WEBVTT - The Skype Story: Microsoft Buys Skype. What Now? 0:00:04.440 --> 0:00:12.399 Welcome to Tech Stuff, a production from iHeartRadio. Hey thereon 0:00:12.520 --> 0:00:15.800 Welcome to Tech Stuff, I'm your host Jonathan Strickland. I'm 0:00:15.800 --> 0:00:19.000 an executive producer with iHeartRadio and how the tech are 0:00:19.040 --> 0:00:25.160 you So? On Monday's episode, I described how Skype came 0:00:25.200 --> 0:00:30.280 into being, how it grew quickly after launch, which prompted eBay, 0:00:30.520 --> 0:00:34.760 under the leadership of Meg Whitman, to acquire Skype for 0:00:34.840 --> 0:00:38.839 the princely sum of around two point six billion dollars. 0:00:38.880 --> 0:00:41.920 The actual amount varies depending upon what source you're looking at. 0:00:42.640 --> 0:00:45.000 I also talked about how eBay never really found a 0:00:45.040 --> 0:00:48.680 way to integrate Skype into its business, at least not 0:00:48.760 --> 0:00:51.960 in a way that really worked, and when leadership of 0:00:52.000 --> 0:00:56.240 eBay changed and John Donaho took over leadership of the company, 0:00:57.080 --> 0:00:59.200 one of his priorities was to find something to do 0:00:59.240 --> 0:01:02.400 with Skype. Now. Initially, the plan was to spin off 0:01:02.440 --> 0:01:05.400 Skype as its own company in an initial public offering, 0:01:05.440 --> 0:01:08.960 but that fell apart when Skype's original architects threatened to 0:01:09.000 --> 0:01:13.720 pull the technology that powered the service if they went 0:01:13.760 --> 0:01:18.720 that route without working with those founders. So instead, eBay 0:01:18.760 --> 0:01:21.399 would actually sell off a majority stake in Skype to 0:01:21.480 --> 0:01:25.080 an investor group silver Lake and the Skype founders would 0:01:25.080 --> 0:01:28.399 also get a share of the ownership of Skype, and 0:01:28.400 --> 0:01:30.560 eBay would hold on to about thirty percent of the 0:01:30.600 --> 0:01:33.959 steak itself. Now, this is what set up all the 0:01:33.959 --> 0:01:39.039 parties were a huge windfall when Microsoft expressed interest in 0:01:39.120 --> 0:01:43.759 acquiring Skype in around twenty ten twenty eleven. And it's 0:01:43.800 --> 0:01:47.200 also why I cannot call the eBay acquisition of Skype 0:01:47.240 --> 0:01:49.559 one of the worst deals of all time, at least 0:01:49.560 --> 0:01:51.720 not I may have done that once upon a time, 0:01:52.080 --> 0:01:55.200 I don't think I can really say that. I think 0:01:55.200 --> 0:01:57.880 it was a bad deal because the companies failed to 0:01:57.880 --> 0:02:00.400 find a way to integrate with one another. They couldn't 0:02:00.400 --> 0:02:03.960 find those synergies that they had been planning on. So 0:02:04.440 --> 0:02:08.040 in that sense, it was a failure. But unlike some 0:02:08.120 --> 0:02:10.720 of the other deals that tend to make a worst 0:02:10.840 --> 0:02:14.720 Deals of all Time list, eBay did not lose a 0:02:15.000 --> 0:02:17.760 ton of money on this if you're looking just at 0:02:17.800 --> 0:02:22.280 the purchase price versus the sell price. In fact, they 0:02:22.320 --> 0:02:25.240 actually made money compared to you know, how much they 0:02:25.280 --> 0:02:27.760 bought versus how much they got when they sold it. 0:02:28.960 --> 0:02:31.639 If you compare that to the time when News Corp. 0:02:32.040 --> 0:02:35.840 Bought MySpace. They bought MySpace for five hundred and eighty 0:02:35.960 --> 0:02:39.240 million dollars and then they later sold it for thirty 0:02:39.240 --> 0:02:42.239 five million dollars. That was a stinker of a deal. 0:02:42.280 --> 0:02:45.200 That was a huge loss. Now, obviously that doesn't actually 0:02:45.280 --> 0:02:50.680 take into account how much money eBay spent while owning 0:02:50.919 --> 0:02:54.520 Skype on the product, like how much money they poured 0:02:54.560 --> 0:02:57.040 into development and that sort of stuff. If you take 0:02:57.120 --> 0:03:00.320 all of those considerations into account, if very well may 0:03:00.320 --> 0:03:03.160 be that ultimately, yes, eBay lost money on the deal, 0:03:03.760 --> 0:03:07.000 but they still sold it for more than they bought it, 0:03:07.080 --> 0:03:12.680 so on the worst deals list, it can't be number one. Anyway. 