10 ms·

Skype mess: How far will this go?

123 points by zoowar 15y ago

alex_martin 15y ago
I wonder if this is a side-effect of (relatively) high engineering salaries. Financiers say 'ok, fine we can take paying $100k a year because we can write out your options at will.'. It may be a wider symptom of VC starting to attract more cut-throat PE firms.
- zoowar 15y ago
  The valuation is $8bn. Worrying about $100K is pointless. Stealing equity should be criminal.
  - iuytghyjuyh 15y ago
    Valuation $8Bn Stealing back options $100K Meaning no founder or employer will ever trust silverlake - priceless Silverlake are now totally worthless as a VC and any startup funded by them who have engineers with options (vested or not) is in serious risk of a mass exodus.
- taa4321 15y ago
  Their whole scam runs on technology. Engineers are seriously under compensated considering that the whole thing is riding on bits these days.
riffic 15y ago
This poison company will simply be another footnote in history. Mainly because of this: http://news.ycombinator.com/item?id=2689512 http://news.ycombinator.com/item?id=2689512 Microsoft should have stayed far, far away.
- drivebyacct2 15y ago
  WebRTC is a better reason to be ringing the Skype-is-now-a-commodity bell.
  - zeddez 15y ago
    Technology is only one part of a solution. And in this case arguably a small one. The reason people use Skype is because all other people are on there. It's also synonymous with voice and video calling. Owning a "position" is an other important value. Facebook seems like the only company that can bring a real network of users to something like this. Google has GMail, but they haven't been able to translate it into any type of social experience at scale.
    - riffic 15y ago
      Interestingly, Facebook is another player that also uses XMPP for messaging. If they really wanted to get into the VOIP game it would be relatively trivial for Facebook to roll a client, implement federation and allow the network effect to run wild.
      - zeddez 15y ago
        Agree Facebook is the player that could be a serious competitor to Skype. But their strategy would indicate that they wouldn't implement federation. They would create their own closed system. Facebook is all about growing the value of their social graph, but with very limited interconnection or federation.
truthiness 15y ago
Boycott Skype. If this is how they treat their employees, how do you think they will treat customers?
w1ntermute 15y ago
This is a great chance for Google to take over the market with an open source VOIP alternative. Microsoft has already started driving Skype into the ground, and if Google can integrate their new service well with Android, they would have a good shot at establishing themselves.
- ghurlman 15y ago
  I wasn't aware that Microsoft had taken control of Skype yet.
  - deleted 15y ago
    [deleted]
    - zeddez 15y ago
      I have a hard time believing that. The Microsoft and Skype deal just received regulatory approval on June 17th from FTC. There may be still be other regulatory hurdles to still pass in other regions. The events in the article happened before that and it is unlikely that Skype would receive direction from Microsoft prior to closing. Further, this is not Microsoft's first acquisition and the pattern is more consistent with PE than Microsoft. If you have evidence to the contrary, I'd be very interested.
- muuh-gnu 15y ago
  I have been using Google's Voice&Video chat exclusively since the day Microsoft announced the Skype purchase. Compared to skype, the experience is horrible. The audio and video quality is sensibly worse, the number of random disconnections and video freezes is pretty high. After a few minutes there is a noticeable lag in the voice connection, which gets higher with time. The general audio quality is worse then I remember having with "Speak Freely" back in the 90s, while I used a dial up modem. The Firefox plugin randomly refuses to work, and returns also random numeric error codes. Skype had, in my experience, none of these issues. Everything "just worked". Google is far, far away from that. All in all, it is so bad that it should be embarassing for Google to have it associated with its name. The only thing going for Google is that it is, after Skype, the only cross-platform voice&video offering existing on the market.
dstein 15y ago
I take back my earlier thoughts about the deal -- Skype sounds like a perfect match for Microsoft.
rdl 15y ago
I would expect nothing better from a PE firm in a restructuring, but I'd like to see Andreessen Horowitz (and ideally also Microsoft) respond to this. a16z's reputation among top-tier hires at portfolio companies (and thus their reputation with entrepreneurs) is worth more to them than their gains from the Skype deal.
- dstein 15y ago
  a16z's reputation among top-tier hires is worth more to them than their gains from I really doubt anyone's reputation is worth more than 6 billion dollars.
  - rdl 15y ago
    They didn't own 100% of the company; probably more like 5-10%. So it's really less than 1x on one of their funds at stake here. Plus, it's not like it was "do this deal like this, or walk away entirely". What is at risk is either the $100-200mm to fix the options concerns for everyone, or at most, the breakup fee for this deal with Microsoft. Skype probably could find another buyer, even without the Microsoft deal. Maybe Microsoft overpaid by 2x their nearest competitor. So, a16z only made $200-400mm on this vs. the best alternative (and really, I think it's less than 2x). The reputation of a top multi-stage fund is worth more than $400mm for sure.
    - deleted 15y ago
      [deleted]
  - fragsworth 15y ago
    Steve Jobs. Although you're otherwise probably right.
brudgers 15y ago
