Bob Swan saying no “show stoppers” were identified in the recent spate of litigation.

“We’re marching along,” Donahoe said, adding that he still expects the deal to close in mid-November.

Bottom line: It ain’t over til it’s over, but ….

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On Friday the Skype Developer Blog posted a blog announcing the end of the Skype Extras program in what amounts to two stages:

1. Immediately: No new partner programs or upgrades will be placed into the Skype Extras
2. Going forward: Skype Extras will remain available via the Skype for Windows client until their certification expires (which may be up to a year).

Effectively, Skype has admitted that the Skype Extras program has not been a great success as a marketing tool. “Despite the incredible breadth of Extras developed for Skype, simply not enough people were using them to justify our continued support of the Extras programme.”

However, as indicated by a Skype Software Partner’s tweet above, Skype’s developer support will be continuing. Why?

In the same announcement, it was stated that the Skype Public API’s and their documentation remain available; more importantly, it was stated that “Skype will continue to support accessories via the Public API.”

But the uniformed media fallout has been attempting to put “doom and gloom” for Skype developer activities going forward. However, had Skype personnel worked with their PR agency who has been very adept at educating both mainstream media and bloggers with the background on Skype announcements, this “doom and gloom” cloud could have been avoided. (No press release was issued; so we have to assume Skype’s PR agency was not consulted.) Some of this “missing” information is in my recent post: “Skype Extras” Is Dead; Long Live the Skype API’s!.

Here are some of the myths that have resulted along with some of the facts that dispel them:

Myth: GigaOm: Skype kills its developer ecosystem: While it is true that “if you put your lot with Skype then you are on your own” for the marketing aspect of a software partner’s offering, the Skype API’s are not going away. And Skype is finally reviewing how it can work best with developers. Some considerations:

• Last fall, Skype announced the appointment of Daniel Berg as Chief Technology Officer. In the spring they announced the appointment of former Counterpath CTO Jason Fischl as Director of Developer Relations heading up the Skype Developer Program. Maybe their silence to date says something about their evaluation of the previous Skype developer activity and their need to take time to articulate an overall Skype platform within which the Skype SDK and Skype API’s will be playing a role. Most importantly, my network’s jungle drums say they are still very active within Skype.
• Check out this job opening for a Platform Release Manager that starts out with “You will be responsible for planning and releasing each new version of the Skype SDK used as part of the upcoming Platform strategy.”
• The Skype post itself ended with: “we still believe there are opportunities for third-party developers to enhance the Skype experience”.

As implied in the OnState tweet above, and confirmed by my own conversations with other Skype partners, we should be looking forward to new enhancements to the Skype Developer Program and the Skype SDK. But maybe Skype should have filled in media and bloggers with this information via their PR network instead of bluntly announcing the end of a support program with no offsetting information.

Myth: Skype is eating its software partners. Andy Abramson, VoIP Watch, Skype Shutting Down Extras Program: “Skype will begin offering more services that are labelled as Skype vs from third parties”. What this really should read  is:

Skype will begin offering more services expanding on its core “conversation” technology expertise and will be looking to third parties to complement their core services by incorporating Skype into offerings that leverage the individual partners’ unique expertise.

For instance:

• Skype for Asterisk (developed by Skype partner Digium) and Skype for SIP will be integrating Skype’s calling and presence functionality into “legacy” platforms as they evolve the Skype for Business program. Expect to hear more at Christopher Dean’s talk at Fall VON next week in Miami.
• As initially indentified by Phil, the Skype Jobs listings include some for a new “Skype Labs” location:
  

  Skype Labs is a new R&D center located in the Bay Area focused on next generation technologies for Skype which will be applicable over the next one to five years. The initial areas of work will include security, signaling and call control for audio, video and presence, p2p and collaboration.

• However, OnState brings decades of call center experience into their Call Center – an application for which Skype has neither the experience nor bandwidth to develop. (Full disclosure: the author is involved with a new small business that will be using OnState’s Call Center as a paying customer.)
• PamFax brings a simple five or six step process for sending faxes worldwide from any PC. Having followed the development of this service over the past two years, they have built a system that solves the basic faxing problem in a user friendly, yet highly secure, manner. Once again Skype has neither the expertise nor bandwidth to address this issue. (And Scendix, PamFax’s developer who was the only third party using Skype Credits to any extent, has already made plans for other payment services when they launched version 2.0 last spring).
• Looking at Skype Jobs, one finds the engineering jobs are focused on evolving Skype’s core functionality: video codecs, video QA engineer, audio components, director of mobile engineering, etc.
• The Product Manager – Applications job description includes responsibility for:
  • Extras like call recording and faxing. (Is Skype going to make an offer for veteran Skype software partner Scendix?)
  • Partner integrations with CRM, Security, Collaboration and similar applications (insert Call Center here).

Bottom line:

• Recent Skype successes include their High Quality Video (nobody has duplicated their ability to do VGA-standard video calling over standard broadband connections) and the SILK codec for higher quality Skype-to-Skype voice calling.
• Expect a multi-party video conferencing service, improved audio and video services and hardware (for instance, finding partners such as client In Store Solutions whose FREETALK Everyman headset addresses an identified end user issue with respect to call quality in a user-friendly way).
• Skype will continue to seek out partners, such as Scendix (Pamela and PamFax), Digium, Skylook (CRM), OnState and InnerPass (document management), who incorporate Skype into a range of business services where the partner has significant expertise that can complement Skype’s core conversation technologies via their API’s (both existing and future).
• Skype’s current Partners are seeing business success:
  • Unyte and VAPPS have been acquired by IBM’s Lotus Sametime Division and Citrix Online respectively
  • OnState is finding its Call Center offering stealthing into larger enterprises due to not only its feature set but also its cost saving
  • PamFax 2.0 has been a most successful launch; Pamela 4.6 was recently launched with video recording.
  • InnerPass has had over 1 million version 1.0 downloads since January. Watch this space for future announcements.
• Statements to the effect that “Skype is abandoning/axing its developer partners” are a myth; once more it’s a case of Skype’s managing their communications onto the blogger space. Memo to Skype: Work with your PR agency (who has done an excellent job over the past two years) and the complete message can get out.

Question: What should Skype really be doing for developer support programs going forward? A recent TechCrunch post by Michael Arrington, some of Andy’s other comments and some comments in Skype Journal’s Skype 5.x Public Chat (Phil’s rushing it – this was the Skype 4.x Public Chat until a week ago) provide some hints. A post will follow.

P.S. – Do you have communications technology and/or marketing experience? It seems like Skype is doing its part to stimulate the economy. Check out the Skype Job Vacancies page where, today, over 60 job openings are listed (some listings are actually for multiple hires).

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• Skype Shuts Down Extras and Its Developer Program (readwriteweb.com)
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• Skype’s Stefan Öberg @ Interop: Stealthing Skype Into Business, But Cover the Entire Skype Ecosystem (voiceontheweb.biz)
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OK, now I have your attention with a headline different from the “Skype sold for $2.75 billion” headlines so rampant in the blogosphere yesterday….

By now the web has been saturated with stories about yesterday’s announcement of the forthcoming acquisition of a 65% controlling interest in Skype by a consortium of investors, led by SilverLake Management LLC and including a $300MM infusion from the Canada Pension Plan Investment Board. At this point the main story is “old” news but a few comments:

Who is Canada Pension Plan Investment Board?

Since 1965 every employed Canadian contributes a % of their employment income (up to an annual income cap of about $37,000) to the Canada Pension Plan (“CPP”). Between the age of 60 and 65 qualifying Canadians can elect to receive a (taxable) monthly payment from this plan until death along with a “death benefit” to the deceased’s estate. The Canada Pension Plan Investment Board …

… is a professional investment management organization based in Toronto. Our purpose is to invest the assets of the Canada Pension Plan in a way that maximizes returns without undue risk of loss. The CPP Fund is $116.6 billion. Canada’s Chief Actuary estimates that CPP contributions will exceed annual benefits paid through to the end of 2019. Thereafter a portion of the CPP Fund’s investment income would be needed to help pay CPP benefits.

Over 17 million Canadians currently participate in the Canada Pension Plan either as contributors or recipients. So we each effectively have a $16.75 investment in Skype.

And Canada, with its own geographical challenge of servicing a market where 90% of the population lives within 160 km (100 miles) of the 6,000 km (4,000 mile) long Canada-US border, continues its long history of having an interest in communications innovation.

Why was there no Skype-eBay synergy?

Meg Whitman made the same mistake I witnessed at a previous employer where the CEO and Board bought up companies but never got “buy-in” within the acquiring company of any major acquisition that required a rethinking of the overall company business focus and execution.

As a result there were no internal champions within eBay for executing on the stated intentions of the Skype acquisition. And the statements of the day demonstrated that eBay senior executives (and Board) did not understand a basic principle of auctions – there is no role for “conversational negotiations” during an auction; this is critical to maintaining the integrity of the auction process. You see the goods and make a decision as to whether or not you want them badly enough to pay the final auction price; the auction process itself is the “negotiation” of a price. Bidders have no opportunity (and do not want) to communicate with sellers; the auctioneer (in this case eBay) is simply a neutral third party who moderates the transaction to establish a price.

Why is eBay still an investor?

Back in the spring when a potential IPO was announced, we learned that eBay expected to continue to have a minority interest in Skype. With a $1.9 million cash infusion and a remaining 35% interest, eBay can still hope to recover, over time, the approximately $3+ billion it has to date spent on the Skype investment four years ago. At the same time it allows eBay executives to focus totally on getting their struggling “markets” business back into a growth mode.