0:03:12.919 --> 0:03:17.120 Let's set the stage for Microsoft's offer. While eBay and 0:03:17.160 --> 0:03:20.840 Skype did not synergize the way Meg Whitman had hoped, 0:03:21.400 --> 0:03:25.480 it didn't stop Skype from continuing to grow over the years. 0:03:25.960 --> 0:03:29.400 In twenty ten, the service boasted five hundred and sixty 0:03:29.520 --> 0:03:34.480 million registered users collectively. Those users had used Skype for 0:03:34.520 --> 0:03:38.880 more than two hundred and seven billion minutes of voice 0:03:39.080 --> 0:03:43.800 and video chats collectively across the entire history of Skype. Now, 0:03:44.520 --> 0:03:48.080 if you actually convert that into years, that means that 0:03:48.560 --> 0:03:51.440 there were more than three hundred ninety three, eight hundred 0:03:51.480 --> 0:03:54.040 and thirty five years worth of digital chats that had 0:03:54.080 --> 0:03:58.040 gone across Skype over its history. Yaosen no wonder Microsoft 0:03:58.080 --> 0:04:01.440 was interested in it. And interested is putting it lightly, 0:04:01.480 --> 0:04:04.960 because Microsoft was ready to offer the largest deal in 0:04:05.000 --> 0:04:08.920 the company's history at that point. Anyway, it was for 0:04:09.080 --> 0:04:16.240 eight point five six billion dollars in cash, a truly 0:04:16.880 --> 0:04:20.000 princely sum, and this was at a time when other 0:04:20.080 --> 0:04:23.799 parties were similarly starting to express interest in acquiring Skype. 0:04:24.440 --> 0:04:28.520 Rumor had it that both Google and Facebook, which of 0:04:28.520 --> 0:04:33.800 course now is Meta, were interested in potentially either partnering 0:04:33.839 --> 0:04:37.680 with Skype or just outright acquiring it. But Microsoft was 0:04:37.720 --> 0:04:42.800 the party that won the right to acquire Skype. And 0:04:42.839 --> 0:04:47.360 to be clear, Skype was actually making money at this point. 0:04:47.400 --> 0:04:50.040 It had debt as well, but it was making money. 0:04:50.720 --> 0:04:53.159 In two thousand and eight, the division posted revenue of 0:04:53.240 --> 0:04:55.479 more than eight hundred and sixty million dollars, but of 0:04:55.480 --> 0:04:59.200 course revenue is not profit. But the profit was around 0:04:59.200 --> 0:05:03.200 two hundred six sixty million dollars, so they weren't making money, 0:05:03.240 --> 0:05:06.560 which put that into contrast with tons of startups that 0:05:06.600 --> 0:05:10.320 come out of Silicon Valley, where you know, some of 0:05:10.360 --> 0:05:13.520 them just don't even make revenue. But other ones that 0:05:13.560 --> 0:05:16.640 do make revenue, most of them failed to turn a 0:05:16.720 --> 0:05:21.480 profit for years, years and years. There are services that, 0:05:21.839 --> 0:05:24.799 you know, for almost the entire history of the service 0:05:25.360 --> 0:05:29.080 were not profitable. So Skype was kind of a standout 0:05:29.080 --> 0:05:32.599 in the crowd on that regard. A quarter of a 0:05:32.680 --> 0:05:36.480 billion dollars in profit is a mountainous amount of money, 0:05:36.520 --> 0:05:38.760 but it is just a drop in the bucket compared 0:05:38.800 --> 0:05:43.560 to eight point five billion dollars. And like I said, 0:05:43.640 --> 0:05:46.839 Microsoft had never made an acquisition offer as large as 0:05:46.960 --> 0:05:50.839 that before. Now since it has done that, right, Like 0:05:50.880 --> 0:05:56.680 the Activision Blizzard deal which just completed was nearly seventy 0:05:56.960 --> 0:06:00.679 billion dollars, almost ten times as much. So so yeah, 0:06:00.920 --> 0:06:04.320 they have gone bigger since then. An article from Wired 0:06:04.320 --> 0:06:07.200 back in twenty eleven put the deal in the context 0:06:07.200 --> 0:06:10.080 of some other acquisitions Microsoft had made, ones with much 0:06:10.240 --> 0:06:14.839 smaller price tags. But Wired was saying Microsoft had a 0:06:14.960 --> 0:06:19.960 history of purchasing companies but having very little to show 0:06:20.000 --> 0:06:23.600 for those purchases. That you know, there was clearly a 0:06:24.240 --> 0:06:28.280 desire to acquire these these companies, but then kind of 0:06:28.480 --> 0:06:32.000 momentum just died, so that it was sort of a warning, 0:06:32.640 --> 0:06:35.000 and it raised the question what did Microsoft see in 0:06:35.080 --> 0:06:38.400 Skype that would prompt the company to offer what was 0:06:38.480 --> 0:06:42.240 at that point an unprecedented amount of cash. This was 0:06:42.279 --> 0:06:45.040 a cash deal too. This wasn't one of those deals 0:06:45.040 --> 0:06:48.160 where it was you know, trades and stock or whatever. 