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Why Google Does Not Own Skype

Tuesday, May 10th, 2011

So Microsoft is buying Skype for $8.5 billion, its biggest deal ever. It’s too soon to make a pronouncement on whether the purchase is an idiot move, a brilliant one, or just something in between – all the geniuses who ripped the investors who bought Skype from eBay in 2009 don’t look so smart now. But I will recount a bit of history that readers if IN THE PLEX already know: it was almost Google who owned Skype.

Here’s more detail on the story:

In 2009 a brilliant product manager named Wesley Chan was in charge of Google Voice, which was still in development. It was Google’s revamp of Grand Central, which Chan had snared in an acquisition the year before. When some Google executives heard that eBay was selling Skype, they jumped on the opportunity and began negotiating.

As Chan helped with due diligence, even going to Europe to see Skype firsthand, he became convinced that the purchase was a bad idea for Google. He concluded that one of Skype’s key assets – its peer-to-peer technology — was a mismatch for Google, which worked on the newer paradigm of cloud computing. “The worst thing about peer-to-peer is that it doesn’t work well with Google,” Chan told me during an amazing interview for IN THE PLEX in February 2010. “Peer-to-peer just eats up your bandwidth, right, it’s like the old technology.” So if Google bought Skype, Chan concluded, it would have to rewrite the entire Skype platform. Worse, buying Skype would have involved an extensive review process by the government, involving the DOJ or FCC or both. Chan figured that it would take 18-24 months to get through that process, during which Google would be at a standstill in the space. “It would’ve been disastrous,” he said.

But Google was well along on its hunt. “Everybody wanted to do it,” Chan said, “Eric [Schmidt] was bullish on it. And I said, ‘Uh-uh.’”

It was then that Wesley Chan began his plan to derail the deal. Chan happened to be close to a number of people who are unheralded powers at Google, mainly early Googlers close to Larry and Sergey whose opinions are highly regarded. One of those was Salar Kamangar, one of Google’s first ten employees and the co-creator of AdWords. (He is now the CEO of YouTube.) After Chan explained his objections, Kamanger was on board to scuttle the deal.

“Salar and I laid the grenades,” Chan told me. According to Chan, the pair went to Sergey Brin and convinced him it was a terrible deal. Then, Chan says, they brainstormed a plan to sabotage the deal in a key meeting of top executives, a gather that presumably would wind up blessing the purchase.

The idea was bait and switch—the executives in favor of the deal would assume that everything was on brack, and Chan and his allies would use shock and awe to turn things around. Chan says that he began the meeting by praising the deal. “I even had a deck that was super supportive of it,” he says.

But, according to Chan, halfway through the deck, Sergey Brin seized the floor “and started getting really negative.” He asked a series of questions that he knew would get unsatisfactory answers. Is this purchase data-driven? Who is going to spend all those months commuting to Europe? (No one stepped up.) How long is the government review expected to take? As Chan had figured, the advocates of the deal were unprepared to respond to these last-minute objections.

Chan then described the climatic moment. “[Sergey] looks at me and says, ‘Why would I want this risk? We have a team capable of building the carrier, we have the users, we have hundreds of millions of Gmail users, why do we need to have Skype?’ And at that point, Sergey gets up and says, ‘This is the dumbest shit I’ve ever seen.’ And Eric gets up and walks out of the room, and I’m like, okay, the deal’s off.” And it was.

What was Larry doing in all this? I asked Chan after he described this to me.

“Larry was kind of, oh, whatever,” Chan said. “He was checking his laptop. I don’t think he was the one that really cared about this as much [as Eric].”

Now of course, Larry is in charge of Google and fully engaged. I wonder what he’s thinking about Microsoft’s Skype deal, which is grabbing headlines just as Google’s I/O conference gets underway.

At least it wasn’t Facebook making the buy.

15 Comments

  • Well, MS did good at choice but was bad at deal. 8.5 is too much..
    (( It was free on skype’s website :D ))
    Still, just as Windows, now people are expecting different version of skype – Skype Professional, Skype Ultimate, Skype Home Premium etc.
    They might start charging something for the premium editions..
    that is what people expect.. but MS can do anything.. it on their own..
    Good Luck MS!
    i wish FB had bought it!

  • I have a question not related to your article but generally, so based on the question “Who is going to spend all that time commuting to europe” Doesn’t google have offices and executives outside of US? Or is it US or nothing kind of a company from work life point of view?

  • Cloud computing is ‘newer’ than P2P?