>"The key thing here is that Microsoft is going to be the company that is left holding the bag." It's not as if Microsoft is getting a company gutted of people with technical expertise or domain expertise - and the key assets of brand, infrastructure, and technology are not being affected. Looking at the people who have been reported to be affected by this, it is hard to see any key personnel involved. Yee Lee appears to be just another employee and the executives alluded to were at least in large part, fairly recent hires; and none of them were founders or early employees - any of those who were eligible would almost certainly have cashed out in 2005 when eBay bought the company (and potentially cashed out again when Silverlake purchased from eBay). [http://news.ycombinator.com/item?id=2693496 http://news.ycombinator.com/item?id=2693496] [http://news.ycombinator.com/item?id=2672786 http://news.ycombinator.com/item?id=2672786] I would suspect that most employees who stick it out through the acquisition are looking forward to the differences of workplace environment which will come with the transition from a private equity culture to Microsoft's corporate culture. This story seems to have traction on two fronts, both as a Microsoft bashing peace and as a cautionary startup tale neither of which is accurate: it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation. Likewise, Skype is not a startup. It's the Jeep of the digital age - Skype has been little more than an asset within a portfolio since 2005's purchase by eBay.
- hollerith 15y ago
  >it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation If Microsoft knew that Skype's agreements exposed them to significant legal liability, which now seems the case, they would have made it a point of negotiation.
  - shareme 15y ago
    you forget EBay's exp..was no the same sort of not being forth coming and direct in negotiations than too?
  - brudgers 15y ago
    <IANAL>I don't see any meaningful legal liability for Microsoft there. </IANAL> Microsoft might have some financial exposure which presumably they have covered - and of course it is not in Silverlake's interest to create poison pills because the relatively small profits are unlikely to balance the financial exposure from a potential Microsoft lawsuit. Not to mention that it is almost certainly in Silverlake's interest to get the deal closed, deliver profits to the LP's, and move on to look for new investments.
stock_toaster 15y ago
I wonder when/if FaceTime will support video conference calling.
- deleted 15y ago
  [deleted]
- glassx 15y ago
  Also, "Upon the launch of the iPhone 4, Jobs promised that Apple would work in due course with standards bodies to make the FaceTime protocol an open standard." (http://en.wikipedia.org/wiki/Facetime http://en.wikipedia.org/wiki/Facetime) I wonder when (or if) it will happen.
jonkelly 15y ago
I have to say that I've been surprised by the reaction to this story on HN. I think the behavior of Skype's owners and executives was revolting and (echoing PG's comment on the other thread), not at all common from what I've seen & heard in my career. I think there is also at least one clear lesson. First and foremost, choose who you work with based on their character. I think if you're across the table from Silver Lake, Tony Bates, Brian O’Shaughnessy or (as much as I hate to say it) Andreessen Horowitz, you should build in a significant "character multiple" based on how they acted here. You should also have MOFO or another top legal team on your side. If you're an engineer at any company any of these people are invested in, you should also be reading your contract extremely carefully, perhaps also with legal help. Having options that vest with "no value" is just absurd. I'll note that I have no stake in this whatsoever, but it just makes me sick. My partner and I sold our company (for a tiny fraction of this deal's value) and spent a significant amount of the deal time negotiating on behalf of our employees after eliminating buyers who we wouldn't want to work for or didn't fully trust to take care of them. I don't want to portray us as saints (we're not, but we both highly value our reputations), but it was the right thing to do and most people I have worked with would do the same. We're in an amazingly tight market for engineers right now. Please, choose your employer very carefully based on their reputation.
- dgabriel 15y ago
  I worked for start-ups from my first job on up to three years ago (that's 10 years, because I am old). I have worked 60, 80, 100 hour weeks sometimes. Each of the start ups in which I was an engineer were successfully acquired. The owners got millions in each case, I got a net payout over the course of four start-ups of about 15 grand. Not 15 grand each, 15 grand total. Sometimes I think about what a fool I was, and how much more money I could have made working for large companies at market rates, instead of killing myself for substandard salaries, even though there was some "love of the game" involved. Why is it that we need to exploit people in this game? Especially young engineers or execs with their first VP experiences. Some people get rich, most people are pawns.
  - joezydeco 15y ago
    Funny thing...the startup where I'm working is about to face this exact situation. If the acquisition being planned does happen, I'll probably gross a few grand and that's it. As the only software engineer in the startup I've apaprently been identified as a key person in the move. I'd like to think this gives me some leverage, it would take them 3-4 months to find a replacement and get them up to speed. It was my work on early customers and technology demos that helped land the deal, yet I feel like none of that is being recognized. What would you do if you were me?
MaysonL 15y ago
I wonder how much more bad publiciy it will take to torpedo the deal, or for MS to hit the pe guys up for a bit bigger holdback.
rbanffy 15y ago
I am a little bit surprised Microsoft seems OK with this. I believe they still can take a stand and tell Skype management they are not going to get away with this.