0:06:48.400 --> 0:06:50.480 It was actually, no, we will pay you eight point 0:06:50.520 --> 0:06:54.039 five billion dollars because Microsoft was flush with cash. Now, 0:06:54.080 --> 0:06:59.120 confusing the matter was that Microsoft already had some products that, 0:06:59.200 --> 0:07:03.919 at least in part art were overlaps or in competition 0:07:04.360 --> 0:07:09.240 with Skype. Windows Live Messaging, for example, offered live chat, 0:07:09.240 --> 0:07:14.760 including video chat, as well as text messaging. So you 0:07:14.840 --> 0:07:17.040 might say, well, why would you want Skype? You already 0:07:17.040 --> 0:07:20.400 have a tool that does kind of what Skype is doing. 0:07:20.920 --> 0:07:24.120 It also had a bunch of corporate products that did 0:07:24.120 --> 0:07:28.120 something similar for big companies. Right, a lot of Microsoft's 0:07:28.160 --> 0:07:34.280 businesses were focused on enterprise clients, not individual customers. But 0:07:34.920 --> 0:07:39.560 how can we get a customer like an entire company 0:07:40.160 --> 0:07:42.560 to buy into our systems because that's where the big, 0:07:42.600 --> 0:07:46.600 big money is. And in fact, Microsoft's owned and operated 0:07:46.640 --> 0:07:51.040 products already boasted more users and more simultaneous connections than Skype. 0:07:51.600 --> 0:07:55.200 In some cases, you see a company acquire another one. 0:07:55.560 --> 0:08:00.040 Not because they want access to that company's technology, so 0:08:00.120 --> 0:08:02.800 they want access to that company's user base. Right. That 0:08:02.920 --> 0:08:05.160 was one of the arguments that was made when Facebook 0:08:05.280 --> 0:08:09.960 acquired WhatsApp was that Facebook was more interested in getting 0:08:10.240 --> 0:08:14.920 access to WhatsApp's users than WhatsApp itself. I don't think 0:08:14.960 --> 0:08:17.120 that was fully true. I think it was like an 0:08:17.200 --> 0:08:20.400 equal opportunity thing, like, yes, I want the users and 0:08:20.440 --> 0:08:24.800 I want the technology. Now. Skype did have one thing 0:08:24.840 --> 0:08:28.560 that Microsoft's products did not have. It had interoperability with 0:08:28.680 --> 0:08:32.960 landline and cellular telephone services. Right. That was a paid 0:08:33.040 --> 0:08:36.120 for option in Skype, in that you could use Skype 0:08:36.120 --> 0:08:41.440 to make a computer to telephone phone call. Perhaps more importantly, 0:08:41.840 --> 0:08:46.640 folks had to pay to use that specific service, and 0:08:47.040 --> 0:08:50.600 around eight million of Skype's registered users were doing that 0:08:50.760 --> 0:08:53.560 on the rag And that was something that Microsoft did 0:08:53.559 --> 0:08:56.440 not have access to. And Microsoft was kind of struggling 0:08:56.520 --> 0:08:59.880 in the communications space. It had been pushing variations of 0:09:00.160 --> 0:09:04.000 Windows for mobile phones for years, but the rise of 0:09:04.000 --> 0:09:08.200 the iPhone and Android platforms kept the Windows mobile platform 0:09:08.360 --> 0:09:11.600 at a distant third not always at third place, either, 0:09:11.640 --> 0:09:14.080 Sometimes there were other operating systems that took third place. 0:09:14.559 --> 0:09:18.600 In fact, let's explore for a few minutes Microsoft's history 0:09:18.840 --> 0:09:22.840 with mobile communications devices, because I think that's an important 0:09:22.880 --> 0:09:25.080 piece to consider. I think it was one of the 0:09:25.120 --> 0:09:29.040 motivating factors that led Microsoft to acquire Skype in the 0:09:29.040 --> 0:09:32.280 first place. So Microsoft had been trying to establish a 0:09:32.320 --> 0:09:35.240 strong presence in the space at least since the early 0:09:35.240 --> 0:09:39.880 two thousands, with Pocket PC and Windows Mobile operating systems. Now, 0:09:39.920 --> 0:09:43.040 you could argue that the