With this strategy eBay can assuage Om’s concerns in Skype Sale Nears: Why eBay Shareholders Should Be Mad. As a sequel, once the sale was confirmed, Om states:

So Donahue gets to say that he got the higher valuation of Skype, got rid of a potential legal nightmare and can get any upside that comes with the initial public offering of the stock. Seems like a win-win, but that IPO — don’t count on it. To be honest, this deal makes much more sense compared to all the rumors that were floating around earlier. [My italics]

What are the positives about the acquisition?

#1 – Keeping the current executive management team. In his eighteen months as President of Skype, Josh Silverman has brought a lot of business process and experience into the company with the result that business processes and programs are being built to build sustainable and increasing revenue streams. Two recent examples of this are the availability of the FREETALK Everyman headset designed to improve the user calling experience at a very low cost and yesterday’s launch of Skype for Asterisk. Expect much more activity and announcements along these lines of building a stronger Skype ecosystem during the fall. This momentum can only be sustained with a continuation of the current executive team. Skype needs to focus on execution at this point; it does not need any further high level restructuring activity to distract from execution.

Two statements confirm this is the case:

• Josh’s own post, A new chapter, concludes describing “a new group of owners who believe passionately in our mission and in the ability of our team to deliver on it”.
• Egon Durban, Managing Director at SilverLake, states: “Josh Silverman has done a strong job leading the company and we look forward to working with Josh and his team to grow the Skype franchise.”

While there are some “technology heavyweights” becoming involved as investors, the real challenge is to build an effective and synergistic relationship between those “heavyweights” (who will probably become board members and/or advisors) and the current management team. This is where corporate culture and value sets, as established at the executive level, can play a strong role in leaving individual managers the freedom to execute on their goals most effectively.

What are the gotcha’s?

• Resolution of the patent dispute with JoltID. No deal would have been done without some understanding of the part of the new investors of the outstanding issues and prospects for how this issue can be resolved. On the other hand, with the experience of the various new investors, many heads can be brought into the negotiation of a resolution. My take: this will never reach the High Court trial scheduled for next spring.
• Why the $125 million note? My guess: it’s escrow funds to cover costs arising with any litigation issues that may arise in closing the deal. Is a first guestimate of a settlement with JoltiID in the range of $100MM? Can Skype develop a replacement for JoltID’s  infrastructure technology so critical to Skype’s business model for under $125MM? Again from Om:
  

  If you think about it, what Donahoe just did was follow the golden rule of business: If you’ve got a problem, make it someone else’s problem. And the problem for the new buyers is that the legal issues of Skype are not going away. Some of my smart friends think that Skype can sidestep these problems by switching to a SIP-based infrastructure, but I won’t hold my breath.

  Any SIP-based infrastructure would sharply increase the need for building a massive global infrastructure. It would also mean working with partners (that make Skype devices) to re-configure their products and getting 400 million-plus users to switch to a massive new model. In other words — like skating in the middle of a semi-frozen lake underneath a brightly shining sun.

• Employee motivation: what will be the stock option opportunities for employees now that Skype has effectively gone private?
• Financial reporting news: by effectively going private, Skype also has no investor reporting obligations. On the other hand if these investors intend to exit via an IPO in a couple of years, they must provide some level of financial reporting. (By being a minority investor, eBay no longer needs to report on its Skype investment any more that it does on its craigslist investment.)

What do Canadians want?

Now that 17 million Canadians have an investment in Skype can we expect to get;

• Skype Online numbers? Canada’s 911 regulations provide a roadblock. (Note to CRTC – when lightning struck my home’s Rogers and Bell communications lines two weeks ago, for four days Skype was my only landline service.)
• Skype for iPhone? Requires resolution of a G729 codec patent issue. (Sorry folks, it’s not a Rogers issue.)
• Skype for BlackBerry? Given that Research in Motion has become Canada’s leading technology company.

Bottom Line: With this acquisition Skype is finally free of what Andy Abramson describes as “an extremely conservative, bank-like culture”. Yes, Andy, “Skype is about the democratization of voice”; I would extend this to say that “Skype is about the democratization of conversations – whether voice, chat and video”. I certainly look forward to innovation and a much stronger Skype ecosystem as a result of this change of ownership.

Other posts of note:

• Omar El Akkad provides a great summary overview in today’s Globe and Mail: EBay hangs up on Skype Strategy.
• Globe and Mail Report on Business: What is Skype and Why is it important?
• Om Malik on GigaOm: Skype Sold for $2.75 Billion
• Andy Abramson at VoIP Watch: (after the announcement) Skype Sold, JoltID Suit Still Remains In Place As of Now; (adding to speculation prior to the announcement) Is Skype in Play?
• Update Sept. 4: Dan York, on returning from IT Expo adds his comments in Onward the disruption – Skype’s sale to private investors is a great step; includes Phil Wolff’s Skype Journal graphic showing the ownership post-acquisition based on Om’s reported numbers.

And previous Voice On The Web Posts;

• The Skype IPO: “It Ain’t Over ‘til It’s Over”
• Skype – eBay: Passive Separation

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• Stealthing Skype into Larger Businesses (voiceontheweb.biz)

This past Tuesday the media got the meat they had been looking for ever since newly minted eBay CEO John Donahoe announced a year ago that Skype’s future within eBay was under review. Lots of speculation ensued over the past year; it was a de facto admission that maybe there were minimal, if any, synergies between eBay and Skype. This was confirmed in Tuesday’s press release announcing an IPO:

“Skype is a great stand-alone business with strong fundamentals and accelerating momentum,” said eBay Inc.’s President and CEO, John Donahoe. “But it’s clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential. This will give Skype the focus and resources required to continue its growth and effectively compete in online voice and video communications. In addition, separating Skype will allow eBay to focus entirely on our two core growth engines—e-commerce and online payments—and deliver long-term value to our stockholders.”

But many questions have arisen; but let’s start with where Skype stands today:

• 2008 revenues of $550 million with a contribution to eBay’s bottom line (effectively EBITDA) over 20% ($110 million)
• Skype’s new executive team is putting in place the experienced management team, business processes and infrastructure required to build and distribute the products, services and business relationships required to build the business
• The new executive team recently provided details of their software and mobile strategies.
• Skype represents over 8% of all international calling traffic in minutes.
  

  ‘Only five years after its launch, Skype has emerged as the largest provider of cross-border voice communications in the world.’

• New offerings, such as Skype for iPhone with over two million downloads in the first week, the forthcoming Skype for BlackBerry, Skype for Asterisk and Skype for SIP have generated new enthusiasm within the Skype ecosystem’s developer and partner communities as well as with carriers and other potential business affiliates.
• Skype President Josh Silverman, recently outlined Skype’s business model and strategy at an eBay analyst presentation where the forecast for Skype’s 2011 revenues was about $1 billion.
• eBay has reported over eight quarters of solid revenue growth and EBITDA for its Skype business.
• Skype is a world class communications software company building platforms to enable the next generation of low cost, worldwide communications.
• There is an outstanding critical patent licensing action before the High Court in the U.K.

Getting to the Questions:

What is the goal of an IPO?

• To provide the funds which (i) allow eBay to raise cash by selling a portion, or all, of its shares in Skype and (ii) provide sufficient working capital and cash flow to fund Skype’s activities post-IPO, including both operations and any potential acquisitions. Skype would need $750 million to $1.5 billion in cash to have the flexibility to participate fully in the IP-based communications space.
• To allow Skype to maximize the opportunities available for partnerships unencumbered by the eBay relationship

Why an IPO?

In today’s market conditions there were really two options: find  a suitable buyer or do an IPO.

• Google would certainly be a consideration but once again the synergy issue would arise: Google is the Web 2.0’s primary advertising vehicle leveraging its search expertise; while Google has added some voice and video services, it is more to communications-enable their primary activity as opposed to be a world class communications enabler for the broader carrier space.
• Microsoft is engrossed in negotiations with Yahoo; also they have become primarily a business software company built on their operating system cash cow. Yes they have their OCS/LCS offerings for larger enterprises and internal “startups’” such as their successful Response Point small business PBX but nothing to provide underlying world class communications platform infrastructure.
• An IPO taps the rather large cash balances many (of the smarter) investment firms have been building as a result of investment sell-offs over the past several months
• An IPO allows Skype to operate independently with a minimum potential for channel conflicts with the current and potential business partners and customers who can take advantage of a communications software platform

Why in 2010?

• To allow the new executive team to demonstrate continued performance improvements in the execution of their strategy. Most investment firms will want to see four to six quarters of meeting guidance, under this team, along with continued growth towards the 2011 $1B revenue guidance and EBIDTA above 20%.
• To increase the IPO valuation based on actual 2009 performance as opposed to “guidance”. eBay would certainly like to recover, at a minimum, the post-write-down Skype valuation currently on its books (approximately $1.7 billion).
• To provide time for resolution of an outstanding patent licensing issue with respect to Skype’s basic architecture.

What could be stumbling blocks?

• Failure to reach a resolution of the current patent licensing dispute with Joltid. If eBay were to lose the case there would have to be questions asked about the due diligence taken at the time of eBay’s Skype acquisition in September, 2005.
• An acceptable offer from other third parties. But who’s up to the task? And who would find acquiring Skype to have appropriate synergies?
• Failure to provide continued financial performance consistent with the 2011 revenue goal. (eBay’s Q1-2009 results will be reported next Wednesday, along with an earnings call.)

