Skype

An acquisition so wild and crazy, they had to do it again. And again. Ben & David cover tech’s perhaps most-traded asset, Skype (which also happens to be a fantastic business). How do we even know which deal to grade? Tune in to find out… Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics covered include: Community spotlight: Slack community member Swyx’s financial data research startup Sentieo https://sentieo.com! Skype founders Niklas Zennström and Janus Friis’s meeting in the 1990’s at Swedish telecom company Tele2Zennström & Friis’s introduction to talented Estonian developers Jaan Tallinn, Ahti Heinla, and Priit Kasesalu as part of Tele2’s efforts to jump into the dot com “portal mania” Skype’s origins in the technology powering Zennström, Friis and the Estonians’ first startup endeavor together: the peer-to-peer file sharing platform Kazaa https://en.wikipedia.org/wiki/KazaaThe “complicated” legal, technological and ownership situation for Kazaa and Skype Skype’s “unique” corporate culture, including a swimming pool in the board room http://arstechnica.com/business/2013/09/skypes-secrets/ and shots for initiating new employees https://www.microsoft.com/en-us/stories/skype/skype-chapter-1-skype-at-10.aspx The first Skype acquisition http://www.techradar.com/news/world-of-tech/internet/was-ebay-buying-skype-the-worst-ever-tech-deal-654767: eBay’s 2005 deal to acquire the company for $2.6B, just two years after launchCulture clash between eBay and Skype management http://arstechnica.com/business/2013/09/skypes-secrets/4/, and further legal drama regarding Skype technology ownership post-acquisition http://mashable.com/2009/11/06/skype-lawsuit-settled/#k8Ahie5QmkqRThe second Skype acquisition https://www.cnet.com/uk/news/ebay-sets-skype-loose-at-2-75-billion-valuation/: eBay’s 2009 decision to spin the company out to a private investor consortium including Silver Lake and the newly-formed Andreessen Horowitz The third (and final?) Skype acquisition https://news.microsoft.com/2011/05/10/microsoft-to-acquire-skype/: Microsoft’s $8.5B purchase of the company in 2011Skype as a “crossover” product with viable market opportunities both in consumer and enterpriseBill Gurley’s “Keys to the 10X Revenue Club http://abovethecrowd.com/2011/05/24/all-revenue-is-not-created-equal-the-keys-to-the-10x-revenue-club/” and the power of Skype’s organic customer acquisition model Followups: The Google iPhone… err, Pixel! http://www.theverge.com/2016/10/18/13304090/google-pixel-phone-review-pixel-xl Hot Takes: AT&T’s $85B mega-acquisition of Time Warner http://www.nytimes.com/2016/10/23/business/dealbook/att-agrees-to-buy-time-warner-for-more-than-80-billion.html… making America great again, or rebuilding the T-1000 https://twitter.com/gilbert/status/789995643926224896? The New York Times acquiring The Wirecutter http://www.recode.net/2016/10/24/13381002/new-york-times-wirecutter-purchase-30-million-briam-lam-consumer-guide The Carve Out: Ben: Sam Altman’s Manifest Destiny http://www.newyorker.com/magazine/2016/10/10/sam-altmans-manifest-destinyDavid: SOMA the Musical http://venturebeat.com/2016/10/20/south-of-market-the-musical-perfectly-mocks-tech-industry-egos/ starring our very own Acquired listener, the brilliant and talented Jake Saper http://www.emcap.com/people/jake-saper/!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  Um, hang on one sec. I lost my place in my notes. Oh, wait, actually, can we go back?

• 0:09Speaker 01

  I wish. Definitely compared to I think I DMT Time Warner to Donald Trump. I love that.

• 0:31Speaker 01

  Welcome back to episode 24 of Acquired, the podcast about technology acquisitions. I'm Ben Gilbert.

• 0:38David Rosenthal?

  I'm David Rosenthal.

• 0:39Speaker 01

  And we are your hosts. Today's episode is Microsoft's 2011 acquisition of Skype and the wild, crazy journey that it took to get there.

• 0:48David Rosenthal?

  Ben, you mean eBay's 2005 acquisition of Skype and the wild, crazy journey it took to get there?

• 0:53Speaker 01

  Or perhaps the Silver Lake Partners private equity takeover with Andreessen Horowitz.

• 0:58David Rosenthal?

  In 2009, acquisition of Skype and the crazy path it took to get there.

• 1:05Speaker 01

  All that and more as we dive into the show. Before we get started today, we want to do a community spotlight. User in Slack SWX, S-W-Y-X, pointed us at his company, I believe it was Sentio, S-E-N-T-I-E-O.com. They are the kind of future of Wall Street analysts. So they have a software platform where you can save time on research, join thousands of investment professionals on a modern and intuitive platform built by former Wall Street analysts. And he lets us know that they just launched their Alexa skill. So check that out if you have an Alexa or go to their website to check it out if you're interested. All right, listeners, now is a great time to tell you about a longtime friend of the

• 1:48Speaker 01

  show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:03David Rosenthal?

  Yep, your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 2:24Ben Gilbert?

  Right, and that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap, and the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 2:46David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:04Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you.

• 3:32Speaker 01

  Cool. Shall we dive into the show? There's a long and rich and incredible history on this one.

• 3:37David Rosenthal?

  There is a... This story has more drama than something with a lot of drama.

• 3:44Speaker 01

  Yeah.

• 3:44David Rosenthal?

  A whole lot of drama.

• 3:46Speaker 01

  I don't know, Will and Grace episode.

• 3:48David Rosenthal?

  Yeah, sounds good. Bravo, whatever. All right, so our drama-filled story starts all the way back in 1999 when two guys, Nicholas Zenstrom, who lived in Sweden, and Janis Friess, who lived in Denmark, were both working at the Swedish telecom company Tele2. This was early days of the, well, late days of the internet bubble, but very much internet 1.0 bubble. And this Tele2, that's T E L E number two, they wanted to launch a web portal because everybody in those days had to have a web portal and they wanted to call it Everyday.

• 4:34David Rosenthal?

  I don't know if it's Everyday.com or whatever the Swedish domain, you know, term ending was at that point in time. But they had just one problem and that was that nobody could develop software at the company and, or at least nobody could develop good web software. And so they had a department in Estonia. Do you know where Estonia is, Ben?

• 4:57Speaker 01

  I do. I do. I was, we'll totally dive into this, but when I was at Microsoft, I was fortunate to spend a bunch of time at Skype offices and, and spend a week in Tallinn at the Skype headquarters there.

• 5:07David Rosenthal?

  Skype headquarters in Tallinn, Estonia.

• 5:10Speaker 01

  Beautiful city.

• 5:11David Rosenthal?

  A former Soviet block nation on the Baltic Sea.

• 5:16Speaker 01

  Yeah. And it is, is wild being there because it's this incredible dichotomy of old and new, where you have total Soviet block buildings and even the real old, kind of the old city from, you know, before the Soviet era in, in Tallinn. And then these like, you know, companies like, like Skype and a lot of this sort of new revitalization. And Estonia is a totally, you know, imagine if you had the opportunity to intelligently start a new country today, all the decisions you would make and they kind of learned from the best and looked at what's working in, in.

• 5:47David Rosenthal?

  Yeah. I mean, this is a company that was part of the country that was part of the Soviet Union until the late eighties.

• 5:54Speaker 01

  1989, yeah. And so like, there's so much, if you ever get a chance to check out, there's a lot of really interesting things that they do as a government that are totally tech-enabled. Like they have, every citizen has a smart card that they can put into their, their computer and you can vote online because you have a uniquely identifiable.

• 6:13David Rosenthal?

  That's awesome.

• 6:13Speaker 01

  Electronic thing that identifies you as a citizen. It's super cool.

• 6:17David Rosenthal?

  Wow. So 1999, the whole country is 10 years old. This Swedish telecom wants to make a web portal. So what do they do? They take out an ad in the local newspaper saying, "Advertising contract job to build this web portal for them, and they're going to pay 5,000 Estonian croons per day," which is about $330 at the time. And that was more than the average Estonian earned in a month, apparently. And they were going to pay that every day. So they get a lot of interest, and they end up hiring three developers. Jan Talin, we're going to butcher these names, we apologize.

• 6:59David Rosenthal?

  Ati Heinjat and Preet Kanslow. We totally butchered that, and we apologize. They end up hiring them. And there's just one more problem, though. They're very talented programmers, but they don't know PHP, which is the language of the web at the time.

• 7:16Speaker 01

  Yeah, I mean, that, my problem was that I didn't know PHP like sophomore year of high school. I remember that. That would have been like 2004 or '05. And I wanted to make like this, it's totally irrelevant, but like that was totally the language of the day, right? If you wanted to do anything on the web, it was like, well, you know, if you have a PHP server running, you can drop these fancy tags and do dynamic stuff inside your HTML and wow everyone.