history goes back even further 0:09:43.440 --> 0:09:46.280 into the mid nineteen nineties with the introduction of Windows 0:09:46.440 --> 0:09:51.040 CE in ninety six. Windows CE was intended for handheld PCs, 0:09:51.480 --> 0:09:54.719 so think of things like, you know, very mobile computers, 0:09:54.800 --> 0:09:58.800 almost like tablet style computer systems. Now, before the era 0:09:58.880 --> 0:10:02.640 of the smartphone, there was the personal Digital assistant or PDA, 0:10:02.800 --> 0:10:04.680 and you can kind of think of a PDA as 0:10:04.720 --> 0:10:08.520 a smartphone without the phone part. The term was really 0:10:08.600 --> 0:10:11.840 established with the introduction of the Apple Newton, although the 0:10:11.880 --> 0:10:14.559 Newton itself wasn't the first device that fit the definition, 0:10:14.600 --> 0:10:18.600 but it was the device that introduced the term. And 0:10:18.679 --> 0:10:22.040 there was a rush to become the company to define 0:10:22.840 --> 0:10:26.440 mobile computing, and Microsoft was very much interested in being 0:10:26.520 --> 0:10:30.880 in that race. So Microsoft had a long history of 0:10:30.920 --> 0:10:34.800 catering to enterprises, as I mentioned, you know, to go 0:10:35.120 --> 0:10:39.520 and try and build products specifically for business and business leaders, 0:10:40.360 --> 0:10:44.240 and a lot of their business came from licensing or 0:10:44.320 --> 0:10:47.280 selling Microsoft products to these companies. So it made sense 0:10:47.320 --> 0:10:50.559 to develop a mobile operating system that could be compatible 0:10:50.600 --> 0:10:54.839 with the various software packages Microsoft published, right to build 0:10:54.880 --> 0:10:57.560 an operating system that could run at least some version 0:10:58.160 --> 0:11:03.240 of things like Outlook or a window, you know, Microsoft 0:11:03.280 --> 0:11:08.880 Office products, and Microsoft's mobile operating system would also work 0:11:08.880 --> 0:11:11.400 on smartphones, though at this point we're still in the 0:11:11.400 --> 0:11:15.400 era of smartphones being the domain of fancy business people, right, 0:11:15.520 --> 0:11:19.440 you wouldn't get consumer smartphones, at least not truly widely 0:11:19.480 --> 0:11:24.760 adopted consumer smartphones until two thousand and seven. And Microsoft 0:11:24.760 --> 0:11:27.360 also was not in the business of making the hardware, 0:11:27.800 --> 0:11:29.880 so they were just focusing on the software that would 0:11:29.960 --> 0:11:32.120 run on top of the devices. So then when we 0:11:32.200 --> 0:11:34.560 do get to two thousand and seven, when Apple rolled 0:11:34.559 --> 0:11:37.840 out its own smartphone, which was a really sexy device 0:11:37.880 --> 0:11:41.240 that could serve as a computer and a communications device 0:11:41.320 --> 0:11:46.080 and a digital media player and more, Apple made a 0:11:46.280 --> 0:11:50.600 power move and something Microsoft was not ready to meet. Like, 0:11:50.679 --> 0:11:53.080 they did not have an answer for the iPhone when 0:11:53.080 --> 0:11:56.120 the iPhone came out in two thousand and seven. Then 0:11:56.880 --> 0:12:01.960 Google released Android a short time later, and another competing 0:12:02.000 --> 0:12:04.960 mobile operating system was there on the market, and unlike Apple, 0:12:05.040 --> 0:12:09.040 Google partnered with handset manufacturers to put the Android operating 0:12:09.040 --> 0:12:13.439 system on devices. Now Apple was doing everything itself, Google 0:12:13.520 --> 0:12:17.160 was working with partners, which was more like Microsoft. Right. 0:12:17.240 --> 0:12:19.480 Microsoft was doing the same sort of thing with their 0:12:19.520 --> 0:12:22.960 own mobile operating system. But the important thing is the 0:12:23.000 --> 0:12:27.240 era of the consumer smartphone was upon us, and the 0:12:27.360 --> 0:12:31.199 utilitarian smartphones that were meant just for business leaders now 0:12:31.360 --> 0:12:36.400 were taking second place to these sleek and sexy touch 0:12:36.600 --> 0:12:41.360 screen interface smartphones that were meant for consumers. In two 0:12:41.400 --> 0:12:45.959 thousand and seven, Microsoft introduced Windows Mobile six. While there 0:12:46.080 --> 0:12:48.720 was a