123 points by zoowar 15y ago

I wonder if this is a side-effect of (relatively) high engineering salaries. Financiers say 'ok, fine we can take paying $100k a year because we can write out your options at will.'. It may be a wider symptom of VC starting to attract more cut-throat PE firms.

zoowar 15y ago
The valuation is $8bn. Worrying about $100K is pointless. Stealing equity should be criminal.
- iuytghyjuyh 15y ago
  Valuation $8Bn Stealing back options $100K Meaning no founder or employer will ever trust silverlake - priceless Silverlake are now totally worthless as a VC and any startup funded by them who have engineers with options (vested or not) is in serious risk of a mass exodus.
taa4321 15y ago
Their whole scam runs on technology. Engineers are seriously under compensated considering that the whole thing is riding on bits these days.

riffic 15y ago

This poison company will simply be another footnote in history. Mainly because of this: http://news.ycombinator.com/item?id=2689512 http://news.ycombinator.com/item?id=2689512 Microsoft should have stayed far, far away.

drivebyacct2 15y ago
WebRTC is a better reason to be ringing the Skype-is-now-a-commodity bell.
- zeddez 15y ago
  Technology is only one part of a solution. And in this case arguably a small one. The reason people use Skype is because all other people are on there. It's also synonymous with voice and video calling. Owning a "position" is an other important value. Facebook seems like the only company that can bring a real network of users to something like this. Google has GMail, but they haven't been able to translate it into any type of social experience at scale.
  - riffic 15y ago
    Interestingly, Facebook is another player that also uses XMPP for messaging. If they really wanted to get into the VOIP game it would be relatively trivial for Facebook to roll a client, implement federation and allow the network effect to run wild.
    - zeddez 15y ago
      Agree Facebook is the player that could be a serious competitor to Skype. But their strategy would indicate that they wouldn't implement federation. They would create their own closed system. Facebook is all about growing the value of their social graph, but with very limited interconnection or federation.