• 7:43David Rosenthal?

  Yeah, I mean, for the longest time, Facebook was all ran in PHP.

• 7:47Speaker 01

  Yep.

• 7:48David Rosenthal?

  No longer. Those days are over. But back in the day, PHP was how the internet ran. So no problem. These guys are super talented. They just learned PHP in a weekend, and they build Everyday.com or whatever it was that Tele2 wanted it to be called, and it was awesome. So a couple of years, not even a couple of years, go by. But Zenstrom and Fries, the guy in Sweden and the guy in Denmark, they decide they want to leave Tele2 and they want to become entrepreneurs. Internet bubble, and this is the heyday of Napster. So folks probably remember Napster. I certainly do.

• 8:29David Rosenthal?

  Won't comment on whether I participated in the file sharing or not.

• 8:34Speaker 01

  I heard it was great.

• 8:35David Rosenthal?

  I heard it was great, yep. Although I was definitely under 18 at the time, so whatever.

• 8:42David Rosenthal?

  And so they decide that they want to start a competitor to Napster. And it's not going to be just for music. You're also going to be able to share files that of any type. So movies, you know, AVIs and software programs. You'd be able to basically share and, you know, read Pirate, anything. And so they decide that they're going to call this Kazaa.

• 9:11Speaker 01

  Oh, my God. Yeah. When I was doing the research, I could not believe these were like the same guys that did the Kazaa.

• 9:17David Rosenthal?

  Literally the same guys. So, so again, but like they're not software developers. So what are they going to do? Well, they call up the Estonian guys. So they call up the Estonian guys and they're like, we're doing this. We're building an Napster competitor. You're in, they, they come on board, they build Kazaa. It's awesome. And it was indeed quite awesome.

• 9:38Speaker 01

  Yeah, I remember I was always like at an epic war with my friends on what was better LimeWire or Kazaa. Cause they were both sort of the, they both succeeded Napster.

• 9:48David Rosenthal?

  And Napster gets shut down. And so Kazaa and LimeWire become like the heir apparent. And, and Kazaa actually becomes pretty quickly the most popular application in the world.

• 10:03Speaker 01

  Really? Like, not like, not like P2P, like the most popular application, period.

• 10:07David Rosenthal?

  Yeah, it's like the biggest thing on the internet. I mean, the internet is quite small at this point in time, but, but Kazaa basically owns the internet. They're like the, they're like Facebook.

• 10:18Speaker 01

  Which, which is hilarious to make that, that analogy. Cause like thinking about, you know, Facebook's brief detour and Mark Zuckerberg and those guys ended doing Wirehog. And they're related to Facebook and actually being a competing priority. They almost didn't do Facebook because they were focused on Wirehog.

• 10:32David Rosenthal?

  On Wirehog, yeah.

• 10:33Speaker 01

  P2P file sharing was the thing.

• 10:34David Rosenthal?

  Which sounds totally crazy now, but I mean, there's, there actually was some justification for this. I mean, cause I, so this Kazaa launched in September 2000. And like I said, super quickly becomes the most popular program on the internet. And along with that massive, massive legal issues, you know, playing out once again, just like they did with Napster.

• 10:57Speaker 01

  Which, I mean, this will be the, the foreshadowing for all of the legal issues that they would go through with Skype later on.

• 11:05David Rosenthal?

  Oh, yeah. Much more to come. So Zenstrom and Fries, I mean, they're, they're riding high, right? Like they have the biggest, you know, biggest company on the internet, but they're also terrified that they're going to get arrested. And so they actually sell Kazaa on paper to some Australian businessmen with, yeah, I don't know. That's, that's all I was able to find. They find, they sell it to some Australian businessmen.

• 11:35Speaker 01

  There's just no, like, price or?

• 11:38David Rosenthal?

  Uh, yeah, it's, I don't know exactly what happened.

• 11:41Speaker 01

  We call it lost in the sands of time.

• 11:42David Rosenthal?

  If you, yeah, lost in the sands of time.

• 11:44Speaker 01

  If you know, actually, we would love to hear about that in, in the Slack channel or email us, [email protected]. It'd be good to follow up.

• 11:52David Rosenthal?

  And it may be out there somewhere in the, there's so much out there about Kazaa and the early days of Skype. This was, this show was so much fun to research. So they sell the company, but they keep the technology behind it. And that becomes foreshadows what will happen in a few years with Skype. But so they keep the technology and they start casting about for, well, what else could we do with this incredible peer-to-peer file sharing technology that, that we developed? And it might be worth a quick detour to just talk about how peer-to-peer technology and file sharing actually works at this point

• 12:31David Rosenthal?

  in time. So the basic structure is that whoever's on the network is connected to everyone else on the network. And so if you have a file or any kind of piece of data that you need to be transferring, rather than going and downloading that from one server in one location, which is how. Traditionally, the Internet and networking have worked and actually, once again, works mostly this way today, but this was before the cloud, quote-unquote "the cloud" existed. You could just download pieces of that file from everybody else, every other node on the network. So this is why on Napster and on Kazaa, you know, songs that were really popular were

• 13:13David Rosenthal?

  super, super fast to download, because if thousands and thousands or millions of users all had that same file on their computers and they were connected to the network, you could just download little pieces of it from many thousands of different people, instead of downloading everybody going to one spot and downloading the whole file.

• 13:32Speaker 01

  And that's so much more effective, because then you're bandwidth constrained by that one single server. In those days, you had CDNs that weren't, you know, that were not as established and well-built out yet. You, you know, the bandwidth issues and performance issues, getting it from that one single server. So suffice to say, peer-to-peer was this total revolution in maybe not the highest availability. There were kind of issues with reliability and some spottiness with it, but in a full distributed peer-to-peer network, amazing if your neighbor had something that you wanted, that you could just one-off grab from them.

• 14:09David Rosenthal?

  And so Zenstrom and Freez, at this point, have sold, quote-unquote "sold" Kazaa, but they've retained this technology and they're casting about for what else they can do with it. And they realize, they actually have this ingenious realization, that this same peer-to-peer technology can be used for a bunch of stuff, but for transmitting voice over the Internet. And if a whole bunch of computers, all running the same peer-to-peer software, just like Napster, like Kazaa, were online in various geographies around the world, as long as you had enough density in particular, you know, starting points and ending points of calls

• 14:48David Rosenthal?

  that were happening, you could transfer packets that contained voice, you know, across this peer-to-peer network, instead of like, you know, in singular, you know, kind of routes between one computer and another over the Internet. And it actually enabled really clear, high-quality voice calls to be done just... For free over the internet.

• 15:10Speaker 01

  Right, and they would eventually, they actually developed their own protocol for this, you know, that's formally known as the Skype protocol that endured until I think 2014. And from there would sort of establish this hybrid model where they had these direct peer-to-peer nodes where like we're talking about and supernodes. So, you know, established servers that were, that were

• 15:32David Rosenthal?

  Always on.

• 15:33Speaker 01

  Always on and meant to handle that kind of traffic.

• 15:35David Rosenthal?

  Yep, so this is, this is now kind of late 2002, early 2003. So they team up with the Estonians again, and they start working on an early alpha for what would become Skype, and they wanted, they decided they wanted to call it Sky Peer-to-Peer.

• 15:52Speaker 01

  Catchy name.

• 15:53David Rosenthal?

  Super catchy name, but they wanted to abbreviate it to Skiper.

• 15:58Speaker 01

  Which I think is cool, I wish they'd stuck with it. But I think the issue was they couldn't

• 16:01David Rosenthal?

  They couldn't get the dot com name.

• 16:03Speaker 01

  Yeah.

• 16:03David Rosenthal?

  They couldn't get skiper.com, so instead they decided to just drop the R at the end and thus

• 16:11Speaker 01

  Drop the R, it's cleaner.

• 16:14David Rosenthal?

  Totally, so clean.

• 16:15Speaker 01

  Incredible at that time that that Skiper was not available, but you know Skype, a one-syllable, five-letter word was.

• 16:21David Rosenthal?

  Yeah, like how often, like that would never happen today that you would go down a letter and that that domain name would be available versus a higher, higher number of letter domain name.

• 16:32Speaker 01

  Pining for the old days.

• 16:34David Rosenthal?

  But they do something really right at the beginning too. So we talked about how the technology was pretty amazing and that enabled them, you know, it enabled people to do voice calls over the internet as long as there was a density of people online in both where the call was starting and, and ending, you know, around the whole world, way better than traditional telephone networks. But the other thing they got really right is they made it really simple in the beginning. They realized that, kind of just like Kazaa and like Napster, if you were gonna build a huge network of people doing this, you had to get, you couldn't just have tech geeks doing this, you had to make the software so easy that, that everyday people would do it. And so there's actually an interview, a quote from an early Skype employee.