version of Windows Mobile six that would work 0:12:48.760 --> 0:12:53.680 with touch screens, that version was called the Professional version 0:12:53.800 --> 0:12:57.360 of Windows Mobile six, so that kind of indicated that 0:12:57.800 --> 0:13:00.920 Microsoft was still looking at smartphones as kind of an 0:13:00.960 --> 0:13:05.719 elite business device, not something for the general consumer. They 0:13:05.800 --> 0:13:10.400 also offered classic and standard versions of the operating system, 0:13:11.679 --> 0:13:14.040 so these were versions of the operating system that were 0:13:14.040 --> 0:13:17.080 meant for other devices, such as smartphones that did not 0:13:17.200 --> 0:13:20.400 have a touchscreen but had like physical keyboards and stuff 0:13:21.040 --> 0:13:23.920 and even PDAs. Now, it wasn't until two thousand and 0:13:23.960 --> 0:13:27.040 nine that Microsoft had a quote unquote finger friendly version 0:13:27.679 --> 0:13:30.760 of its operating system, and by then the iPhone and 0:13:30.760 --> 0:13:33.559 Android phones had been evolving for a couple of years 0:13:33.600 --> 0:13:36.720 and had really established a firm presence in the market. 0:13:37.200 --> 0:13:39.360 In twenty ten, Microsoft would change the name of its 0:13:39.360 --> 0:13:42.480 mobile operating system, so instead of being called Windows Mobile, 0:13:43.120 --> 0:13:48.320 it became Windows Phone, and it changed dramatically like Microsoft 0:13:48.360 --> 0:13:53.200 was finally really ready to meet Android and iOS, and 0:13:53.280 --> 0:13:59.040 the user interface for Windows Phone was obviously meant to 0:13:59.280 --> 0:14:04.319 compete direct directly with Android and iOS devices. The company 0:14:04.360 --> 0:14:07.600 was already well behind Google and Apple and the consumer market. However, 0:14:07.920 --> 0:14:10.280 and this brings us up to the time of Microsoft's 0:14:10.280 --> 0:14:15.640 decision to acquire Skype. We will continue our story, but 0:14:15.760 --> 0:14:23.800 first let's take a quick break to thank our sponsors. 0:14:27.960 --> 0:14:32.800 We're back. So perhaps Microsoft was viewing Skype as the 0:14:32.960 --> 0:14:37.320 killer app that would propel Windows Phone into the spotlight. 0:14:37.520 --> 0:14:39.880 That might have at least been part of their decision 0:14:40.000 --> 0:14:44.120 to go after Skype. Maybe the plan was to leverage 0:14:44.120 --> 0:14:48.600 Skype and make Skype the primary method of connecting with 0:14:48.760 --> 0:14:53.120 other you know, other people instead of using traditional cellular service, 0:14:53.160 --> 0:14:56.400 you would use Skype to connect to everybody. Now, if 0:14:56.400 --> 0:15:00.200 that had been the plan, conventional wisdom said that Microsoft 0:15:00.240 --> 0:15:03.720 embracing Skype would likely tick off the various carriers in 0:15:03.760 --> 0:15:07.360 the phone space. That would be a huge issue now. 0:15:07.440 --> 0:15:11.320 At the time when smartphones were coming out, there were 0:15:11.320 --> 0:15:15.200 these big deals with carriers, sometimes meaning that a phone 0:15:15.280 --> 0:15:19.400 might be exclusive to a specific carrier, at least in 0:15:19.400 --> 0:15:22.800 the United States. So like when the iPhone first came out, 0:15:22.920 --> 0:15:25.760 it was exclusive to AT and T users. If you 0:15:25.800 --> 0:15:28.400 were on any other carrier, you could not have an 0:15:28.440 --> 0:15:32.760 iPhone because it wouldn't work on that carrier's service. You 0:15:32.880 --> 0:15:36.880 had to be an AT and T customer. And part 0:15:36.920 --> 0:15:41.080 of those deals meant that the carriers would offer big 0:15:41.120 --> 0:15:44.840 discounts on the smartphones in order to get you hooked 0:15:44.920 --> 0:15:48.440 into the carrier's service. It's like the whole idea of like, 0:15:48.480 --> 0:15:50.720 this is the lure, and once you've taken the lure, 0:15:50.800 --> 0:15:53.520 you're caught, and now you're you're hers for as long 0:15:53.560 --> 0:15:57.440 as we want you. And it meant that the initial 0:15:57.560 --> 0:16:00.760 cost of these phones was much much much lower than 0:16:00.840 --> 0:16:04.760 you would find today because those kind of agreements are 0:16:04.840 --> 0:16:07.520 much more rare today. If