truthiness 15y ago

Boycott Skype. If this is how they treat their employees, how do you think they will treat customers?

w1ntermute 15y ago

This is a great chance for Google to take over the market with an open source VOIP alternative. Microsoft has already started driving Skype into the ground, and if Google can integrate their new service well with Android, they would have a good shot at establishing themselves.

ghurlman 15y ago
I wasn't aware that Microsoft had taken control of Skype yet.
- deleted 15y ago
  [deleted]
  - zeddez 15y ago
    I have a hard time believing that. The Microsoft and Skype deal just received regulatory approval on June 17th from FTC. There may be still be other regulatory hurdles to still pass in other regions. The events in the article happened before that and it is unlikely that Skype would receive direction from Microsoft prior to closing. Further, this is not Microsoft's first acquisition and the pattern is more consistent with PE than Microsoft. If you have evidence to the contrary, I'd be very interested.
muuh-gnu 15y ago
I have been using Google's Voice&Video chat exclusively since the day Microsoft announced the Skype purchase. Compared to skype, the experience is horrible. The audio and video quality is sensibly worse, the number of random disconnections and video freezes is pretty high. After a few minutes there is a noticeable lag in the voice connection, which gets higher with time. The general audio quality is worse then I remember having with "Speak Freely" back in the 90s, while I used a dial up modem. The Firefox plugin randomly refuses to work, and returns also random numeric error codes. Skype had, in my experience, none of these issues. Everything "just worked". Google is far, far away from that. All in all, it is so bad that it should be embarassing for Google to have it associated with its name. The only thing going for Google is that it is, after Skype, the only cross-platform voice&video offering existing on the market.

dstein 15y ago

I take back my earlier thoughts about the deal -- Skype sounds like a perfect match for Microsoft.

rdl 15y ago

I would expect nothing better from a PE firm in a restructuring, but I'd like to see Andreessen Horowitz (and ideally also Microsoft) respond to this. a16z's reputation among top-tier hires at portfolio companies (and thus their reputation with entrepreneurs) is worth more to them than their gains from the Skype deal.

dstein 15y ago
a16z's reputation among top-tier hires is worth more to them than their gains from I really doubt anyone's reputation is worth more than 6 billion dollars.
- rdl 15y ago
  They didn't own 100% of the company; probably more like 5-10%. So it's really less than 1x on one of their funds at stake here. Plus, it's not like it was "do this deal like this, or walk away entirely". What is at risk is either the $100-200mm to fix the options concerns for everyone, or at most, the breakup fee for this deal with Microsoft. Skype probably could find another buyer, even without the Microsoft deal. Maybe Microsoft overpaid by 2x their nearest competitor. So, a16z only made $200-400mm on this vs. the best alternative (and really, I think it's less than 2x). The reputation of a top multi-stage fund is worth more than $400mm for sure.
  - deleted 15y ago
    [deleted]
- fragsworth 15y ago
  Steve Jobs. Although you're otherwise probably right.

brudgers 15y ago

>"The key thing here is that Microsoft is going to be the company that is left holding the bag." It's not as if Microsoft is getting a company gutted of people with technical expertise or domain expertise - and the key assets of brand, infrastructure, and technology are not being affected. Looking at the people who have been reported to be affected by this, it is hard to see any key personnel involved. Yee Lee appears to be just another employee and the executives alluded to were at least in large part, fairly recent hires; and none of them were founders or early employees - any of those who were eligible would almost certainly have cashed out in 2005 when eBay bought the company (and potentially cashed out again when Silverlake purchased from eBay). [http://news.ycombinator.com/item?id=2693496 http://news.ycombinator.com/item?id=2693496] [http://news.ycombinator.com/item?id=2672786 http://news.ycombinator.com/item?id=2672786] I would suspect that most employees who stick it out through the acquisition are looking forward to the differences of workplace environment which will come with the transition from a private equity culture to Microsoft's corporate culture. This story seems to have traction on two fronts, both as a Microsoft bashing peace and as a cautionary startup tale neither of which is accurate: it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation. Likewise, Skype is not a startup. It's the Jeep of the digital age - Skype has been little more than an asset within a portfolio since 2005's purchase by eBay.