• 17:20David Rosenthal?

  Laurie Tepandi at the time, and she says, "Right from the start, we set out to write a program, simple enough to be installed and used by a soccer mom with no knowledge of firewalls, IP addresses, or other technological terms." And because of that, and also probably because it was free and enabled you to call people in other countries for free when you used to pay a lot of money to do that.

• 17:46Speaker 01

  Long distance calling even domestically was super expensive then.

• 17:48David Rosenthal?

  Yep. Yeah, even domestically, long distance calling was expensive. But think about, you know, in Europe where Skype is based, like calling between countries, and people have friends and family that are in other countries and they have to pay exorbitant amounts to call them.

• 18:04Speaker 01

  Yeah, and the telecoms were highly, highly regulated, had a very inflated price scheme where there was, you know, not necessarily collusion, but at least a set expectation of how much you would charge for long distance and routing between networks. And by, you know, pioneering VoIP, really coming up with this idea that like, you go around all that entirely. And I think, I think the funniest thing to think about is, in the history of networked computing, you know, everybody that had a dial-up modem, we started with our data flowing over voice lines, and the way that it would communicate is literally making sound over those lines. So it was like IP over voice. And then you have the advent

• 18:46Speaker 01

  of this and where we are today, and how every office mostly has phones that are actually IP phones, and now all of our voice goes over IP.

• 18:53David Rosenthal?

  Yeah.

• 18:53Speaker 01

  It's kind of hilarious.

• 18:54David Rosenthal?

  Yeah, I mean, it's like, this technology is so much better than the traditional phone system, that now the traditional phone system runs on this technology.

• 19:02Speaker 01

  Right, right.

• 19:03David Rosenthal?

  Which is pretty amusing.

• 19:04Speaker 01

  Yeah, we're actually, we're sitting here in Pioneer Square Labs. We moved into a new office a couple of months ago, and all of our, you know, hardwired phones that are like our desk phones are all IP phones. Like, we didn't even think to, you know, why would we like, reach out to AT&T and have them set up a... Yeah.

• 19:20David Rosenthal?

  Totally. So like I said, super simple, free, really compelling value prop. So Skype launches officially in August 2003. On the very first day, remember, this is August 2003. So like the internet is orders, multiple orders of magnitude smaller than it is today. On the very first day, they get 10,000 downloads of, uh, uh, first day they launch, get 10,000 downloads of Skype. By the end of the first month, they have a million users.

• 19:53Speaker 01

  I'm so curious how they, like on the first day. So how do they get the word out? I think that, that, that's a little lost to history, but like, it's not like there's an app store to be featured on the front page of.

• 20:02David Rosenthal?

  They did like super early growth hacking, uh, you know, emailed, uh, their, you know, friends and friends of friends and got the word out. I mean, they also had some benefit in that these were like the Kazaa guys. So, you know, there was, uh, uh, they were, they were known quality quantities. But still, this is incredible. 10,000 downloads on day one, a million users by the end of the first month. 4.1 million users by the end of the first quarter and just a hair under 20 million users, 19.8 million users that they get in their first year. Which is, I mean, those are like pretty decent numbers for even like a mobile startup today. Like there are no mobile phones at this point.

• 20:41Speaker 01

  Yeah. And the fascinating thing about peer to peer.

• 20:43David Rosenthal?

  There are no smartphones at this point.

• 20:44Speaker 01

  It's cheaper to, yeah, good point. It's cheaper to start a company with the advent of, of, you know, cloud hosting than it was in those days where you need really expensive data centers. But with the advent of peer to peer, they could support 20 million users without those insane infrastructure costs that it would, you know, any other company saying like, oh, it's, you know, 2001 and we're launching a company and we quickly have 20 million users. It's like, well, how many millions of venture capital did they raise?

• 21:09David Rosenthal?

  Yeah. And, and they, they did raise a small amount of venture capital before they launched. Interestingly, from Bill Draper, the legendary venture capitalist and Howard Hardinbaum, who's now at August Capital. They were working together at a, at a different firm at the time. Um, and they went over and they'd heard that the, the Kazaa guys were starting a new company and they're like, we're going to give you some money. Like, we don't care what you're doing. We're just going to invest in you. Cause like you're the Kazaa guys. So they were the first investors, but then they launched and this growth is incredible. And so as, as this growth is happening, of course, every VC, you know, now in, in the world wants to invest. And so they raised $18 million from Index, Bessemer and DFJ after they launched and have this growth. But, but things are still pretty crazy. So

• 21:54David Rosenthal?

  like, most of the company is in Estonia, where these original developers are.

• 22:00Speaker 01

  And Estonians are crazy. Like that, if I learned one thing while I was there, I mean, I was there in February. So it's like, you know, negative 20 degrees and like, people are still like going out drinking and, you know, just like, they get used to it like it's nothing. They cross country ski miles and miles and miles everywhere all the time. Like, I walked away with this impression that like, you do not mess with an Estonian.

• 22:19David Rosenthal?

  Yeah. So, you know, startups, like, there's lots of, you know, fun and pressure and crazy times in startups, you know, still, but like, this kind of took it to a new level. So I think still even to this day, every new employee at Skype has to undergo an initiation. And the initiation is you have to do a shot of tequila, sambuca and Tabasco sauce.

• 22:48Speaker 01

  I did this.

• 22:48David Rosenthal?

  You did this?

• 22:49Speaker 01

  Yes.

• 22:49David Rosenthal?

  This is amazing.

• 22:50Speaker 01

  Yes. There's this bar right outside the old city in Talon.

• 22:53David Rosenthal?

  Yeah, this is every, from day one, every Skype employee did this.

• 22:57Speaker 01

  No way, this is on the internet?

• 22:58David Rosenthal?

  This is on the internet, yes.

• 22:59Speaker 01

  Did you see what the shot was called?

• 23:00David Rosenthal?

  Uh, yeah, there's like a name for it. I didn't write it down.

• 23:03Speaker 01

  Yeah, I don't think, like, English speakers can't, it's not, it's hard to pronounce. I'll see if I can look it up while you're...

• 23:08David Rosenthal?

  So the other thing that they do is they install a pool in the boardroom in the office in Estonia. Not a, not a, not a pool table, a pool.

• 23:19Speaker 01

  What?

• 23:21David Rosenthal?

  Yeah. And apparently they have to like negotiate with the building about like, building management, like whether the floor is going to be able to support this, you know, I think it was a kiddie pool, but it was still like a ton, a ton or two of water that was installed in the boardroom.

• 23:37Speaker 01

  Jesus. Okay. The drink was, it's either Milli Malakos or Milli Milikas. I heard it differently from different people, but it's like, as soon as I saw it on Google, it's like, oh yeah.

• 23:46David Rosenthal?

  That's amazing. You've been initiated.

• 23:48Speaker 01

  I have.

• 23:49Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 24:03David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 24:17Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 24:27David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent visible and secure in one place.

• 24:44Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 25:01David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 25:17Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 25:26David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So the growth just continues as we were talking about. Things are growing like gangbusters. In June of 2005, they had video calling, which is funny when we think like, when I say to somebody, I'm going to Skype them today instead of doing a call, like, I mean, I'm going to video chat you.

• 25:52Ben Gilbert?

  Right.

• 25:52David Rosenthal?

  But that wasn't even added until two years after it launched.

• 25:55Ben Gilbert?

  Yeah, '05. It's interesting to think like,

• 25:59Speaker 01

  Fast forward to today where like they're, they're making forays into text chat. They've had text chat all along, but trying to make that more part of the core experience. Started with, you know, audio, then got into video, became ubiquitous with video. And a lot of other kind of chat platforms are competing against today that are text and photo based. Like that's, that's not their kind of core and, and starting place at all. And it's funny to think about like how, much like with phones, how primitive text seems and how complicated voice and video seem, but like there was calling on cell phones before there was texting on cell phones.

• 26:35David Rosenthal?

  Yep.

• 26:35Speaker 01

  And, you know, Skype, text was the third feature of Skype.

• 26:39David Rosenthal?

  I think this is, I'm sure this is something we'll get into more in tech themes and, you know, grading. But it is pretty funny to think about that, that text is now the dominant medium of communication. Not calling, even though it's more complicated and more bandwidth heavy these days on smartphones. So they launched video calling, that grows also enormously. And so a couple of months later, September of 2005, there is lots of interest in Skype. And from multiple acquirers, big companies are interested in buying the company. They end up deciding to sell to eBay for $2.6 billion. eBay.