    Maybe the buzzword is relatively new but ‘cloud’ computing or storing data and having the bulk of processing take place on the server rather than the client probably predates the desktop. Isn’t cloud computing much like the days of the mainframe?

    Google probably likes cloud computing because it is a comparatively centralised model; where they’ve built an incredible, relatively unique-to-them expertise. P2P on the other hand feels more democratic, lower barriers to entry and so forth.

    Personally I wish it had been Google buying Skype. I think Google’s ethos, work ethic and brand is better fit than Microsoft’s.

    As an early adopter of Skype I’m now Googling for alternatives.

    My hunch is that the barrier to entry of building a contact list will not be an issue if Facebook or Google can offer a comparable product. My friends and colleagues are equally as much on Facebook or Google (particularly Google via Google docs) so a voice, video, screen sharing extension offered by Google at comparable pricing to Skype would make me a very quick convert. Perhaps Chan knew this is moments away already… so they absolutely don’t need Skype.

    • Anyone around here remember something called FidoNet? Fido nodes were all dial up, and they acted as BBS’s most of the time, but stopped during “mail hour” to call each other and deliver the messages. Totally decentralized. Still works, too.

  • I have to buy Skype for 8.5 billion is not the best idea for Microsoft. It’s hard to believe that Microsoft could develop in a way that Skype can produce much more money invested. Microsoft’s specialty is the computation on the cloud if google did not dare to buy Skype for fear of not having success, that makes you believe that Microsoft will be able to achieve it.

  • Google are probably seething right now. When Google looks back in a few years and sees Skype integrated into Windows, Explorer, Outlook etc and it’s all a one click call for the business users which Google is desperate to get as they spend the $$ it won’t look like “dumbest shit I’ve ever seen” The real reason they didn’t buy is I the IP problems they were “shit scared” of which they always were but Microsoft seemed to solve those. WHY COULDN”T GOOGLE SOLVE THESE They need this deal. they just can’t egt out of their own way with all the changes going on. See All things Digital comments :_:_:_:

    The rumor mill is that Dyne held the keys to the Kingdom on the Skype sale to Microsoft as he is the proxy for Zennstrom and Friis and it was all about consolidating the IP which somehow eBay didnt own and was the subject of a battle of the giants 2 years ago. Looks like he played ball to get this done and made like a billion dollars for his team
    Hello GGOOGLE where are you?

  • Google should buy ooVoo. Cloud based and a wonderful 6 window video technology. Skype is no comparison to ooVoo in quality or basic features. The new ooVoo BETA version will make ooVoo a steal for Google.

  • “Now of course, Larry is in charge of Google and fully engaged.”

    Tongue in Cheek?

    Excellent insight. Thanks

  • I hope Microsoft don’t ‘corporatise ‘ Skype reducing their ability to innovate. Personally i would of preferred Google to acquire them and realise the associated benefits and synergies of Google Voice.

    Lets watch this space but i can see Skype appearing on Xbox Live (Kinect) and integrated into their Live Messenger products.

    • Am I the only one reading the Google Voice references here and thinking that Google has done almost nothing with Google Voice since acquiring Grand Central. They’ve barely integrated it into Gmail, the Android OS integration is no deeper than an app, and they have hardly added any features.

      And what is Chan talking about peer-to-peer? “It just eats up your bandwidth”? How does having a Google server in between the end points on a voice call decrease the bandwidth of video? It sounds like he is talking about p2p file sharing or something, he comes off sounding really ignorant.

  • >At least it wasn’t Facebook making the buy.

    But microsoft is an investor in facebook

  • [...] his article Why Google does not own Skype, Steven Levy explains the story behind how “a brilliant product manager named Wesley [...]

  • [...] En los análisis de primera hora tras la compra, no se considera que Google estuviera realmente interesado en comprar Skype. La tecnología P2P de Skype no atrae a la empresa del buscador, comprometida en la propuesta de una conexión a través de la nube de Internet. En el caso de haberla comprado, Google debería reescribir toda la plataforma tecnológica de Skype. [...]

  • [...] According to Wesley Chan, an investment partner at Google Ventures, the data-intensive nature of Skype’s underlying peer-to-peer technology turned out to be the deal breaker. Needless to say, the Big G has absolutely no regrets about not acquiring Skype’s “old technology” as its own efforts seem to be coming along nicely. It has now announced plans to add Skype-like real-time communication (RTC) features into Chrome using its open-source WebRTC initiative. [...]

  • [...] »  Why Google Does Not Own Skype (Steven Levy) [...]

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