you were to go and 0:16:07.520 --> 0:16:10.920 buy a phone, in a lot of cases, you'd just 0:16:10.960 --> 0:16:13.840 be paying full price to get the phone and then 0:16:13.920 --> 0:16:18.080 add it to whatever service you already have. But at 0:16:18.120 --> 0:16:20.320 this point that's not how things were going, and the 0:16:20.400 --> 0:16:25.400 fear was that if Microsoft chose Skype as the central 0:16:25.960 --> 0:16:31.200 way of communicating through this phone, it would alienate all 0:16:31.200 --> 0:16:33.040 the carriers and there'd be no way to form that 0:16:33.160 --> 0:16:36.360 kind of relationship and people would have to pay full 0:16:36.400 --> 0:16:39.480 price to get a Windows phone, which seems like a 0:16:39.520 --> 0:16:43.520 barrier to entry now. Before the acquisition deal could even 0:16:43.560 --> 0:16:47.280 go through, there were a couple of instances where a 0:16:47.320 --> 0:16:50.240 bug in Skype software caused a significant crash in the 0:16:50.280 --> 0:16:55.200 service for millions of users. Not service wide, but enough 0:16:55.280 --> 0:16:58.200 users for it to be a problem. Fortunately, a patched 0:16:58.240 --> 0:17:02.440 client and Skype's own instructions or workarounds would limit the problem, 0:17:02.640 --> 0:17:04.920 but it did demonstrate that there were some issues here, 0:17:05.720 --> 0:17:08.639 and it prompted Skype to make a change to its 0:17:08.720 --> 0:17:12.000 back end infrastructure that would continue over the course of 0:17:12.040 --> 0:17:17.080 the following years. So way back when Skype was first introduced, 0:17:17.760 --> 0:17:21.280 it was built purely upon peer to peer networks, and 0:17:21.320 --> 0:17:24.040 in a peer to peer network every computer is equal 0:17:24.080 --> 0:17:28.000 to every other computer on the system. But by this 0:17:28.320 --> 0:17:32.720 point Skype had designated some of its own servers, servers 0:17:32.720 --> 0:17:38.000 that Skype itself owned, as supernodes. These devices would feature 0:17:38.040 --> 0:17:41.480 open connectivity and would remain online pretty much all the time. 0:17:41.560 --> 0:17:43.520 This was meant to be kind of like the backbone 0:17:44.080 --> 0:17:47.159 of Skype service that while other computers might go up 0:17:47.200 --> 0:17:51.879 and down, these would be dependable and they would provide 0:17:51.880 --> 0:17:56.680 additional stability to the overall network. But it would mean 0:17:56.680 --> 0:17:59.680 that you're kind of moving away from this more democratic 0:17:59.720 --> 0:18:02.960 peer to peer approach, and you could say things got 0:18:02.960 --> 0:18:06.640 a little or Wellian, not nineteen eighty four, but more 0:18:06.720 --> 0:18:09.480 like animal farm, where you have a peer to peer 0:18:09.480 --> 0:18:13.120 network in which all computers are equal, but some computers 0:18:13.160 --> 0:18:16.880 are more equal than others. That's probably being a bit 0:18:16.920 --> 0:18:20.879 too unfair, because the move was becoming necessary. The way 0:18:20.960 --> 0:18:25.640 we were using computers was changing. Before the smartphone era, 0:18:26.040 --> 0:18:28.919 we were depending on desktops and laptop computers to access 0:18:28.960 --> 0:18:31.760 the Internet, and a lot of times we would just 0:18:31.920 --> 0:18:36.000 keep those devices running even if we weren't actively using them. 0:18:36.400 --> 0:18:39.760 These were the computers that, when connected to a peer 0:18:39.800 --> 0:18:42.480 to peer network, would continue to share their resources with 0:18:42.520 --> 0:18:46.680 the overall system. It's what made peer to peer networks work. 0:18:47.560 --> 0:18:51.760 But with the proliferation of smartphones, more of our computer 0:18:51.840 --> 0:18:55.520 activity began to shift to mobile devices. We started to 0:18:55.640 --> 0:19:00.320 use desktops and laptops less frequently, and we weren't always 0:19:00.400 --> 0:19:05.760 keeping them online, and that meant that the peer to 0:19:05.760 --> 0:19:09.680 peer network saw a decline in active nodes across the system. 