• 27:23Speaker 01

  Hey, that was the heyday for eBay too.

• 27:25David Rosenthal?

  That was, well, it was slightly post heyday. I mean, this was after the, a couple of years after the, the bubble, internet bubble burst. But eBay is still a very large company and people are like, why is eBay acquiring Skype? And one of the rationales that they give for the deal is, well, people will be able to call each other and verify transactions.

• 27:48Speaker 01

  The mind blowing thing here with this is like, when we covered PayPal, the PayPal eBay acquisition.

• 27:56Speaker 01

  That made so much sense because people were already using PayPal as the a major source of payment on eBay. And I'm very curious, like, were, did they observe behavior where people were using Skype to do this already? Or was it literally just-

• 28:12David Rosenthal?

  It's really hard to imagine. Like, I have no idea why you would call somebody after they won an eBay auction.

• 28:17Speaker 01

  Yeah, like, it almost, to me, it seems sort of like eBay's foray into trying to become a conglomerate and like, private equity style, take on this high-growth business that, you know, has a very pioneering technology and see if they can just, you know, grow that as an asset inside their organization and like, theoretical synergies happen with their other product. But to me, you know, hindsight's 2020, and we can look all smart here, being like, that was a dumb acquisition. But eh, I don't see it.

• 28:46David Rosenthal?

  Yeah, I agree. I mean, it would be hard to see this being a smart acquisition. Regardless, however, it was definitely a dumb acquisition because they made one key mistake as part of the acquisition. And that was much like when, when the Kazaa guy sold Kazaa, and they kept the technology. Once again, they kept the technology.

• 29:09Speaker 01

  And so they had a, I think it was a company called Skype Technologies that literally was just licensing it to eBay.

• 29:16David Rosenthal?

  It was actually a company called, I don't know if it's Jolt ID or Jolted. It's J-O-L-T-I-D. And that was Zenstrom and Freese's company. And they kept the core peer-to-peer networking technology in that company and then licensed it to eBay and Skype. And so as we'll see in a minute, that that definitely comes back to bite eBay and Skype, too. So the transaction happens. Skype, which is this crazy European company, is now part of eBay, based in San Jose, you know, run by, I think Meg Whitman was still CEO at that point in time.

• 29:59Speaker 01

  Yeah, this is September of 05.

• 30:01David Rosenthal?

  Yep, September of 05. You know, very- You know, Silicon Valley, but like very corporate as far as Silicon Valley goes, has been through the dot com crash and now emerged and is a very large public company. So to say there was culture clash is, is an understatement. And in fact, in 2006, most of the eBay management goes over to Estonia to go, you know, visit, visit the Skype team there and, you know, go through kind of like the roadmap and the feature development and the integration plans. And, you know, that doesn't, doesn't go, you know, the, the Skypers aren't too excited about that.

• 30:43David Rosenthal?

  But then in the evening, they, they decide they're going to throw, the Skype team's going to throw a huge party for this, for the eBay guys coming over. And, and so they throw this huge party at the hotel where, where everybody, where the eBay team is staying. And the party ends, apparently Nicholas Zentrum, we read this on the internet, so it must be true, he gets behind the bar, starts pouring everybody shots, unclear if they included Tabasco or not. And, and then he gets on the bar and he's, he's still, you know, he's pouring shots for everybody and he yells out, what happens in Estonia stays in Estonia.

• 31:22David Rosenthal?

  And, and the, ends up like everybody, eBay, Skypers, they all jump in the pool. They're all like fully clothed at this point at the end of the night. Well, it turns out it gets caught by news crews in Estonia and it's on like local television, like eBay and Skype, like management basically trashing this hotel. So then of course they have to pay for it all. And, you know, this is not like the corporate culture that eBay signed up for.

• 31:50Speaker 01

  Sounds like a good party to me.

• 31:52David Rosenthal?

  Yeah, it sounds like a pretty good party. I kind of wish I was there, but. But the eBay management did not. So a couple of years go by, you know, Skype is still growing super, super fast. We get to 2009 and Wall Street's like, so Skype is at this point, the fastest growing part of eBay, division within eBay. They have-

• 32:15Speaker 01

  Boy, that's a story we've heard before PayPal.

• 32:18David Rosenthal?

  Yeah, exactly. Skype has over, over half a billion users around the world at this point and is quite profitable and making a lot of revenue. In the third quarter of 2009, they made Skype itself did 185 million in revenue. And, but, but it's just not a fit within eBay and Wall Street is, you know, is, is saying that they should spin it out or do something. This makes no sense. And, and, and so they start working on a transaction that we referenced earlier, where a consortium of private equity firms and Andreessen Horowitz,

• 32:58David Rosenthal?

  which had just been founded by Mark and Ben, are going to invest in, directly in Skype, spin it out of eBay, eBay will retain a stake and, and end up valuing the company about at what eBay bought it for a few years earlier.

• 33:14Speaker 01

  Because I think somewhere in the middle there, October of 2007, eBay did a write down internally of, of the value of, of Skype.

• 33:23David Rosenthal?

  Yep. And, but there's still one problem again, which is that Skype doesn't own the IP and, and they're, they're just licensing it back from, from Jolted, from, from Zenstrom and Fries. And so what happens, Zenstrom and Fries actually sue both eBay and the investor consortium, sue to stop them using the technology. And there's this whole big, and this is all playing out in public. eBay is a public company.

• 33:56Speaker 01

  So that's totally road blocking any of-

• 33:57David Rosenthal?

  Totally road blocking. You know, there's a chance that Skype could just die. Like one, one very real path was that if they couldn't use the technology anymore, that they would just have to shut the whole thing down.

• 34:09Speaker 01

  And, and like, I don't, that's not realistic, right? They're going to settle.

• 34:14David Rosenthal?

  Well, right. So the other, another potential path with that the eBay and the Skype team was furiously working on is develop an alternative technology to power Skype. But-

• 34:25David Rosenthal?

  Again, really hard to do that because the peer-to-peer technology is kind of the core of how this works.

• 34:29Speaker 01

  Right.

• 34:30David Rosenthal?

  And then the third option is settle with them. And that's really, I think, you know, what was going on was, was the founders were basically trying to, trying to, you know, they wanted to invest in the deal and did end up investing in the spin-out. But so they do eventually end up settling. And it's interesting what happens. So they give Jolted 10% in Skype as part of the settlement. Skype gets, so they get 10% equity stake. Skype gets the technology. So finally, the actual technology becomes part of Skype the company.

• 35:12David Rosenthal?

  And the founders also get an $85 million cash payment. But what's interesting is they then also invest $80 million into the spin-out. So I guess net, the cash comes out about even for them, but they then get another roughly 4% of the company. So they end up with 14% of Skype post-spin-out.

• 35:32Speaker 01

  Huh.

• 35:33David Rosenthal?

  eBay retains 30% and the investor group gets 56% of Skype. Also interesting as part of the deal, Skype itself, at this point, Nicholas has a venture firm in Europe, which is quite a good venture firm called Atomico. Skype ends up investing in Atomico's second fund and investing in Audio, the streaming music service that was also started by them.

• 36:02Speaker 01

  Oh, no way.

• 36:03David Rosenthal?

  Both of these as part of the settlement.

• 36:05Speaker 01

  Wait, was Audio an Atomica company or was Audio, who started, what's the connection there?

• 36:10David Rosenthal?

  Zentrum and Free started Audio.

• 36:12Speaker 01

  No way.

• 36:13David Rosenthal?

  Yeah.

• 36:13Speaker 01

  They had a third act with, wow.

• 36:15David Rosenthal?

  Yeah, they had a third act. And they had a fourth act, a company called Juiced, which was going to be a peer-to-peer video streaming, you know, basically disrupting television. And Skype didn't invest in that, but they agreed as part of the settlement to promote Juiced on Skype. I don't know how they would promote Juiced on Skype, but it was a part of the settlement.

• 36:32Speaker 01

  Wow.

• 36:34David Rosenthal?

  Super interesting. This is a crazy deal. But it works out. So the spin out happens. October of 2010, Skype hires Tony Bates, who is a star at Cisco, to come in and be the CEO.

• 36:49Speaker 01

  And before that, in June of 2010, Marc Gillette, who was an operating partner at Silver Lake, became the chief development officer. So those guys, you know, this is where the folks at Microsoft, at Microsoft start to become familiar with these names, people who are there now and have been for the last five years or so, both played huge roles in sort of the integration and leading the Skype division inside Microsoft.

• 37:11David Rosenthal?

  Yep, huge roles. And so in these couple of years in the interim, Tony and the new management team basically focuses on like totally restructuring Skype.

• 37:23David Rosenthal?