Other considerations:

• Om points out the need for any Skype acquisition or spin-off to remain under the leadership of the new executive team:

If Niklas and Janus do indeed pull it off, I would have one piece of advice for them: keep Skype CEO Josh Silverman around, preferably in the current role. They should focus on technology, vision and strategy for the company.

• Could Niklas and Janus leverage the patent dispute to acquire Skype on a lower valuation?
• A Skype IPO is not going to be the trigger of another hot IPO market. It’s a more traditional IPO of spinning off a segment of a business that has demonstrated success, can generate appropriate cash flow and is better off being independent of any “parent” company.
• Will Skype start to issue more detailed data on usage? Once again, Skype needs to report “real users” such as how many of the over 400 million Skype accounts actually made a call in the previous quarter. Hopefully SEC regulations will require more explicit revelation of “real user data”.
• Will eBay sell all, or only a portion of, its shares in Skype? By retaining some ownership they would demonstrate their support of Skype as an independent business as well as profit further from any future share price growth.

As former New York Yankee catcher Yogi Berra once said: “It ain’t over ‘til it’s over”.

Update: During an analyst conference April 16, 2009 eBay CFO Bob Swan said that eBay will remain a “significant” shareholder of Skype but indicated the proposed IPO is the first stage of a plan to “fully separate Skype”. CEO John Donahoe commented to the effect that, should eBay in the interim receive an unsolicited offer, it would be evaluated against the benefits of proceeding with the IPO.

Other bloggers:

• Phil Wolff, Skype Journal: eBay makes a market in Skype stock provides several links to other bloggers’ comments.
• Jason Harris, Techcraver: Skype To Be Spun Off, Makes Plans for IPO.
• Hudson Barton; Ckipe: Why Skype is being IPO’d.

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Yesterday eBay held an analyst event at its San Jose headquarters location with a keynote by eBay CEO John Donahoe followed by presentations by various eBay executives and Skype President Josh Silverman.

Josh’s presentation broke a lot of new ground for Skype addressing issues such as:

• How does Skype generate revenue?
• What drives Skype’s cost model?
• How will a software company change real time communications in ways that legacy telcos cannot?
• How is Skype structured to address its various market opportunities?

In a long-term financial outlook issued by eBay in conjunction with this event, they state:

Skype is expected to more than double its revenue to over $1.0 billion in 2011. With more than 400 million registered users currently, Skype’s metrics continue to accelerate as the company further establishes leadership in free and paid Internet-based voice and video communications, with growth opportunities in core consumer, mobile, businesses and platform. Skype’s leadership position has strengthened over the past year, driven by a new management team and the launch of many innovative products.

The overriding aspect of Josh’s presentation was repeated emphasis that, fundamentally, Skype is a software company. As verified by many of the presentations at eComm 2009 last week, Josh stated that there is a communications paradigm shift going on where hardwired networks and devices are gradually being replaced by software-based networks and flexible devices. Skype’s “opportunity is to become the world’s leading communications software company.” Josh’s analogy: It was not the railways that invented air travel; in a similar manner, software will drive the future of real time communications innovation and efficiencies going forward, not the existing telcos. To reinforce his point, Skype will not simply be on familiar telephony devices, it will show up in intelligent TV sets, car dashboards and intelligent public access terminals such as bank ATM’s all tied to a common network.

Josh continued: Communications is no longer just about voice; it’s now multi-modal: mood messages, chat, voice calling, multi-party calling, video calling (did I also hear him mention multi-party video calling?) and online screen sharing. Where and how we communicate is expanding: laptop, mobile phone, flat panel TV’s – “any connected computing device with the addition of software becomes a communication device”.

He went on: With hardware and network access becoming a commodity, the opportunity for margin is to capture it at the application layer. Software companies will drive the innovation in the industry, drive the demand for new hardware and better access. (Did he effectively read from the Voice 2.0 Manifesto?) Solutions must be device and network agnostic.

How big is the market? The $300B EBITDA of the $1.4T communication industry revenue is almost equal to the total revenue of global ecommerce and Search.

How did Skype build its business last year? Inherent reliability; it “just works”. While so much of Skype’s operating environment stands outside Skype’s control, yet Skype must try to provide the ability, through its software, to readily adapt to these conditions, especially at the user end point.

How does Skype make money?

• From user services:
  • What’s free (at no cost to Skype)? Skype-to-Skype calling, video calling, Chat/IM, Multi-Party calling, File Transfer
  • What’s Paid? Subscriptions (unlimited calling), SkypeOut (pay-as-you-go), Online Numbers, Voicemail, SMS
• From a partner perspective, licensing opportunities. The Skype-Nokia and Skype-MySpace relationships are two examples. Hardware royalties are another source. Carrier relationships, such as the 3 Skypephone example discussed below, are a third source for what are effectively licensing revenues.
• The third leg of revenue generation comprises some advertising opportunities that have arisen.

Yet Skype has inherent fundamentals that have made it profitable for the past six quarters:

• negligible customer acquisition costs (mostly word-of-mouth; compare with Vonage whose customer acquisition costs are in excess of $250)
• negligible capital expenditures and network maintenance costs (being peer-to-peer it’s Skype’s users who invest in capital items, such as PC’s, routers and Skype hardware, and in network maintenance through their Internet subscriptions)
• pre-funded accounts which result in negative working capital where subscriptions and Skype credits are paid up front but the revenue is recognized on a pro-rated quarterly basis (Have you ever noticed there’s no “phone bill” sent for payment once a month? – Skype has no collection costs)
• strong free cash flow conversion ($1.00 of EBITDA for Skype is almost $1.00 of free cash flow)

The results: Skype’s profitability has grown to the point where they achieve 20% “segment margin” an amount that Skype contributes to eBay’s overall profitability (segment margin makes no allowance for allocation of eBay corporate costs).

Additional data provided:

• Skype continues to add over 350,000 new account registrations per day
• account registrations are distributed geographically as shown on the map to the right; he labelled North America as a “developing” market with rapid growth
• A year ago Skype celebrated support of over 100B cumulative calling minutes since its launch; in 2009 Skype expects to do this same number within the year
• Over 8% of the world’s international calling minutes are on Skype
• from December 2007 to December 2008, video calls increased from 27% to 34% of calls
• due to its peer-to-peer architecture only Skype can deliver a video experience for free, and at performance levels unequalled elsewhere.
• while active users rose 39% in Q4 2008, engagement, defined as ‘calling minutes per active user’, rose by 72%
• while calls under 2 minutes duration dropped from 41% to 33% comparing October 2007 to October 2008, calls in excess of 10 minutes rose from 37% of calls to 47%. Josh attributed this to higher reliability and call quality.
• small changes make a huge difference:
  • increasing penetration of paid products by 1% brings in $60MM of additional revenue
  • to be a billion dollar business, Skype needs its existing paying users to make just one more call per day
• Skype’s marketing approach was to drive awareness through embedding Skype into the “popular culture”, where it has been used on Oprah, Who Wants to Be a Millionaire?, CNN and other news reports.

Going forward Josh talked about three markets where Skype has barely scratched the surface: core consumer (size: $240B), mobile (size: $603B), and business (size: $203B).

For the consumer market, Skype has four approaches:

• continue driving new users (by building “communities” or leveraging social networks)
• better promote its paid products (make it obvious, upon registration, where paid products can be found – not buried three levels deep in the “My Account” tab)
• increase revenue per paying user (encourage adoption of revenue services based on calling patterns; continued focus )
• monetize free users via advertising (but be smart about it, do it tastefully and carefully all the while protecting the core business)

[Author’s note: Execution on the last will be interesting, given some experience with “free” voice services that have attempted to “blatantly” introduce advertising into calls themselves.]

Josh went on to discuss mobile, but that’s the subject of a separate post. However, take a look at the Skypephone on 3 success story:

• Over 500,000 units have been sold; this generates a monthly revenue stream to Skype
• 3’s margin on Skypephone is 20% higher than their average margin across all handsets
• 79% of Skypephone customers are new 3 customers

As for Skype’s business offering:

• 35% of users use Skype primarily, or often, for business
• adoption into business often grows out of individual employees using  Skype to call friends and family when on the road, start using Skype for multi-party calls, do video calls with customers and vendors
• leads to a call to Skype from IT managers who are getting pressure from their colleagues’ experiences (and, by the way, you can charge for it)
• needs to expand from being a product to being a solution that fits with other PBX and software solutions they are already working with
• create the infrastructure required to provide service and support services (revenue opportunity)
• build out a channel that reaches out to businesses that are familiar with dealing with VAR’s

Going forward:

• Act 1: (completed) one platform (PC’s), one revenue stream (SkypeOut), one market segment (long distance calling), one primary service (voice), one primary market (mature Internet markets – Europe and Asia) and one target user (consumers)
• Act 2: (now to 2011) is about “Many” – many platforms (PC, mobile, TV, web), diversified revenue streams (subscriptions, licensing, advertising), including business subscriptions; many conversation modes (voice, video, chat, collaboration tools), many regions and many target markets
• Act3: (2012 and beyond) “Any” – any mode, any platform, anywhere, multiple market segments, established products, regional ubiquity and mature target markets.

Josh’s forecast for 2011:

• More than double revenue in excess of $1B annually
• Maintain segment margins of 18% to 20%
• More diversified revenue streams: telecom, service and licensing fees, advertising)

His summary:

• Accelerating growth, outstanding fundamentals
• Attacking an enormous opportunity and positioned to win
• Business is getting stronger

Bottom line: For the first time a CxO level Skype executive has put out an extended set of benchmarks and guidelines against which their activities can be measured by all; the challenge now lies in the execution. And analysts finally get a more detailed view into this “mysterious” and oft-questioned Skype acquisition by eBay in 2005.