0:19:09.960 --> 0:19:13.560 So if Skype had remained strictly a peer to peer service, 0:19:14.160 --> 0:19:18.480 the actual performance of Skype would have steadily declined because 0:19:18.520 --> 0:19:21.480 fewer computers remained active in the network. There would be 0:19:21.560 --> 0:19:25.440 fewer resources for Skype to use, and the service would 0:19:25.480 --> 0:19:29.800 go downhill. So you could argue that this was absolutely 0:19:30.000 --> 0:19:33.960 a necessary move for Skype in order for the service 0:19:34.000 --> 0:19:37.120 to continue to work. Now, this didn't actually slow down 0:19:37.200 --> 0:19:39.679 Microsoft's deal. They made the eight and a half billion 0:19:39.720 --> 0:19:43.520 dollar offer. The collection of Skype stakeholders agreed to that, 0:19:44.240 --> 0:19:46.760 and that actually would mean that eBay would get another 0:19:46.840 --> 0:19:50.320 one point four billion because of its stake in Skype, 0:19:50.800 --> 0:19:53.960 and by my reckoning, that ultimately means eBay sold Skype 0:19:53.960 --> 0:19:56.680 for somewhere in the neighborhood of seven hundred million dollars 0:19:56.760 --> 0:20:01.199 more than what it paid for it, so again, not 0:20:01.320 --> 0:20:04.960 exactly the worst deal in tech history. Though also again 0:20:05.200 --> 0:20:08.720 I'm not factoring in how much money eBay poured into 0:20:08.720 --> 0:20:12.119 Skype while it owned it, so it's not an apples 0:20:12.119 --> 0:20:15.800 to apples thing. But anyway, in this era, Steve Balmer 0:20:16.160 --> 0:20:18.199 was in charge of Microsoft. Now, if you do not 0:20:18.359 --> 0:20:21.399 know who Steve Balmer is, there's no shade on that. 0:20:22.720 --> 0:20:24.840 But boy, how do you need to go to YouTube 0:20:25.359 --> 0:20:29.520 and search Microsoft Steve Balmer and look for the greatest 0:20:29.560 --> 0:20:33.720 hits of that man's performances on various stages at different conferences, 0:20:34.320 --> 0:20:41.320 because the word intense doesn't begin to capture that guy. Anyway, 0:20:42.320 --> 0:20:46.520 Bamber planned to integrate Skype into lots of Microsoft products. 0:20:46.560 --> 0:20:49.280 Just like when Meg Whitman was in charge of eBay, 0:20:49.440 --> 0:20:53.720 she had intended to get Skype integrated deeply into eBay's 0:20:53.800 --> 0:20:57.440 products and services. Balmer planned to do the same thing 0:20:57.760 --> 0:21:00.440 over at Microsoft. So the plan was to to great 0:21:00.440 --> 0:21:05.160 Skype with things like the Xbox game console, with products 0:21:05.160 --> 0:21:12.639 like Outlook mail, and potentially with Microsoft's Windows for Phones platform. 0:21:12.760 --> 0:21:16.359 Most of that would not pan out, and some critics 0:21:16.400 --> 0:21:19.040 would end up saying that this was classic Steve Balmer, 0:21:19.160 --> 0:21:22.639 that he was guilty of buying assets and then not 0:21:22.880 --> 0:21:26.960 really knowing how to leverage them, like how to integrate 0:21:27.000 --> 0:21:29.280 them or how to otherwise use them in a meaningful way. 0:21:29.960 --> 0:21:33.040 Microsoft did continue the trend of porting more of Skype's 0:21:33.040 --> 0:21:37.760 back end operations onto Microsoft's owned and operated supernotes, So 0:21:38.480 --> 0:21:43.400 this was again kind of changing the nature of how 0:21:43.520 --> 0:21:47.200 Skype worked, like removing that whole peer to peer aspect. 0:21:47.720 --> 0:21:49.919 It was a very slow transition, however, this was not 0:21:50.040 --> 0:21:52.479 something that was like one day they flipped a switch 0:21:52.840 --> 0:21:55.000 and everything went from peer to peer to kind of 0:21:55.080 --> 0:21:59.040 a cloud based system. It would actually take several years 0:21:59.080 --> 0:22:02.760 to complete, but it did mean that Skype would change 0:22:02.760 --> 0:22:07.200 from peer to peer to cloud based ultimately. Now, one 0:22:07.320 --> 0:22:10.200 semi scandal that kind of broke out around this time 0:22:10.840 --> 0:22:13.760 was that Microsoft was potentially making this change in order 0:22:13.800 --> 0:22:17.679 to garner approval from US authorities. So you got to remember, 0:22:18.440 --> 0:22:20.679 this is around the time that there were all these 0:22:20.720 --> 0:22:26.920 whistleblowers coming forward showing that various authorities, primarily the NSA, 0:22:27.720 --> 0:22:32.800 were using technologies to tap into different communications channels throughout 0:22:32.840 --> 0:22:36.919 the United States and were actively spying on US citizens. 