  So integrating the technology that is now finally part of Skype into the company, modernizing it.

• 37:30Speaker 01

  Classic and super well executed private equity play.

• 37:33David Rosenthal?

  Incredibly well executed. I mean, I don't know if we're going to disaggregate the grades of all of these acquisitions here, but you know, I think this definitely is making a case for getting the highest marks. They also realize at this point, it's obvious that mobile is going to be a thing. So they really pushed Skype for mobile, getting on iOS, getting on Android.

• 37:58David Rosenthal?

  And the business does great. And then just a couple of years later, in May of 2011, so actually less than two years after the spin out happens for eBay, Microsoft shows up and finally we get to the end of the story. Eight and a half billion dollars acquisition. Microsoft announces in May of 2011 that they're acquiring Skype. At that point was their largest acquisition ever.

• 38:26Speaker 01

  Just until LinkedIn?

• 38:27David Rosenthal?

  Just until LinkedIn.

• 38:29Speaker 01

  And looking, looking at, just to recap, September of 2009, they're valued, Skype is valued at 2.75 billion in the private equity takeover. And then When you look at this Microsoft acquisition, May of 2011, so what, two, under two years?

• 38:47David Rosenthal?

  Under two years later, essentially $6 billion, almost $6 billion of value creation. Now granted, I mean, there was a lot of pain that they had to go through to get that, but hey, that's a pretty good payout for everybody.

• 38:59Speaker 01

  Yeah, and I mean, value creation defined in the terms of, which I guess is how you define value, but value is whatever the highest bidder is willing to pay. Because if you truly look at the intrinsic value, I mean, it grew tremendously in terms of user growth under Silver Lake, but boy, you know, Microsoft paid 32 times Skype's operating profits.

• 39:22David Rosenthal?

  Yeah, so when Microsoft acquired Skype, had 700 million users, and in 2010, the full year of 2010, had done 860 million in revenue and 264 million in operating profit. So it was still, I mean, a very rich price paid by Microsoft.

• 39:43Speaker 01

  Right.

• 39:43David Rosenthal?

  But it's something that I think kind of gets lost in this, all the ups and downs and roller coasters of this story, and all of these transactions were reported so much in the press, is Skype is actually a really, really good business.

• 39:57Speaker 01

  Yeah, absolutely. I mean, we focus on this, you know, the valuation play of like, basically eBay sold it for what they bought it for after some tumultuous years. You know, the private equity days, they tripled it in less than two years. But you're right, you know, as an independent business, you know, I don't know if it's actually worth $8.5 billion in 2011, but like, fantastic business.

• 40:21David Rosenthal?

  Yep, fantastic business. And eBay, you know, we've been pretty hard on them, I think justifiably so thus far, but they did make quite a bit of money on Skype, because they sold a 65% share at the spin out, but then they retained 30%.

• 40:38Speaker 01

  Great point.

• 40:39David Rosenthal?

  And so when Microsoft bought Skype, they made roughly back, you know, the same value that they, even just from that, pretty close to the same value that they paid for Skype in 2005.

• 40:52Speaker 01

  That's totally lost to the narrative. I mean, the intelligence of eBay to hold on to that much that it had... Had future growth ahead of it outside of eBay.

• 41:01David Rosenthal?

  Yeah, I mean, it was never a question that A, this was a great business and B was growing super fast. Even through all of this tumult.

• 41:10Speaker 01

  Yep. And so, to be clear, there's no more partial ownership after this. Microsoft really, I mean, they clean out the cap table. They're the full owner. They have an entire-

• 41:22David Rosenthal?

  Which usually is what happens in an acquisition, but I guess third time is the charm for Skype.

• 41:26Speaker 01

  Yeah, yeah. Well, I mean, we're used to, yeah, it's kind of shocking what happened with eBay. I was gonna say, like, what we normally see with a tech company is they want full and complete control because they're gonna integrate the product and it's gonna become like, you know, as we're doing research, we look into Skype today and it's impossible to get clear numbers on how the Skype business is doing because it's been so integrated into every fiber of what Microsoft's doing. And that's kind of the normal story. People look at it like an asset that they've acquired, that they move into all these pieces of their business, not this like independent, private equity owned thing that another tech company kind of owns and the founders kind of own. And like, there's management put in place to clean it up and get it ready for a sale.

• 42:08David Rosenthal?

  Well, and I think that's why, you know, part of the reason why Wall Street was clamoring so hard for eBay to spin Skype off in the late 2000s because, you know, they reported it as a separate division. Like, it was a completely separate company. There were no synergies with eBay despite whatever, whatever they may have said at the time of the deal. But it was really clear that there was a lot of value locked up in that company.

• 42:33Speaker 01

  Yep, yep. So at this point, Skype's former CEO, Tony Bates, is now the, the president of Skype, reporting directly to Microsoft CEO Steve Ballmer. They have 663 million global users and, you know, it's, it's, it's time to do the integration. It's, this is in the, the, I remember this vividly when the one Microsoft memo came out that we, the, the company was gonna reorient to more of a functional organization under, uh-

• 43:04David Rosenthal?

  Yeah, under Steve.

• 43:05Speaker 01

  Under Steve. Since then, obviously, Satya has come in. Microsoft's taken a little bit of a different or tremendously different direction and-

• 43:13David Rosenthal?

  But what's interesting, you know, and then we'll move on to, I feel like we've talked a little bit about acquisition category already, but- I don't know if you remember, you know, there was a lot of, when Bomber announced that he was going to retire, there was a lot of speculation about who the next CEO of Microsoft was going to be.

• 43:33Speaker 01

  Oh, Tony Bates was-

• 43:33David Rosenthal?

  And Tony Bates was pretty at the top of the list. You know, it was Tony Bates, it was Alan Mulally from Ford.

• 43:40Speaker 01

  Until he went and joined the board of Google.

• 43:42David Rosenthal?

  Yeah, right. Good way to disqualify yourself from becoming CEO of Microsoft. And unclear that he ever wanted the job. Maybe that was how he-

• 43:52Speaker 01

  I think he was-

• 43:52David Rosenthal?

  Stated he didn't want the job.

• 43:54Speaker 01

  Yeah.

• 43:55David Rosenthal?

  And Satya. But Tony was a very, very legitimate candidate to potentially, you know, become the next CEO of Microsoft.

• 44:02Speaker 01

  Yeah, that's right.

• 44:03David Rosenthal?

  He's actually a GoPro now.

• 44:05Speaker 01

  Really?

• 44:06David Rosenthal?

  He's the president of GoPro.

• 44:07Speaker 01

  Huh.

• 44:07David Rosenthal?

  Yeah.

• 44:09Speaker 01

  It's probably worth talking a little bit about what's happened at Microsoft since, since the acquisition. So for a long time, you know, let's talk about what's going on at Microsoft during the period of the Skype years. So they had Office Communicator, that was part of the, the Office suite. When you subscribed and you entered an enterprise engagement and, you know, you, you got Word, Excel, PowerPoint, you know, Visio, the entire Microsoft Office suite. There's obviously varying levels of that that would come with Communicator, which I believe in 20, I'm going to get the date wrong, but at some point was rebranded as Link, which was something that never, I mean, that, that was a, an enterprise offering that people who had Communicator

• 44:54Speaker 01

  in their workplace then knew, okay, we got Link. And that was not, never a brand that was on, on consumers, the tip of consumers' tongues. And in acquiring Skype, then there was this like, very interesting, you know, dichotomy of, well, we've, we've been building this thing called MSN Messenger, which was our consumer offering for a while. There was Office Communicator, which became Link. Now we have Skype. So there's sort of these like, three different chat looking things that all seem to sort of do the same thing. And it's taken probably three or four years to really start to narrow that. So MSN Messenger has been killed. Link is dead, is formally changed into and then using kind of a mesh code base,

• 45:36Speaker 01

  but Skype for Business. So there's Skype for Consumers and Skype for Business for businesses. And you know, this is in outlook.com. When you log into your, your consumer mail offering, you see Skype automatically is there. There's all sorts of apps for every platform. It's baked into Windows. It's really kind of like across the whole Microsoft ecosystem at this point.

• 45:58David Rosenthal?

  Yep. And let's not forget, a year later, Microsoft acquires Yammer.

• 46:03Speaker 01

  Yes, in all of its glory.

• 46:06David Rosenthal?

  All of its glory.

• 46:07Speaker 01

  You know, enterprise social or enterprise mass communication that transcends email is and will be a thing. It just was not in the form of Yammer.

• 46:20David Rosenthal?

  Yeah.

• 46:20Speaker 01

  That was just, is it, yeah. It's kind of an interesting product in the early days.

• 46:25David Rosenthal?

  Well, it's interesting.