The audio recording and complete sides can be found for 30 days: click here and then select “Analyst Coverage” in the left sidebar. (viewer registration and Windows Media Player or Real Audio Player required). Or go directly to this link. Josh’s portion starts at 2:37:15 into the recording.

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• Nokia to preload Skype onto handsets beginning in Q3 (mobilecrunch.com)
• eBay: Good in Parts (readwriteweb.com)
• Is Skype for sale? (news.cnet.com)

When Skype’s Unlimited Calling Plans were modified last May, the only “Fair Usage” limitation was 10,000 minutes per month on any of the plans. Recently my attention was drawn to a modified Fair Usage policy. Primarily it would appear that the new Fair Usage policy would apply to businesses using SkypeOut for customer service and customer acquisition activities.

The new policy adds:

• calling to a maximum of 50 numbers per day
• maximum six (6) hours of SkypeOut calling per day
• each subscription is to be used by one person only and not to be shared with any other user (whether by a PBX, call center, computer or any other means).

On considering these further:

• a user can make repeated calls to a single number without impacting the “50 numbers per day” limitation
• each employee using call center or PBX services, such as OnState’s Call Center or Virtual PBX requires a separate Skype calling plan subscription for outbound calling
• the six hour per day limitation could build up quickly on a Skype multi-party call with multiple participants connected via SkypeOut
• these limitations only impact Skype services where third party termination charges are involved – all Skype-to-Skype calling remains free
• they would not appear to affect services such as Skype Trunking via a Vosky Exchange where they talk only about “call Skype users for free” and “low cost SkypeOut rates as low as 2.2 cents per minute to most landlines worldwide”

Upon exceeding any of these limits, normal SkypeOut rates and connection fees will apply for additional minutes, Of course this requires that you have Skype credits available; otherwise you may find a call cut off in the middle of a heavy conversation.

Two observations:

• When business is generating revenue or providing support via Skype’s outbound services, one should expect some cost. Skype continues to provide competitive rates for reliable, robust business calling.
• New Skype management is obviously reviewing all its business activities with a view to ensuring that consumer users can continue to benefit from the low cost of services available via Skype Calling Plans while those who are incurring heavy termination fees (and other costs) will support the cost of such usage levels.

Hat tip to participants in the Skype 4.x Discussion Public Chat for bringing this to my attention.

Update: UberOverLord developer Don Kennedy has published “Subscription Monitor for Skype” to track your Skype subscription usage in real time.

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• Skype’s P2P architecture supports freemium (skypejournal.com)
• SquawkBox November 21: OnState Communications (saunderslog.com)

Josh Silverman joined Skype as President early in the spring of 2008; since then he has been reviewing Skype’s opportunities and building a team of experienced executives who can bring to Skype the products, programs and team building expertise required to operate a business with a run rate of $600MM per year, 20% contribution margins to eBay and growing at 380,000 new account registrations per day (with “real user” growth also increasing significantly).

Summarizing the past executive appointment announcements we can clearly start to see the evolution of a business structure, along with each unit’s responsibilities:

• Operations: Product, Marketing, Customer Care, Support
• Technology: Engineering, Platform, Development Community
• Strategy: Partnerships, Strategic Alliances, Acquisitions
• Administration: Global Communications Human Resources. Finance, and Legal round out the top executive team.

During our interview at CES 2009 with Skype COO Scott Durchslag, he outlined details of his restructuring of Skype’s Operations team along two axes: product and geography under the mantra of providing “Skype Everywhere”.

Global product offerings will encompass three divisions: consumer, business and mobile, each responsible for developing products. Each of these groups will be interacting with members of CTO Daniel Berg’s technology teams to convert their technology developments into marketable global product offerings and to adapt the technology to meet product marketing needs.

• Consumer will involve the current Skype client desktop offerings along with hardware, such as Skype phones.
• Business starts with the current Skype Business Control Panel but intends to expand well beyond this starting point into a range of offerings, such as Skype for Asterisk and the recently announced IBM LotusLive developments, addressing the small-to-medium business market.
• Mobile involves current products such as Skype for Windows Mobile, Skypephone (in conjunction with iSkoot), the recently launched Skype Lite (including Skype for Android) as well as any upcoming offerings for the iPhone and BlackBerry

In addition each of these divisions will be responsible for developing appropriate customer care and support programs appropriate to market demands. For instance, the business unit will come up with ongoing support programs relevant to supporting sustainable business operations of its products’ users. Ideally these programs would follow the model of Red Hat for Linux or Digium for Asterisk and build up a network of resellers and VARS who would provide relevant and timely end user support. While Dan Berg’s technology team will be responsible for third party developer partner support, an additional challenge for the Business products group will be to assist with marketing of business applications offered by these developer partners.

While Skype veteran Stefan Oberg is heading up the Business unit, announcements re appointments to head up Consumer and Mobile are pending.

Along the geography axis is a recognition that, while the Products divisions have a global mandate, there are different market needs within different regions of the world. For instance, in many Asian market wireless carriers do not subsidize mobile phones as is the North American practice. This requires a differentiated approach to these markets with respect to how easily innovations, especially around reduced calling costs, can be introduced to these markets.

The geographical market responsibilities are:

• Americas: Don Albert becomes General Manager, Americas. Don has had North America responsibility for a couple of years and will now be responsible for both North and South America. With respect to the latter he is looking forward to building on all the Skype activity in Brazil, for instance. (And, yes, once again at CES Don was made aware we are awaiting SkypeIn and a Skype Store for Canada)
• Europe, Middle East, Africa (EMEA): appointment pending
• Asia/Pacific: Yesterday we saw an announcement of the appointment of Dan Neary as General Manager, Skype Asia Pacific. One of Dan’s initial responsibilities will be to build and monitor closer relationships with partners such as TOMSkype to avoid embarrassments such as that created by the TOM Skype privacy breach we have reported on last fall.

Outstanding executive appointments are expected shortly; at this point it’s becoming all about execution. The next six months will tell the story.

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During our conversations with Skype COO Scott Durchslag last week at CES, Scott outlined Skype’s criteria for its software development going forward.

First was the emphasis on “liquid communications” through statements such as “Skype Whenever, Wherever”. Just as today you can pick up any PC or mobile platform and find all the Google Tools (Search, Maps, News, Reader, etc.) Skype wants to be on virtually any platform or device.

Pick up a smartphone, find the Skype button. Turn on the TV, find a Skype button, have a conversation. Open a web browser; start a Skype session. All this to complement Skype on the desktop. Today, besides on the desktop, you can find Skype on over 200 mobile phone handsets, several (Sony) mobile devices, Skypephone and Apple TV. But Scott emphasized, this is only the beginning. It will only start to get real when we see Skype on higher profile devices such as the iPhone and BlackBerry or when we start to see Skype seriously back into the hardware device business with vendors such as Philips and iPevo.

Then Scott outlined four benchmark criteria that every implementation of a Skype on any platform or device must meet:

• High call quality
• Simple and easy user interface
• Consideration for battery life
• Security

Last week’s hotfix upgrade of Skype for Windows 4 beta 3 included the first implementation of Skype’s three year effort to develop the SILK codec, increasing the audio bandwidth to 12 KHz while effectively reducing the Internet bandwidth consumed during a Skype call.

A key reason for Skype’s rapid and widespread adoption has been associated with its ease-of-use. Yet Scott says the Skype conversation user experience needs to be even easier to encourage adoption by a broader user base. Developing a more effective user interface has certainly been a focus of the Skype for Windows 4 beta program. At the Skype CES press conference Scott reported that, in a recent survey of users, 88% preferred the new UI to the previous Skype for Windows 3.8. But I’m still wondering if the Skype for Windows team could take a look at Skype for Mac and implement a “drawer” type interface to manage and select the active conversation. For the longer term evolution of Skype clients hopefully Skype also has a look at Dan York’s post on Skype’s fragmented product strategy.

Battery life on smartphones was a key issue that prevented Truphone, who uses a native VoIP client for calls over WiFi, from launching a native VoIP smartphone client running over 3G networks. Instead they launched Truphone Anywhere that takes advantage of the underlying network 3G GSM voice channel and uses the data channel to set up a call via a server that, in turn, sets up a VoIP client. That voice channel tends to make much less use of the device battery than a constantly compressing/decompressing VoIP client that devours the underlying processor activity. Addressing the battery life issue is a major reason why we see Skype using a similar calling architecture when launching the Skype Lite Java client on over 100 Java-enabled cell phones, including those based on Google Android.

Security is an issue that I’ll leave to Dan York and others who are able to cover this issue more knowledgeably and effectively. Suffice it to say that we would expect security to continue to be a feature of all Skype products, including those that use the mobile voice channel for placing calls from mobile phones.

Two take-aways from these statements:

• Fundamentally we should expect Skype, going forward, to be a provider of real time conversation-enabling software on desktop, web, TV and mobile platforms. To use an old telegraphy term: Full Stop! For instance, rather than developing their own social network, we should expect Skype to seek out agreements with other social network service providers, such as the MySpace agreement. Skype is an enabler of real time conversations; it is not in the community building or social networking business. Facebook, Twitter and MySpace, amongst others have already captured that space and done an excellent job at it.
• These benchmarks also provide a basis not only for deciding what product offerings Skype will develop but also when they are in a position to release a product.