0:22:37.600 --> 0:22:40.400 And this is a huge, huge story and it involved 0:22:41.480 --> 0:22:45.879 dozens of companies in the telecommunications and information services spaces. 0:22:46.760 --> 0:22:51.240 So the fringe theory was that Microsoft wanted to migrate 0:22:51.280 --> 0:22:55.800 away from peer to peer networks because those systems would 0:22:55.800 --> 0:22:59.840 make it impossible for folks to trace phone calls or 0:22:59.840 --> 0:23:03.840 to intercept calls, and that Microsoft was instead moving to 0:23:04.320 --> 0:23:08.000 their own cloud based system because then they could comply 0:23:08.160 --> 0:23:10.800 with law enforcement if there were in order to share 0:23:10.840 --> 0:23:13.800 information about users. Now, the truth of the matter is 0:23:14.520 --> 0:23:17.959 Skype was never immune to tracking, at least not on 0:23:18.000 --> 0:23:22.479 a technical level, like it was possible. That doesn't mean 0:23:22.520 --> 0:23:26.440 it happened, but it was technically possible. So the move 0:23:26.520 --> 0:23:30.479 toward a more cloud based infrastructure didn't mean that it 0:23:30.520 --> 0:23:32.840 was suddenly more susceptible to that. It was just a 0:23:32.840 --> 0:23:36.200 different approach. It also was a move that happened before 0:23:36.240 --> 0:23:39.199 Microsoft had even acquired Skype, right, because when Skype was 0:23:39.280 --> 0:23:43.240 still with the investor Group, they were already transitioning toward 0:23:43.359 --> 0:23:47.199 a semi cloud based kind of infrastructure. So it's not 0:23:47.280 --> 0:23:51.120 like Microsoft made that decision. They just continued that decision. 0:23:51.760 --> 0:23:55.439 But folks love a good conspiracy theory, and trust me, 0:23:56.040 --> 0:23:59.879 I'm not like a flag waiver for Microsoft, but I 0:24:00.080 --> 0:24:01.879 don't want to throw the company under the bus for 0:24:01.960 --> 0:24:05.520 something that it really didn't do. The transition to cloud, 0:24:06.280 --> 0:24:08.439 like I said, took years, It kind of wrapped up 0:24:08.480 --> 0:24:12.080 around twenty sixteen. The change actually meant that Skype users 0:24:12.119 --> 0:24:14.399 had to update the client that they were using to 0:24:14.440 --> 0:24:18.160 access the service because the peer to peer based Skype 0:24:18.160 --> 0:24:21.640 clients would not work with the new cloud based infrastructure. 0:24:21.680 --> 0:24:25.159 So Microsoft rolled out some new clients for folks to 0:24:25.280 --> 0:24:29.320 download and use so they could continue to utilize the 0:24:29.359 --> 0:24:34.920 Skype service. Under Microsoft's ownership, Skype did get more complicated, 0:24:35.600 --> 0:24:40.480 and a lot of analysts, at least in hindsight, say 0:24:41.119 --> 0:24:45.560 that Skype was bloated with features that did not really 0:24:45.640 --> 0:24:49.399 contribute to the prime purpose for Skype. We see this 0:24:49.480 --> 0:24:52.040 a lot with different products, especially products that have a 0:24:52.160 --> 0:24:56.840 very long lifespan, where over the course of a product's 0:24:56.880 --> 0:25:00.359 life cycle, the developers will start to add in that 0:25:00.400 --> 0:25:02.600 don't really make a whole lot of sense. And part 0:25:02.640 --> 0:25:04.400 of it is just because you might reach a level 0:25:04.400 --> 0:25:07.960 of maturity with an app or service where there's not 0:25:08.280 --> 0:25:12.840 really any further you can go with like the primary functions, 0:25:12.960 --> 0:25:15.800 like a word processor, you can always improve it, but 0:25:15.960 --> 0:25:19.879 tends to be very incremental improvement, Right, So, how do 0:25:20.000 --> 0:25:24.840 you create a product that's different enough from the predecessor 0:25:24.880 --> 0:25:27.040 to convince people to buy it? You know, how do 0:25:27.080 --> 0:25:29.040 you get people to come out and buy a new 0:25:29.080 --> 0:25:32.639 word processing program if they already have one. Well, you've 0:25:32.640 --> 0:25:35.879 got to add in some features, and often that can 0:25:35.960 --> 0:25:40.600 mean that features that don't actually really incorporate into the 0:25:40.640 --> 0:25:44.119