• 46:26Speaker 01

  Go for it.

• 46:28David Rosenthal?

  You know, I feel like we're bleeding a little bit into

• 46:30Speaker 01

  This is probably another episode.

• 46:31David Rosenthal?

  tech themes here, but you know, Skype was really, well, I'm just gonna say, we'll talk about it more in tech themes later. Skype was really the first, both business and consumer internet product, you know, and really, really in many ways, both foreshadowed and was the wrong instantiation of Slack to come. You know, I mean Slack is a business product, but very, also used by consumers.

• 47:06Speaker 01

  Super user friendly.

• 47:07David Rosenthal?

  Super, super user friendly. And Skype's very similar. I think it was more a consumer product and the business model was more for consumers than enterprises, but it was the first, I don't know if it was the first, but it was a great example of a crossover product.

• 47:21Speaker 01

  Right.

• 47:21David Rosenthal?

  That businesses, I mean, I do many calls with, you know, with startups I do as Skype video chats.

• 47:29Speaker 01

  Yep. Yeah, it's, it's a

• 47:33Speaker 01

  I wouldn't say that it was the wrong product. Like, I think that video, audio serve a different purpose than than what Slack is or glorified IRC chat. You know, Slack is expanding to become communication and the fiber that that, you know, exists between employees that's more than just just chat, but that's really their core competency. And the question is, who will own communication in enterprises going forward and what form will it be and will these things be combined? Like, are we going to see, you know, a Skype-like product and a Slack-like product merge? And are we going to see, you know, that happen? You

• 48:14Speaker 01

  know, are we going to see Slack, let me say this right, Slack get Skype-ified and Skype get Slack-ified at the same time?

• 48:21David Rosenthal?

  Well, I think like, these things are both happening. But it's interesting, you know, the the path that Microsoft has kind of taken since the acquisition with Skype, we were talking about this before the show, is not a unified path. I mean, there's Skype for X, Skype for Y, Skype product derivative Z. It's very confusing, whereas like, unclear what exact, what product that Microsoft and Skype are offering today that I would use for what use case. Whereas you look at Slack, on the other hand, it's just Slack. Like, there is one product.

• 48:58Speaker 01

  Right. There's no Slack four.

• 49:00David Rosenthal?

  One front door. And everything is integrated into Slack, but it is one user experience. And then you can do everything from within that one user experience. And I think that is, just speaking on personal preference, but I think also, you know, speaking for most users out there, I would so much rather have one superior user interface and customer experience that I can accomplish many things from than I would, oh, am I stealing your thunder here?

• 49:33Speaker 01

  No, I'm just like, this is maybe.

• 49:35David Rosenthal?

  It always comes back to Ben Thompson. Come on.

• 49:36Speaker 01

  It's integrated versus modular. And like, like, it just like, it's going to ebb and flow, and it's going to be advantageous to be bundled, and then it's going to be advantageous to be unbundled, and then it's going to bundle in a new way, and it's going to keep going back and forth. And like, we're about to see bundling, I think. And these, you know, we'll see this stuff get recombined, and then we'll see get re-broken out again when that's appropriate. But.

• 49:57David Rosenthal?

  Yeah.

• 49:58Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 50:11David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 50:28Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 50:43David Rosenthal?

  And that's how you get features that customers love, like Tabular Review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 51:07Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 51:26David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 51:56Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 52:21Speaker 01

  I want to move on to acquisition category.

• 52:22David Rosenthal?

  Okay, let's move on to acquisition category.

• 52:25Speaker 01

  So I'm going to call this a product acquisition. There is technology in there.

• 52:30David Rosenthal?

  Well, it very definitively was not a technology acquisition a couple of times.

• 52:34Speaker 01

  Yes, yeah, it certainly was more of a technology acquisition this time than it was the eBay time around.

• 52:41Speaker 01

  I don't, the reason I don't think it's business line is because they bought it at such a high multiple of what their operating profit was that they weren't just going to buy in cash flow this thing.

• 52:51David Rosenthal?

  Yep.

• 52:52Speaker 01

  They were buying a product to integrate into the rest of their ecosystem and create a stronger, you know, a stronger offering across the board. This was an acquisition done where this product was being greatly sought after by both Google and Facebook. There were acquisition rumors swirling for about half the price of

• 53:12David Rosenthal?

  Yep.

• 53:13Speaker 01

  what they got bought by Microsoft for for months before this. And so, you know, in a competitive environment where video streaming technology is not yet, our video chat technology is not yet commoditized. We're still two years away from Google launching Hangouts. You know, this is a product that has a lot of users, is growing fast and can really be integrated to beef up somebody's offering. And Microsoft decided it needed to be them.

• 53:36David Rosenthal?

  Yep, I totally agree. It's interesting, you know, I think the eBay acquisition really was a business line acquisition. I mean, it was totally separate. It was reported separate. It was a very different product. But, but the Microsoft acquisition, I think, is very clearly a product acquisition. And now with the integration that you've seen into all parts of the Office suite and other areas within the business.

• 54:02Speaker 01

  Yep.

• 54:03David Rosenthal?

  Okay, what would have happened otherwise?

• 54:06Speaker 01

  It sort of is interesting to look at like the rise of Hangouts and like.

• 54:13Speaker 01

  Competing video chat and VoIP products, like it doesn't feel like Skype is the sort of one and only the way that it used to be.

• 54:21David Rosenthal?

  Yep.

• 54:21Speaker 01

  I don't know if you feel that way too.

• 54:22David Rosenthal?

  I definitely feel that way.

• 54:24Speaker 01

  Totally anecdotal, but like I, I'm, when someone says like, we should hop on a Skype call, it ends up being a Google hangout pretty often.

• 54:34David Rosenthal?

  Or in an enterprise case, often a Zoom call.

• 54:38Speaker 01

  Oh yeah, or BlueJeans.

• 54:39David Rosenthal?

  Yeah, BlueJeans or Zoom. I found that Zoom actually tends to work the best out of everything. But I think this is interesting and I want to talk about this in the context of what would have happened otherwise, because yes, you're right, there were lots of rumors that Google and Facebook were looking at Skype as well when Microsoft bought them, which I just think is super interesting and also comes back to this crossover nature of Skype. Microsoft primarily acquired Skype, I think for the enterprise side of the business, more so than the consumer side of Microsoft's business. And, and you see that, you know, it was actually, it was our, our friend Kurt Delbene, who, when he was president of Office, who, who led the acquisition, so it was actually being

• 55:24David Rosenthal?

  done through Office at Microsoft. And then think about like, what if Facebook had acquired Skype, like, and then it would be primarily a, you know, a consumer facing product.

• 55:34Speaker 01

  And the fascinating thing about it is Facebook had just launched like a Skype, a white label version of Skype inside, inside of Facebook Messenger. So Philip Su, I think led this project, which is like, the, the overlap in people in this is incredible. So when I was doing the garage at Microsoft, Philip had started one of the most legendary projects of all time and he was like a, you know, constant garage tinkerer guy and had worked on all kinds of cool stuff. He ended up leaving to go to Facebook. He's, he runs engineering in the Facebook London office now, but before that, did a,

• 56:16Speaker 01

  led the project to integrate Skype calling, which wasn't called Skype calling, it was just like video, video calling within Facebook.

• 56:22David Rosenthal?

  I remember this, yeah.

• 56:23Speaker 01

  Into News Feed.

• 56:24David Rosenthal?

  But it was Skype that powered it, right?

• 56:26Speaker 01

  Yes, yes. And so then, I mean, that left all these questions of like, well, is this their first, like, are they just doing a little bit of a deal now so that, you know, that they can acquire them, which, you know, didn't, didn't quite end up happening, but interesting proof of concept there.

• 56:39David Rosenthal?

  Totally.

• 56:41Speaker 01

  Now that we're here in what would have happened otherwise, I think it's worth bringing up the issue of repatriating of capital and what that currently looks like for US corporations. We've been hearing a lot about it in the news recently in this kind of political race that we're in about companies can't bring-

• 56:57David Rosenthal?

  You mean this national travesty that we're in?

• 56:59Speaker 01

  Yes. God, I can't even think, picture him.

• 57:04David Rosenthal?

  Sorry about that.

• 57:05Speaker 01

  So, in thinking about, you know, what could have Microsoft done with a lot of this capital they had overseas, it had been a long climate of not being able to bring it back to the US without paying huge taxes. Skype is a Luxembourg corporation.

• 57:21David Rosenthal?

  That's a great point.

• 57:23Speaker 01

  It's a pretty great way to, you know, and looking at like what foreign businesses could we buy that would integrate well into our products and give us like, you know, this boost into communication. Like, they needed a consumer and to boost their enterprise offering in video chat and calling. Like, it makes total sense when there's not a lot of better things you can do with that capital.