The new Skype executive team is finally starting to set some benchmarks and guidelines against which we can not only measure executed performance but also have a better understanding of where Skype wants to go.

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There’s a “new sheriff in town” when it come to running Skype; CES 2009 was a “coming out” event for the new executive team.

CES 2009 provided an opportunity to catch up personally with many of the vendors we have covered in Skype Journal including Skype, Truphone, SlingMedia, Philips and Research in Motion (BlackBerry). I also had a chance to attend a most informative afternoon session of Jeff Pulver’s Social Media Jungle event. Unfortunately Palm closed their suite after only two days of CES; thus, I missed an opportunity to learn more about the Palm Pre on Saturday. As Palm had just been awarded a CES “Best of Show” award, that was a “Huh?” moment when there was only a security guard at the suite’s door.. I also wanted to catch iPevo and Nokia but did not have time to get to their booths.

With respect to Skype we had three activities: the Skype press conference, an interview with new COO Scott Durchslag and Skype’s first reception event Friday evening. It was our first opportunity to observe the new Skype executive team in action. While I will be providing some more detailed posts, here are a few observations:

• For the first time, a senior C-level Skype executive personally acknowledged Skype Journal’s participation as a playing a significant role in the Skype ecosystem. Scott thanked us for our loyalty to Skype through all the challenges of the past two years. (That does not mean we’ll always be cheerleaders; it’s important that we maintain a skeptical and critical viewpoint within the context of the overall IP-based communications space.)

While we have had co-operation in the past,  usually via Skype’s public relations agency, from many Skype employees at an operating level, it’s important for the media to be able to communicate regularly and openly with those at the C-level who are providing overall direction and developing high level strategy. Josh has initiated such openness through his blogging and interviews; now we are seeing it on a person-to-person basis..

• On the other hand many times, last week in both the press conference and our discussions, Scott acknowledged the existence of several previous controversial issues, such as technical support, platform development, the role of partners and internal management structure issues as requiring attention by the new management team. The newly recruited management team will be introducing a new level of experience and maturity to address these issues; execution over the next few months now becomes critical.
• One future post will cover Skype’s new operating and management structure focused on products and geographical markets.
• Another will cover Skype’s overall focus as a software platform developer and the standards being set for these developments. Within this context I’ll provide my perspective on what is meant by “liquid communications”.
• We’ll soon have a follow up post about our discussion with Scott of what Skype’s new executive team learned from the TOM-Skype privacy breach last fall and how it became a bonding exercise within Skype as well as establishing some new operating parameters to avoid a repeat.
• Skype is NOT shoving its partners under the bus. The new executive team is determining what innovation Skype will drive and what innovation they can expect partners to drive. Andy Abramson articulates his perspective on the issue:

Most of all, Skype is not sitting back. The are pushing the envelope, but at the same time sending mixed messages externally to partners and developers. But that too will change. Some recent hires have brought maturity to the table.

• We learned the answer to “Will There Be a Skype Client on the iPhone?”
• Finally, for the first time since I have been writing about Skype, we can see some well-articulated high level vision for where Skype is heading, where they need to focus and how they want to play in the real time communications market space at a strategic level.

Looking forward to writing about the evolution of Skype as it grows from a $500MM per year operation with 500 employees into a business with a revenue level and valuation that finally justifies eBay’s initial investment in Skype.

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At a Skype’s CES 2009 press conference today recently appointed COO Scott Durchslag provided the first hints of a vision statement for Skype under its new executive team along with some initial software offerings that hint at the direction Skype is taking towards “liquid communications” or “Skype Whenever, Wherever”.

In leading up to the new software announcements, Scott made a few points about Skype’s recent accomplishments and focus going forward:

• Skype now delivers 8% of the world’s telecom minutes through clients that now support 28 languages
• New software will drive a liquid experience on the desktop, web, TV and mobile devices
• A key goal is to liberate the Skype experience from a captive device (desktop) to more user aware devices (mobile, TV as well as embedded into appliances)
• 41% of Skype calls on Christmas day involved video, only to be surpassed at 47% on New Years day.
• New software offerings have to pass a bar of four basic criteria:
  • high call quality
  • super simple user interface
  • sensitivity to power management issues
  • security

He then went on to talk about new software offerings:

• New desktop clients: Skype for Mac 2.8 (launched as beta at Mac World Monday), Skype for Windows 4.0 (with a February release date)
• Release of Skype Lite, a thin client  for Java-enabled mobile phones with Skype for Android to be available within a few days on Android Market on T-Mobile’s G1^TM and Skype Lite general availability in the U.S. (in addition to several countries previously announced) resulting in Skype availability on over 100 mobile smartphones.
• Internally developed new Skype “SILK” audio codec which is twice as efficient with respect to bandwidth requirements for the audio and video experience.
• Skype for Mobile Internet Devices with a demonstration on a couple of MID platforms.
• Skype for Mac 3.0 to be available by year end with the feature set of Skype 4.0 for Windows.

This afternoon Phil and I spent an hour with Scott discussing the restructuring, support issues, the TOM Skype Breach and how Skype will work with its developer partners to provide a win-win direction for the development and marketing of partner applications. These topics will be the subject of future posts over the next week.

First impression: it’s the first event where a senior Skype executive has provided in a public forum an outline of its vision, guidelines for achieving that vision and how it wants to work in the real time communication and IP-based conversation space. The real challenge now lies in the execution.

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Over the past few months, announcements have been few and far between with respect to Skype product news. But at the same time I have often discussed Skype’s restructuring moves; the first official disclosure of a restructuring was disclosed in our September interview with Skype’s new President Josh Silverman. Well it appears that Josh has been busy doing interviews; today three top level appointments were announced:

Daniel Berg, previously Sun’s London-based Chief Technology Officer for Global Sales and Services as well as Vice-President of Systems Engineering for EMEA, has been appointed as Skype’s Chief Technology Officer, starting January 2, 2009. In a summary statement from Skype’s blog post:.

As CTO, Daniel Berg’s primary responsibility will be to drive innovation and ensure Skype continues to develop great software. With a mandate covering Skype’s full range of products, he will develop and maintain a global team of more than 300 staff.

Daniel has authored several books. But since he has not made any statements on his appointment yet, we could paraphrase a statement he made about his Sun activities last April in a post entitled “Travel, Talk, Repeat” on Sun’s “Contrarion Minds” blog:

So he travels. A lot.

“I actually spend 25 percent of my working day, on average, in the air,” says Berg, who is based in the U.K. “That’s not going to the airport, not coming home from airport, that’s in the air.”

He knows this because he sticks to a time budget.

“I know I need to be spending this much time with customers and this much with organizational matters and this much with employee development, to make sure I’m staying focused and balanced,” he explains.

His biggest challenge?

“Articulating the value Sun [Skype] has,” Berg replies. “I know this has been said before, but I’ve been at Sun 15 years and this is the best lineup of technology, products, and offerings we’ve ever had. Yet when I go talk to customers, one of the first things they say is, ‘Oh, I didn’t know you guys did that.’”

So we’ll be expecting you to become one of the more “public” faces of Skype. And that those air miles will keep on building up.

The second appointment is Christopher S. Dean as Chief Strategy Officer. From his LinkedIn profile, Christopher has a long history of working with startups, including periods on the venture capital side in Silicon Valley, most recently as co-founder of Texada Capital. At one point he and Skype’s GM Audio and Video Jonathan Christensen were colleagues in a San Francisco-based venture capital firm called Sweetwater Partners, whose Internet traces seem to have disappeared. From the Skype blog post announcement:

Christopher S. Dean will focus on Skype’s strategy, including the development of partnerships and strategic alliances with other like-minded organisations and the acquisition of companies and technologies for Skype. His team will act as the incubator and strategic planning hub for new ideas and projects which support Skype’s technology vision and long term corporate goals.

It appears that Christopher will be based out of Skype’s San Jose office; his responsibilities will be a key to driving Skype from a $500MM per year revenue business into the the multi-billion dollar revenues needed to justify eBay’s initial investment in Skype. Why the “S.”? I assume that Christopher is trying to avoid confusion with the U.K.’s Olympic Ice Dancing multiple Medallist Christopher Dean.

The final appointment, another key to ensuring Skype hires and maintains appropriately skilled and motivated employees, is the appointment of Anne Gillespie, whose long history of EMEA positions with Compaq and HP, brings the experience required to serve as head of Skype Human Resources.

There’s still one more major executive move I am expecting – a Chief Marketing Officer who bring the badly needed messaging and market communications strategies and disciplines required for a business that’s expected to attract sufficient usage to generate those multi-billion dollar sales.

And I’m sure Lee Dryburgh has no problem with my publicly inviting Dan and Christopher to join the rest of the Emerging Communications community at eComm 2009; after all Skype is a Platinum sponsor.

Best wishes for success, Dan, Christopher and Anne from Skype Journal.

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The Motley Fool has become a popular and widely respected  investment community site since the origins of the commercial Internet in the mid-90′s with the objective of helping people take control of their financial lives. It has evolved into a multi-media financial services operation; they have free and premium services; suggest portfolios and try to pick recommendations, host discussion forums amongst other activities. “The company’s name was taken from Shakespeare, whose wise fools both instructed, amused, and could speak the truth to the king — without getting their head cut off.”

In a post yesterday about “5 Free Internet Winners” they discuss the five biggest winners if free WiFi comes to pass as a result of anticipated rules for forthcoming spectrum auctions in the U.S. Google, Logitech, Amazon, Nintendo and “eBay | SkypePal” are the selections. Why SkypePal?