hollerith 15y ago
>it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation If Microsoft knew that Skype's agreements exposed them to significant legal liability, which now seems the case, they would have made it a point of negotiation.
- shareme 15y ago
  you forget EBay's exp..was no the same sort of not being forth coming and direct in negotiations than too?
- brudgers 15y ago
  <IANAL>I don't see any meaningful legal liability for Microsoft there. </IANAL> Microsoft might have some financial exposure which presumably they have covered - and of course it is not in Silverlake's interest to create poison pills because the relatively small profits are unlikely to balance the financial exposure from a potential Microsoft lawsuit. Not to mention that it is almost certainly in Silverlake's interest to get the deal closed, deliver profits to the LP's, and move on to look for new investments.

stock_toaster 15y ago

I wonder when/if FaceTime will support video conference calling.

deleted 15y ago
[deleted]
glassx 15y ago
Also, "Upon the launch of the iPhone 4, Jobs promised that Apple would work in due course with standards bodies to make the FaceTime protocol an open standard." (http://en.wikipedia.org/wiki/Facetime http://en.wikipedia.org/wiki/Facetime) I wonder when (or if) it will happen.

jonkelly 15y ago

I have to say that I've been surprised by the reaction to this story on HN. I think the behavior of Skype's owners and executives was revolting and (echoing PG's comment on the other thread), not at all common from what I've seen & heard in my career. I think there is also at least one clear lesson. First and foremost, choose who you work with based on their character. I think if you're across the table from Silver Lake, Tony Bates, Brian O’Shaughnessy or (as much as I hate to say it) Andreessen Horowitz, you should build in a significant "character multiple" based on how they acted here. You should also have MOFO or another top legal team on your side. If you're an engineer at any company any of these people are invested in, you should also be reading your contract extremely carefully, perhaps also with legal help. Having options that vest with "no value" is just absurd. I'll note that I have no stake in this whatsoever, but it just makes me sick. My partner and I sold our company (for a tiny fraction of this deal's value) and spent a significant amount of the deal time negotiating on behalf of our employees after eliminating buyers who we wouldn't want to work for or didn't fully trust to take care of them. I don't want to portray us as saints (we're not, but we both highly value our reputations), but it was the right thing to do and most people I have worked with would do the same. We're in an amazingly tight market for engineers right now. Please, choose your employer very carefully based on their reputation.

dgabriel 15y ago
I worked for start-ups from my first job on up to three years ago (that's 10 years, because I am old). I have worked 60, 80, 100 hour weeks sometimes. Each of the start ups in which I was an engineer were successfully acquired. The owners got millions in each case, I got a net payout over the course of four start-ups of about 15 grand. Not 15 grand each, 15 grand total. Sometimes I think about what a fool I was, and how much more money I could have made working for large companies at market rates, instead of killing myself for substandard salaries, even though there was some "love of the game" involved. Why is it that we need to exploit people in this game? Especially young engineers or execs with their first VP experiences. Some people get rich, most people are pawns.
- joezydeco 15y ago
  Funny thing...the startup where I'm working is about to face this exact situation. If the acquisition being planned does happen, I'll probably gross a few grand and that's it. As the only software engineer in the startup I've apaprently been identified as a key person in the move. I'd like to think this gives me some leverage, it would take them 3-4 months to find a replacement and get them up to speed. It was my work on early customers and technology demos that helped land the deal, yet I feel like none of that is being recognized. What would you do if you were me?

MaysonL 15y ago

I wonder how much more bad publiciy it will take to torpedo the deal, or for MS to hit the pe guys up for a bit bigger holdback.

rbanffy 15y ago

I am a little bit surprised Microsoft seems OK with this. I believe they still can take a stand and tell Skype management they are not going to get away with this.