• 57:47David Rosenthal?

  Yeah, I think this is a great point. And also, you know, something, we don't know exactly how Microsoft thought about this and how much this played into it, but Ben, as you pointed out, some of the rumors that were circling about other players, Google and Facebook acquiring Skype, the rumors were at a much lower price.

• 58:05Speaker 01

  Right.

• 58:06David Rosenthal?

  Was Microsoft willing to pay a lot more because they had all this cash overseas that they needed to, that they needed to put to work?

• 58:14Speaker 01

  Certainly had a much healthier balance sheet than Facebook, at least at that point.

• 58:18David Rosenthal?

  Yeah, I mean, this is, was Facebook public? If Facebook was public at this point, I think it would have just been-

• 58:25Speaker 01

  Let's see.

• 58:26David Rosenthal?

  When was the Facebook IPO?

• 58:27Speaker 01

  It's an easy-

• 58:28David Rosenthal?

  Nope, Facebook was, yeah, Facebook was a private company at this point, not public. So- Would have been certainly possible for them to do an acquisition of this size, but quite difficult.

• 58:44Speaker 01

  Right. And honestly, that's one thing I'm going to keep in mind with when grading this acquisition. I mean, I think that it's the the super skeptical lens that I had on coming into today was Microsoft spent $8.5 billion with Skype and seriously, like, how are they going to earn that back?

• 59:03David Rosenthal?

  Yeah.

• 59:03Speaker 01

  Like, you know, it's so far from being something that they can just cash flow. It's growing, but like, it was already a pretty huge business with, you know, a massive percent of the VoIP calls that were made globally going through it. It wasn't something that, that, you know, I thought had that much more like growth left in it. And nor could I nor did I believe Microsoft was going to accelerate that. And, you know, it's done well, like, it's grown, you know, the way that you would expect it to grow. But like, when you think about like, in the context of what else could they do with that cash? And was this the best thing they or one of the better things they could have done with it?

• 59:48David Rosenthal?

  Certainly better than buying treasury bills.

• 59:50Speaker 01

  Yep.

• 59:53David Rosenthal?

  Great point. Really great point. I guess the other thing we should we should cover on before we move out of what would have happened otherwise. You know, I think there was the path and a very viable path for Skype to go public and be a standalone public company again.

• 1:00:07Speaker 01

  That's right. That's right. And then what is this? In 2010, Skype filed with the SEC to raise 100 million in.

• 1:00:15David Rosenthal?

  Yep, they had actually filed to go public, filed an S1. And I think that was probably the plan at spin out when when Silver Lake and Andreessen and the other folks invested in Skype. But a spin out was was that, you know, with some cleanup led by Tony Bates and others, that that this could be a standalone public company.

• 1:00:35Speaker 01

  Yeah. Onto tech trends, I think that it's interesting, there's a good foray from what we were just talking about. It's interesting to note for listeners that we keep seeing this pattern over and over again where a company gets bought right when it was about to raise a bunch of money, like Instagram, or somebody's out looking to do a roll-up strategy, and then they get bought because an offer was put down on the table to stop them from doing that roll-up strategy. And in this case, it was they were preparing an IPO and that made them a really great takeover target. And it's really interesting to see, that's my first tech theme, is that a lot of times, whether it's you're about to make acquisitions, you're about to IPO, or you're about to get bought,

• 1:01:22Speaker 01

  there's a little bit of like a leverage game going on where you pursue concurrent tracks at the same time in order to make sure that the pressure's on for whichever one you want to happen to happen.

• 1:01:35David Rosenthal?

  Back when I was an investment banker, we used to call this a quote "dual-track" process. Dual-track being one track, an IPO, and one track being an acquisition. And you're absolutely right, these things totally play off one another. And the fact that you are, it is known that you are preparing to go public, you filed your S1, it's out there. That has a way of drawing buyers out of the woodwork.

• 1:02:00Speaker 01

  Yep. Yep. Another tech trend is the rise of the mega-acquisition.

• 1:02:08David Rosenthal?

  Yes, yes.

• 1:02:09Speaker 01

  This seemed absolutely insane at the time. I mean, 8.5, like it was, I worked around a lot of, there were a lot of cynical people in my group, and when I worked at Microsoft, and I, like, a lot of lunch conversation was, people like, counting the number of things that, like, how many Skypes something was. Like, "Oh, this is an eighth of a Skype." Or, you know, pointing out, like, making like crazy jokes about what a huge number this was and how it was never going to pay off for the company.

• 1:02:40David Rosenthal?

  And it turns out it's actually less than half of a WhatsApp.

• 1:02:43Speaker 01

  It that it's so true. It's less than half of what's a WhatsApp. You know, consumer consumer chat broadly defined also includes Snapchat. And, you know, like, they weren't going to become Snapchat. They're on a very different path for that. But like, could they have become WhatsApp? I mean, WhatsApp's value prop is that you could very inexpensively communicate across.

• 1:03:05David Rosenthal?

  It's amazing. It's the exact same value prop. It's just for text, not for voice.

• 1:03:09Speaker 01

  Exactly. Inexpensively communicate across political boundaries and avoid the tax of the telecom. And like, it is exactly that. And you look at, you know, that, that, what, $22 billion?

• 1:03:20David Rosenthal?

  Uh, yeah, just, um, just fully valued, given everything that went into that deal. Future episode coming soon at some point.

• 1:03:29Speaker 01

  WhatsApp.

• 1:03:30David Rosenthal?

  I just don't think we have enough to decide yet on WhatsApp. I think we need to wait a little bit.

• 1:03:34Speaker 01

  But anyway, like, looking at like, could Skype have become WhatsApp? Like, did they, did they falter by not becoming WhatsApp? Or was it just a different era?

• 1:03:43David Rosenthal?

  Yeah, I mean, um, A, it was totally a different era. I mean, I think, so my tech theme, uh, this may be a good segue into it. Um, it is, uh, you know, Skype, on the one hand, it's, it's kind of sad that I feel like this is a company that has never fully realized its potential. Given this crazy corporate history that it has. Uh, however, the growth of this company and the like, product market fit, um, that happened is pretty incredible, especially when you go back to the context of when Skype was started in 2003 and launched in 2003 and the kind of growth that it experienced.

• 1:04:26David Rosenthal?

  And like, what were you doing until like, I was in, I was, uh, I was, um, graduating from high school and starting my freshman year of college in 2003 and I owned a tablet PC. Like, you know, nobody had ever heard, like, there were Palm Pilots, you know, like, but there was no, there were no smartphones, you know, the global internet. Most people in America didn't even, you know, I don't know if it was most, but certainly a large portion didn't even have broadband.

• 1:04:52Speaker 01

  Right.

• 1:04:53David Rosenthal?

  And so you couldn't use Skype if you didn't have broadband. And like, think about that and that addressable market and yet how fast it still clearly grew. And so the tech theme that I had is there was a really great, actually ironically, right at the same time that the Microsoft acquisition of Skype happened, Bill Gurley wrote this great blog post called the, I believe the title is "All Revenue Is Not Created Equal: The Keys to the 10x Revenue Club." That's a great post. It's a great post. And he goes through 10 points of like, what is it that makes companies that are valued highly by public companies valued by Wall Street at 10x revenues or higher?

• 1:05:37David Rosenthal?

  Sort of these elite companies, like what are the factors that separate them from other companies? And he includes a slide from an early Skype pitch deck in one of his points. And this slide is just amazing. The point that Gurley is making is that companies that tend to be valued very highly, they grow on the back of organic demand versus heavy marketing demand is what he says. And so, you know, a lot of companies, you think about this, and we see it in startups all the time. You know, your unit economics, quote unquote, may be working, but if you're paying a lot of money to acquire every user that you get to your product, you're going to have to pay, spend a lot of money to build that market and win that market.

• 1:06:22David Rosenthal?

  Skype never spent any money on customer acquisition. It was all organic. It was just pure product market fit. And so the slide from the Skype pitch deck, they're comparing themselves to Vonage. If you remember, Vonage was the Skype competitor in the day. And Vonage advertised all over, you know, national television in the US. And the slide just compares Skype's cost CAC to acquire a new user and Vonage. Vonage is $400 that they were spending per new user. And Skype was 1/10 of 1 cent. And because they had, they had no costs for every call, it was, it was a complete peer-to-peer model. They had no server costs. And they were spending no marketing. And so this thing could

• 1:07:07David Rosenthal?

  just grow and grow and grow. And there were no limits to it. Which is pretty amazing. It's, it's super rare to find these kind of businesses. And again, like I said, you know, Skype, kinda, I don't think gets the credit it deserves as a product and as a business, because of this corporate history. But, but, but the growth is just impressive.