Forget eBay.com itself. By the time free access hits the masses, PayPal and perhaps even Skype will be bigger parts of this portfolio of verbs. Heck, even the name eBay may be toast as you crack open the 2012 annual report of SkypePal Incorporated.

Skype and PayPal will be the biggest winners of blanketed coverage. Skype remains the global voice chat leader with 370 million users worldwide. If you don’t think that Skype will replace a few landline telephone accounts once connectivity is pervasive, you may as well Skype me to tell me otherwise.

PayPal is already the leader in micro-payments. It will become an even bigger force in real world transactions under Martin’s scenario of access for all.

Certainly an opinion contary to all those thinking that eBay is about to run out and sell Skype. And it reinforces my long held opinion that the new executive team has one primary goal – to drive up the value of Skype to the point where eBay can not only fully recover its over $3B total acquisition cost of Skype but also provide a reasonable return, whether as an ongoing operation or through an exit involving a sale or IPO. Motley Fool goes further and feels that Skype will become one of the primary value drivers of eBay shares going forward, given that eBay’s online operation is struggling to find new ways to grow.

As for more reliable indicators of Skype’s current growth than Skype’s published number of accounts (not subscribers, not users), check out the peak number of users daily shown in the Skype client, Jean Mercier’s note on the tripling of Skype downloads and Hudson Barton’s “Real” User tracking showing that Skype is has returned to a growth rate comparable to its 2006 rate.

But in the background the new executive team has been working on the restructuring discussed in Skype Journal’s interview with Skype President Josh Silverman. In a recent “Home Improvement” post, Josh gave an update on the the efforts required to “right the ship”:

Excited as we are about bringing new colleagues aboard, there’s more to reorganizing our structure for continued growth. Back in the summer, we set out to be smart about it. And transparent. And fair.

Which is why we held numerous workshops to gain input from the team on how our structure and ways of working need to change. Change that we hope will lead to sustained growth, better products and an even more empowering work life at Skype. One of the things we’re doing is to create smaller “companies” within the company: consumer-, business-, mobility-, and developer-focused business units vaccinated against shackles that curb innovation and risk-taking. Each new business unit is designed to emulate the feel of a start-up and to cultivate a deeper sense of ownership.

This is just a low-resolution snapshot from what’s a continual journey of change. There’s much more to it, of course. Replotting our roles, responsibilities and accountability takes time. While we think that we’ve done most things right, some won’t come through as intended. Tweaking them for a few months should make life at Skype work well for everybody.

And he concludes with:

Our structural rethink isn’t about change for change’s sake. From day one, everything at Skype has boiled down to delighting the customer. With a bit of home improvement to support further growth and innovation, we’re just making sure it stays that way.

At least Motley Fool and the Skype executive team are in sync with respect to the primary goal at Skype. The next few months and the subtle indications of forthcoming new product and service announcements will tell if the foundation is being built to achieve these goals. From restructuring will now come the challenge of execution.

Tags: Motley Fool, eBay, Skype, PayPal, Josh Silverman

This is the fourth in a series of posts resulting from an interview a week ago Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about directions for the Skype platform and partner programs.

When I first attended a Skype developer event in June 2006, there was lots of enthusiasm for the Skype partner program and for its integration into various third party applications and service offerings. Several of the feature requests, such as call transfer and access to the voice stream, that had come to the surface by the time of this event, have since been implemented. In December 2006 Skype announced the Skype Extras program for which there are over 100 offerings available, mostly for the consumer user but the list also includes about ten in the small-to-medium business space. Most importantly, partners have been asking not only for a platform roadmap but also for execution on that roadmap.Skype Extras included a publishing and transaction platform, yet to date, only PamConsult has taken full advantage of these feature for its well received (and award winning) PamFax offering. On the other hand, OnState has been able to figure out how to provide a friction-free full services program for its call center customer base. However, over the past eight months market visibility of any significance for the entire Skype partner program has just not been there. Yet we see “Skype access” continue to be built into various platforms such as Ribbit and Voxeo. Skype Certification exists for only seventeen offerings. InnerPass has received Skype Certification two weeks ago (review). At IT Expo last week in Los Angeles I came across several service providers and application developers who wanted to have a Skype presence in their offerings.

On the hardware side there have been many innovative offerings; I have experienced many of them. As confirmed by 3 executives at last Thursday’s Mobilize 08 event, the Skypephone has met with phenomenal acceptance in the nine countries serviced by 3. Yet several hardware partners have drifted away to the point where we only see limited visibility for Philips, GE and IPevo dual mode (Skype and landline) phones and a few accessory products, such as the FreeTalk Wireless Stereo Headset, from InStoreSolutions (who largely address the European market). Beyond the Skype Store availability, WalMart is carrying Skype hardware in the U.S. (and I found some at Fry’s in Sunnyvale this past Saturday).

Frankly, sorting out its platform strategy and partner relationships, and giving them appropriate visibility, is perhaps one of the biggest challenges that Josh and his team face in sustaining Skype’s presence in the IP-based conversation space. In our interview with Josh it became quite apparent that these issues have not missed Josh’s scrutiny leading up to the business reorganization we have been discussing in the various posts in this series:

SJ: In your interview with Om Malik yesterday you mentioned as one of your key growth initiatives “Skype as a platform, embedding Skype as the conversation infrastructure for devices and services”. Tell use more:

JS: We’re incredibly lucky that almost everyone in the world wants to do something with us. That’s fortunate because we need to be everywhere. For Skype to be successful and to fulfill its full potential we need to be part of every device and every communications experience. and we can’t do that on our own .so we need a really robust platform that allows us to be part of other people’s experiences or devices and allow other people to be part of us. We all recognize that we have a long way to get from where we are today to there. With the relatively small program we have and small investment we have made we have 15,000 partners who have signed up for our program today. I think that’s a great indication that if we really invest behind this we can do something magical.

SJ: What would that future platform look like?

JS: What we want to do is lay out a set of principles around the platform that say:

• we want people to be able to incorporate Skype into their experience.
• It should be the full Skype stack of functionality
• it should include all of our feature set and not just hive off one piece or two pieces.
• When you use Skype you should know you’re using Skype and
• you should have a SkypeID which works across all of our experiences,

So somebody who wants to take Skype and build it into their experience but create a walled garden of “only within their experience” doesn’t build value for the greater ecosystem. If you start with Skype on one experience and then you go to another experience with another platform partner, you still need to be able to communicate. There needs to be one SkypeID that works everywhere and then it needs to hold true to some basic sense of brand principles around what the Skype brand should be. Beyond those principles we really want to allow people to innovate and use Skype and do what they will to extend the functionality for our users.

SJ: Has the architecture for this started?

JS: Right now we have created the job of GM of Platform; I hope to very soon name a GM of Platform. That person is going to have to really work on what does the architecture need to look like to support this, what are the API’s are going to be – reference UI’s, technical documentation – as well as evangelizing to the broader community forming some of our partnerships, so we have some work to do.

SJ: Is the job posted on your job board?

JS: Not yet, we have some candidates; but if there are folks in your community that are excited by this and we haven’t already filled this in the coming days [faded away but implication was to apply].

SJ: Is there a timeline?

JS: I don’t want to speculate too much. We do have a API [set] today, we do have lots of people working with the API’s so we have something to build from. I’m not an expert. I wouldn’t be able to lay out a timeline but we are going to get an expert who can lay out a timeline. … As with everything at Skype, we want to be fast but also make sure we do it well, in particular with a platform. It’s got to be well thought through so we support our partners really well. We know there’s a big responsibility in there and we take it seriously.

SJ: Would you be looking at getting the partners involved in helping designing that platform and getting some feedback on it?

JS:I think that would be essential. One of the things I’m pretty passionate about is always bringing the voice of the customer in early to anything we’re trying to do and I think that, for the platform, that would be absolutely essential.

SJ: What are you looking at to address ongoing partner communications issues with respect to the partner program?

JS: I take the partner program really seriously and we’re aware that we’ve not invested adequately behind it and want to do more. The first thing we are going to do is hire an experienced, capable leader of that organization who will pull together for me a plan for what resources do we need to invest in — engineering, partner support, evangelism, technical documentation — to make sure we build an organization that can support our partners robustly.

What I don’t want to do is over promise. Step one is, when you get somebody good in, lay out a plan and then when we’re ready to announce some more forward looking things we’ll do that.

Changes are not going to happen overnight when Skype is acquiring 300,000 new registrations per day and profitable. But, based on the strategy and principles outlined by Josh in this interview, going forward we should be looking to see within a three to six month timeframe:

• Announcements of the appointment of two key senior executives who bring along experience in building platforms and partnerships
• A platform architecture and developer roadmap
• Revamped plans for Skype’s hardware and software partner programs

It will also be most interesting to see what forums or other means Skype provides for input into the platform architecture and developer roadmap strategy. Execution is everything, especially at this stage of Skype’s growth within the IP-based conversation space.

(For background on Skype’s partner program history check out: A Primer for Skype’s Direction – Skype’s Extras Gallery and Developer Partner Program. And for an example of what attracts developers to Skype as an ecosystem check out “On Spotlight: Don Kennedy AKA TheUberOverLord”.)

Next: Markets: Business and Geographical

This is the third in a series of posts resulting from an interview last Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about Skype’s value set, getting the business side right while benefiting from the experience and skills of the current employees and the role of product marketing.

In the last post we talked about the major issues Josh has identified for addressing along with a strategy for employee empowerment to reduce the complexity of decision processes while driving towards business success. But a critical requirement for employee empowerment is the need to establish and communicate a sense of core values that flow throughout the company and make employees more comfortable in making decisions, especially with decisions that may involve some risk. As a follow-on question to our discussion of employee empowerment I asked about the need to drive a value set through the company. Josh’s response:

Skype has a great set of values. Coming into the company I’m very humbled by what they’ve accomplished, what a great culture and values we have. I want to make sure we nourish and respect that. So some of the values I see are:

• thinking disruptively and differently about problems, not just incrementally innovating
• wanting to have an impact on the world
• caring a lot about what we do for people and doing that globally
• a big desire to win
• a big desire for excellence
• a passion for the customer

Those are qualities that I would hold dear and want to make sure we nourish as we grow.

We then went on to the “people” challenges of getting the business side right while building on the inherent passion of the current employees.

I think everyone at Skype would agree that we, in a very short time, in about a year, hired over 150 people into marketing, product management and [other] non-technical functions. [We] essentially evolved those functions from scratch in a year. Given the pace of change at Skype, we needed to bring a lot of that expertise into the company. Of course, the challenge is that, when you grow that fast, making sure everyone knows what their role is and how to do that well … training … getting a common culture … takes a little bit of time. So what I’m focused on now is clarifying the accountability of all those business roles.

By the way, to your point about ‘we have a lot of passionate technical people’, I couldn’t agree more. Often time the best ideas come from that team. It is my belief that what the product and marketing organizations need to do is understand what problems the customer needs solved, and then to work together with engineering to think of the most creative, best way to solve that problem, hopefully better than anyone’s ever thought of in the past. If you’re doing an “ok” job of that, you’re understanding the articulated needs of the customer – like I can’t pay easily enough … it takes too long to download … I can’t configure my devices . If you’re doing a great job, you’re understanding the unarticulated needs of the customer .. things like “I’d like to be able to call anyone in the world for free” …

We then got into a short discussion about the role of the product manager as the mediator managing a balancing act between the user market and the engineering and design teams:

… It is not the job of the product manager to come up with the solution; it’s the job of the product manager to quarterback the design team and the engineering team and the marketing group together to come up with the world’s best solution. I think engineering and design play huge roles in that process.

Next: The Skype Platform …

This is the second in a series of posts resulting from in interview last Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about the key issues Josh found necessary to address and establishing a framework for employee motivation and empowerment.

Over the past couple of years I have written many posts lauding Skype, largely for its conversation infrastructure technology; I have also, from time-to-time written posts about the need for Skype to address the business infrastructure surrounding the deployment and use of the technology. With 300,000 new registrations daily, 30 to 50 million active users within a given day, and demand in the small-to-medium business market driven by its inherent cost advantages, Skype needs to right the ship when it comes to all aspects of turning Skype into a business that delivers customer satisfaction while sustaining profitable growth..

Some have thought that Phil and I are Skype Cheerleaders and, in their simplistic world, want instant solutions to problems. Doesn’t happen in a business that has become as large as Skype. To take maximum advantage of Skype’s technology, Skype needs leadership at the top that delivers a sense of mission, a set of inherent values and and a management structure suitable to a business that has grown as large and as rapidly as Skype. Business processes need to become readily scalable. Within such an environment, the Skype team needs to execute; employees need to know their responsibilities, to be held accountable for them, and, most importantly, to be empowered to act in their area of responsibility.

When we asked Josh Silverman, who took over as Skype’s President five months ago, as our first question, :”What has changed at Skype in the past year (since Niklas’ departure)?” he replied that he could only speak for the past five months. He then confirmed my suspicion: he has used this time to delve into all aspects of Skype – involving internal team and individual employee meetings, learning more about customers and their needs, examining market differences worldwide, reviewing both current and archived Skype forums and websites and even surveying media, all as input to determine what management structure and what cultural environment were needed to right the ship. What follows is a high level view of his action plan. (Note: where appropriate he has already discussed these moves with the Skype team, so there are no surprises here for them.)

1. Define a mission statement
2. Establish a set of values
3. Restructure for business success
4. Improve the user experience
5. Evolve the business model
6. Develop a technology roadmap.
7. Establish a framework for effective customer and partner relationships
8. Build market awareness

In building out on his response, Josh identified as issues to be addressed:

• clarify Skype’s mission and strategy going forward
  • be clear about what Skype is trying to accomplish
  • be clear about decision making
• maintain an ongoing sense of momentum around building great products
  • the Skype 4.0 beta program
• understand their customers and bring their voice into the company.
• a big issue: organize the company structure to clarify roles and accountability for people
• establishing employee accountability: define who owns what internally
• add people skills and resources consistent yet scalable with the level of customer growth
• grow internal talent while adding experienced management leadership
  • bet on the people who brought Skype to this point
  • bring in experienced outside help to scale

On the core subject of building employee responsibility and accountability Josh responded:

We need to clarify accountability and roles for employees … I’m a big believer that, if you take a small cross-functional team, give them a mission, a lot of room to innovate, they’re going to come out with fantastic products. So we’re moving our organization more in that direction.

Skype, I don’t think is different [from] a lot of hypergrowth companies, in that the business grows so fast that it is very hard for the organizational structure to keep up. What ends up happening is people just take on extra responsibility here and there as the needs come up. And pretty soon you find yourself in a place where it’s really not clear who owns “this” … there are some really important things that nobody owns and some things that two or three people all think they own it.

So we need to step back and say, ok, lets’ take a fresh look at this and make sure everyone is really clear about who owns what, what are you accountable for, and what resources do we have and then let them go forth and empower them. So that’s what we’re doing right now and I think in the coming months we’ll be in a much better place for everyone. … I’ve been very public with my team about it and they’re all very supportive …. and they’re quite excited for us to do that.

On building the right mix of people, skills, capabilities to execute:

I’m a big believer that, when a company is growing as fast as Skype, just keeping up with the scale and evolution of the company is a major promotion every year. So what we want to do is grow a lot of our internal talent and take bets. I’m also a big believer in taking bets on a lot of the people who have been with you from the beginning, who understand the business and culture. But I also believe in bringing experience from the outside … who have seen this before and had to scale this way before and can help us to figure out how, as we inevitably get a little bigger, to stay agile and, in fact, I think we can get even more agile as we get bigger, if we’re smart about it.

On getting employee empowerment right:

Everybody needs to know what their accountability is. I’m a believer that empowerment doesn’t mean everyone can do anything … because then everyone starts overlapping and, actually, you end up with a big mess. What empowerment means is everyone is really clear about what the company is trying to accomplish, everyone is really clear about what they’re accountable for and, within that accountability, they have the scope to make all decisions. It doesn’t mean they can make any decisions they want but they’re really clear about where their decision making begins and ends. If you do that everybody feels empowered and we grow much faster. By the way I also believe that the best decisions you make are almost always made at the level of the working team. So I aspire to a world where very few decisions flow up to the executive ranks other than “what are we trying to solve for?” and “how much resource are we investing in any given initiative?” and “do we have the right talent?”.

Next post: Managing the Skype team culture

This is the first in a series of posts resulting from in interview last Friday with Josh Silverman, Skype’s recently appointed President. In this post we provide an overview of the range of topics discussed and some background to the interview.

On Friday Phil and I participated in a one hour wide ranging interview with Skype’s new President, Josh Silverman. Having listened to both Skype’s team and the market over the past few months, Josh is starting to take the high level measures required to grow Skype from a technology “marvel” into a full-fledged conversation infrastructure business that is “just there” when you want to converse … anywhere, anytime. Having personally participated in a corporate restructuring over a decade ago, suffice it to say that, while technology has been rapidly changing in the interim, the basic requirements for growing a business from a “wonder” into a sustainable, world class enterprise have not changed. After all, you’re dealing with human interactions and we’re all still emotional beings who need motivation (internally as employees) and a “wow” level of excitement externally (as users). Some background facts that have led to the issues that Skype must address and the action plan Josh has determined to be necessary:

• Skype, in its first five years, has grown to its over $500MM annual run rate faster than either eBay or PayPal
• Skype has about 500 employees worldwide with over 150 joining in the past year
• Skype delivers about 6% by minutes of the world’s international calling traffic

Recall, that during Josh’s interview with Om Malik, he outlined three key growth initiatives:

• product innovation: making Skype easier to use and more reliable; the video opportunity
• paid services and their marketing:
• Skype as a platform: embedding Skype as the conversation infrastructure for devices and services.

In many ways our discussion expanded on those themes. Because of the range of topics we covered and given short posts make for easier and more readily absorbed reading than one long post, we’ll cover the interview content in several posts over the coming week. But our topics will include:

• Restructuring and reorganizing with new focuses while delegating responsibility
• Skype’s platform strategy and the infrastructure required to execute
• Skype’s approach to the business market
• Geographical markets
• Generating broader awareness through marketing
• Tech support

Since Om had already asked the questions about Skype on iPhone and the eBay relationship, we left those out of our interview in the interest of using our time with Josh to learn more about Skype’s internal evolution and the direction in which Josh sees driving Skype as a publisher of conversation infrastructure software and services.

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While there has been lots of dismay about the discontinuation of Skypecasts (Skype’s blog posts: here and here), it had appeared for the past several months that the service just did not have the robustness to provide the reliability and quality of service that users would expect. Being a free service, it was obviously placing resource demands with zero revenue potential on Skype developer and support personnel that hopefully can be diverted to bringing feature equality to Skype’s basic service, whether on Windows, Mac or Linux.

There are alternatives; in fact, this decision provides a unique opportunity for two third party conference calling services:

1. Skype Multi-Party Calling:

For up to 25 participants on a call, Skype has recently expanded its multi-party calling capacity. The caveat here is that the host must use a multi-core Windows PC and a reliable broadband internet connection (preferably cable). Participants can be on any version of Skype or be accessed via SkypeOut. In this case the host must set up the call and call out to all the participants. More details here. A unique feature of Skype’s multi-party calling is its ability to show which participant is actually speaking at any given time. But keep in mind Skype really offers multi-party calling, not a full conferencing service.

2. iotum CalliFlower

iotum’s CalliFlower has the benefit of no charge other than whatever it costs to make the connection to one of their access points. I often participate in their daily SquawkBox call via my SkypeOut account; the recent availability of SkypeOut CallerID, displaying my mobile phone number when I make a SkypeOut call, has allowed me to participate in these calls within my SkypeOut subscription without even using the provided password for each call. In fact, there are four options for accessing these calls:

As an example of building communities, iotum has worked with Alan Hunkin to provide a weekly interview session, CalliFlower Communiques, with notable personalities such as William Shatner. Immediate future guests include Ken Blanchard, author of “Being a One Minute Entrepreneur” and actor Alan Alda discussions his recent memoir “Things I Overheard While Talking to Myself.” Recordings of previous sessions are available at the page linked above.

3. HiDef Conferencing

Vapps’ HiDef Conferencing (formerly HiSpeedConferencing) provides high definition (HD) voice quality calls for participants accessing via Skype. Their business grade service involves fixed rate monthly hosting subscriptions involving unlimited Skype access, dial-in to specific numbers in several countries and toll-free numbers. Obviously this involves some ongoing expense to the host but their infrastructure supports providing the best possible voice quality, depending on access mode. The host uses their web controls to set up calls, manage call participants as well as record and archive calls.

Looking at the options it appears the best conference experience comes when:

• hosts are able to setup and fully manage the calls, including an open access invitation;
• users can participate through a web-based experience not only via voice but also via chat.

The good news is that Skype provides either free or low cost unlimited access to any of these services. What will be most interesting is to see if iotum and/or Vapps rise to the opportunity here and and is able to provide encouragement to the many communities that were supported by Skypecasts.

Tags: Skype, Skypecast, iotum, CalliFlower, Hi Def Conferencing, CalliFlower Communique, Vapps, multi-party calling, Alan Hunkin

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Over the past couple of weeks, during which I have taken a vacation and then dealt with an internal network issue at my home office, there has been no holiday on news related to the IP Communications space. So this week I will offer a series of posts talking about communications from Skype’s new executive team, about building strong partnerships in an IP-based communications space, about the role of API’s and finally about our mobile-enabled world. Each of the players I reference will have a significant impact on how the world of IP-based communications and real time conversations will evolve. Let’s, however, start with Skype.

Towards the end of June, Skype announced the appointment of Scott Durchslag as Chief Operating Officer, responsible for the day-to-day execution of Skype’s offerings and programs. COO’s are usually not in themselves corporate visionaries but latch on to a vision and ensure that it can be executed to bring a “delightful user experience” while building a profitable business. RIM’s COO for Blackberry, Don Morrison, is an excellent example here¹. While RIM co-CEO Jim Balsille sets the business strategy and co-CEO Mike Lazardis builds technology strategy based on his early vision for wireless devices going back to 1992, Don is a seasoned telecom executive who is responsible for building and managing a customer-driven organization worldwide, including the distribution partnerships, carrier relationships, ISV programs and enterprise support programs that have contributed to RIM’s ongoing success. (Full disclosure, Don and I are graduates of the same business school.) RIM also has a COO for Administration and Operations, Dennis Kavelman, responsible for the operations side of RIM’s manufacturing and customer information infrastructure services. While critical to the success of RIM, neither of these COO’s is in the prime spotlight when it comes to discussions about RIM but they are mission critical to making things happen. All this to set the expectations of the role that new Skype COO, Scott Durchslag, is expected to play in ensuring that Skype executes for success.

Scott was recently interviewed by Harold Wolinsky on what message he has for current customers and what got him excited enough to want to join Skype in this role:

• The remarkable team at Skype and what they have developed to date
• The current climate where not only global warming but also rising gas prices are causing us to rethink when we have to travel and how we communicate with both our friends and our business colleagues
• The paradigm shift in communications from hardware to software. “Software owns the future in communications”. (Thus, my forthcoming post about the API discussions raging on the blogosphere.)
• The untapped revenue potential where Skype currently is running at a (profitable) $500 million annual run rate in a multi-trillion dollar market space.

His message for the developer community (in an era where both Apple and RIM have set new, but different, business models for delivering third party applications to the consumer and enterprise respectively):

If there is one thing I have learned about developers from my experience in mobile, it’s that they are at the absolute cutting edge of what can be done. Some of things we never think of are invented by some young developer trying to create cool things for himself and his friends. You really want to be able to make it as easy as possible and as economically rewarding as possible for those folks to be innovating around your product.

The interview goes on to discuss his message for Skype employees and where Skype goes next. Read it for the details.

At this point, Scott’s challenge amounts to demonstrating execution — not only through innovation in software but also in structuring and executing on compelling partner programs that drive third party innovation as well as delivering more effective support programs that “delight the user”. But the most crying need is to create broader market awareness of the potential for IP-based communications through integrating the rollout of the innovative software technology with more effective marketing practices. Communicating effectively to Skype’s user base and target audience along with rebuilding once again the viral enthusiasm that lead to Skype’s initial market acceptance and deployment have to be the key goals here. Individually each of these goals is a challenge but also Scott will be measured by how well he can coordinate these activities such that Skype breaks down the disconnects that have occurred in the past between engineering, marketing and business development. Scott may have had success at Motorola with the RAZR (but where Motorola did not invest in future development); the question today is can he bring his experience at Motorola and elsewhere to build Skype’s ongoing, sustainable success?

And the bottom line for both Josh and Skype will be whether they can build enough value into Skype over the next twelve to eighteen months to either make Skype either a major profitable eBay business unit or an attractive acquisition by a third party at a reasonable profit relative to eBay’s past investments in Skype.

¹RIM Executive Team Bios

Since 1996 I have been involved in buying Dell laptops and desktop PC’s, not only for my own use but also helping friends and non-profits acquire PC’s for their personal and business needs. A constant throughout most of that period was that each of these PC’s came with a digital media offering called Musicmatch. Not only an audio player, Musicmatch’s client could also “rip” CD’s and assist in managing your media library. In fact, I even bought a couple of upgrades to their premium service over the years. MusicMatch, Inc. was led by current SightSpeed CEO Peter Csathy. From his SightSpeed bio:

Csathy previously served as president and COO of Musicmatch, Inc., where he was responsible for driving the company’s distribution and content strategies, managing strategic partnerships, and overseeing the company’s business development, sales, legal and finance activities. Yahoo! acquired Musicmatch in 2004.

Aside from selling Musicmatch into what has become the Yahoo black hole of services at an opportune time when Apple’s iPod and iTunes offerings were resetting the business model for music acquisition and playing, Peter developed a network of contacts, business relationship experience and trust at Dell such that coming back to Dell for a SightSpeed partnership with Dell Video Chat was probably “a natural” on both Dell’s and SightSpeed’s part. Getting technology to market is not simply about the technology; it’s about developing trusted business partnerships and executing across the network. Terms and Conditions of this new agreement probably reflect on their previous business experience as much as on the boiler plate lawyers wanted to include. CxO’s are hired not only for their management experience but also for the network of contacts they can bring to the table.

While Phil makes some excellent points about why SightSpeed was able to complete a deal with Dell, I think the overriding factor in SightSpeed’s new Dell partnership is more a result of previous network contacts accompanied by business relationship experience in building a service as opposed to Skype simply “losing” a deal. The challenge for SightSpeed is now to build additional partnerships with other vendors and social networking offerings beyond these legacy relationships. The good news for end users is that there are two different conversation infrastructure offerings out there that can only build consumer awareness of what can be done to bring new real time conversation user experiences when incorporated into consumer businesses with extensive user bases.

Over at Skype we’re starting to see the evolution of Skype as a true business built on the foundation of Skype’s conversation infrastructure software. It’s not a case of just starting with Josh Silverman’s appointment as CEO but his building an experienced CxO management team that can make the operation run smoothly and avoid fiasco’s such as the loss of “0207″ numbers in London last fall. Expect to see a seasoned CMO, as effectively called for in my Primer series posts last fall, and, with the complex mix of technology now embedded in Skype as its most critical asset, a CTO at some point in the near future. This is not based on any information from within Skype; it’s the natural evolution of a maturing company now being led by a business savvy Stanford MBA CEO and a Harvard MBA COO who has taken on a much wider range of challenges and experiences in his life than your average CxO.

Ironically, as a prior relationship revealed in Howard Wolinsky’s interview with recently appointed Skype COO Scott Durchslag posted yesterday, it will be interesting to see whether Scott’s previous business relationship at Motorola with Ron Garriques — now President of Dell’s Global Consumer Group — will result in any innovative new initiatives between Skype and Dell in the future. More importantly for Skype, however, would be the wireless carrier relationships Scott had to build in helping to make the Motoroal RAZR the success that it was.

It’s the mix of leadership, management experience, marketing programs, business networks and technology assets, combined with passionate employee teams, that will make both Skype and SightSpeed winners in their respective business and market spheres.