• 1:07:29Speaker 01

  Yeah. Yeah. Yeah. All right. Onto grade the acquisition. I'm giving it a B minus. I thought I was gonna be much

• 1:07:37David Rosenthal?

  Which acquisition are we grading?

• 1:07:38Speaker 01

  I'm grading the Microsoft acquisition. Yeah. I thought I was gonna be way, way, way harsher. Like I, and in fact, I didn't know I was gonna do this episode years ago, but like, I would have called it like a D in 2012. And it seems like, over time, it actually is getting integrated. It takes a long time because it's a big ship to maneuver. But like, it's the right move to have Skype and Skype for Business and not have, you know, versions of LinkedIn and SMS Messenger and totally deprecate communicator. Like, it's, it's the right move. It was an amazing use of that capital, considering other options that they, they could have done with it. And unless,

• 1:08:20Speaker 01

  of course, we see some kind of like, big break where all the US companies in the next few years are allowed to bring the cash home. But I don't really foresee that happening. Bringing home in at a reduced tax rate. And on top of all that, I think having this consumer offering and a little bit of that consumer DNA with all the, all the Skype teams that have, that have built this product, leaves them fairly well positioned for whatever's about to happen in the enterprise communication market that Slack has pioneered. You know, I'm sure they wish it looked more like Slack right now and less like the, kind of like, slow, seddy growth of Skype. But, you know, if Skype Teams is a real thing, I'm excited to see it.

• 1:09:03David Rosenthal?

  Yep. Yep.

• 1:09:05David Rosenthal?

  I definitely agree with that. Yeah, it's interesting to think about, you know, think back to one of our early episodes with Kurt Del Benny, talking about a Compli and Wunderlist and sort of recreating the Office suite and in particular Outlook on mobile. And I gotta wonder if, you know, and Kurt led the Skype acquisition when he was at Microsoft the first time. I gotta wonder if the experience with Skype informed some of the things they did differently with a Compli. And in particular, you know, making Javier, who is the CEO of a Compli, head of all of Outlook, not just Outlook Mobile, but empowering him within the organization to really remake. And it's still a work in

• 1:09:49David Rosenthal?

  progress and will be for a long time. But I think Outlook has made huge strides from the massively bloated, super old school piece of software it was before the acquisition to the still really bloated, but you know, much nicer designed and clearly making strides. And, you know, it's my most opened app on my iPhone where it is today. And to compare that to Skype where yes, Tony stayed at Microsoft for a little while and was in the running to perhaps become CEO, but then he left and

• 1:10:23Speaker 01

  Also ultimately not like a product guy, right?

• 1:10:25David Rosenthal?

  Also ultimately not a product guy, yeah.

• 1:10:27Speaker 01

  He plays from the PE.

• 1:10:28David Rosenthal?

  Yeah, he was like a turnaround guy.

• 1:10:30Speaker 01

  Yeah.

• 1:10:31David Rosenthal?

  And I think the lack of any real leaders, you know, corporate leaders within Skype that could come in and champion that and champion a product division for Skype as part of Microsoft has really hurt them.

• 1:10:49Speaker 01

  Yeah, the heroes of Skype are gone and the heroes that are talked about in Skype and the talent offices and otherwise are the the original founders.

• 1:10:57David Rosenthal?

  Yeah.

• 1:10:58Speaker 01

  And like that

• 1:10:58David Rosenthal?

  The dudes from the newspaper ad.

• 1:11:00Speaker 01

  Yeah. And I mean, you even go, yeah, right. You even go and you look at the way that it's structured in the org now, like it's it's under Redmond leadership. I mean, it's all over. It's these distributed offices in like six or eight places around the globe. But like longtime Microsoft people that they report up to that, you know, they're running it like the the next evolution of Link, which, you know, makes a lot of sense, but it's it's You know, it's very different than the Accomplice acquisition.

• 1:11:26David Rosenthal?

  Yeah. So, and thinking back to what Kurt was saying, you know, that realizing that ultimately a lot of these things really are about the people, you know, that's what was not there in the Skype acquisition, as good as the product is and the product market fit and even the financials. So I think I actually net out at the same B minus, like would have been a bad acquisition, but for some of these other factors we mentioned, like finding a use for foreign cash, it actually being a good business, but just so relative to the potential that it has not yet realized.

• 1:12:04Speaker 01

  Yep.

• 1:12:05David Rosenthal?

  Okay. Let's move on, do some quick follow-ups and hot takes. So, follow-ups from our Android episode. Google recently held a big event and launched the Google iPhone, otherwise known as the Google Pixel.

• 1:12:20Speaker 01

  And sort of unapologetically so. Like their, their marketing copy mentions like the iPhone, or at least their press release copy does, and it's, it's, it looks really good. Like all the reviews are super encouraging. Someone, someone here at PSL got one earlier today, so I'm excited to like play around with it tomorrow. But like, looking at the pictures, comparing it against the iPhone 7, not counting the portrait mode stuff, all the flaws that I noticed in the iPhone photography over the years where it like, it flattens things too much and it like loses some details and it doesn't have like the incredible high contrast and the textures. Like, the Pixel's phone looks really, really good and I'm excited

• 1:13:00Speaker 01

  to play around with it. And aside from all that, there, there's like, there's a niceness to that hardware that we haven't seen in non-Apple devices.

• 1:13:12David Rosenthal?

  In Android devices, yeah, in a long time. It's interesting, a couple of things for me. One, we, in our Android episode, you know, we're like, the mobile wars are over. Google and Apple, you know, are not fighting each other anymore. And then a month later, you know, Google comes out with like the most direct shot at Apple that they've taken in a long time. But I still think the mobile wars are over.

• 1:13:35David Rosenthal?

  The but it's interesting in that episode, we talked about the days when Samsung was just like unabashedly copying the iPhone.

• 1:13:42Speaker 01

  And the worst part is

• 1:13:43David Rosenthal?

  Design wise.

• 1:13:43Speaker 01

  I'm ripping this off from everybody needs to go listen to the most recent episode of the talk show with John Gruber with host Ben or with guest Ben Thompson. Of course, we can't go an episode without mentioning Ben Thompson.

• 1:13:53David Rosenthal?

  Of course not.

• 1:13:55Speaker 01

  But this is John Gruber's line, but it's like, it's like Samsung always acted like Apple never exists. Like, oh, Apple? Never heard of them. But look at the new phone that we invented. Like, and look at this

• 1:14:04David Rosenthal?

  It's unlocked.

• 1:14:05Speaker 01

  Beautiful new design that we came up with.

• 1:14:09Speaker 01

  And Google's just not treating it like that, right?

• 1:14:11David Rosenthal?

  Yeah, yeah.

• 1:14:12Speaker 01

  And the the really interesting thing, and again, totally, totally go listen to the that podcast episode, but Ben and John point out this really great point that this is a potential change in business model for Google. Not only because like they're selling hardware and they normally are the, you know, they just make the software and then the OEMs make the hardware, but Google Assistant right now appears to be only available on

• 1:14:40David Rosenthal?

  Yes.

• 1:14:41Speaker 01

  Pixel and not on not, it's actually not part of Android. The Google Assistant is part of the phone and not part of Android. So

• 1:14:48David Rosenthal?

  Yeah, and I think this is by far the most interesting part of this announcement.

• 1:14:52Speaker 01

  So so walk through this. In a world where there are, you use an AI, the AI is there to give you answers, not options. And Google's business model is predicated upon giving you options, some of which are sponsored options. And in this voice world, like the user experience of this, we're shifting to, you know, when banner ads didn't work on mobile and we had to figure out what worked and it was native ads? Like now we're shifting to this world where like, search result ads don't work when people are asking their phone stuff. So Google had this incredibly profitable business model. And now they, there's a chance they might need a new one. If this thing that they happen to be very good at, which like, this is like the googliest piece of technology of all time is creating this this Google Assistant.

• 1:15:38Speaker 01

  This thing they happen to be incredibly good at is incredibly bad for their business model.

• 1:15:41David Rosenthal?

  Yeah, man, this is technology cycle disruption at work here.

• 1:15:44Speaker 01

  Right, right. So then they look to Apple for like, okay, what's a good business model where we can leverage the things that we're good at? And it just so happens that it might be that the things are good at being Google Assistant. Maybe they just have a really high margin phone that they sell.

• 1:15:59David Rosenthal?

  Include the Google Assistant. Yeah. Super interesting.

• 1:16:03Speaker 01

  So go listen to that podcast because I'm totally ripping those ideas from there. And that is like such a good astute analysis.

• 1:16:08David Rosenthal?

  Very astute analysis. Hot takes.

• 1:16:13David Rosenthal?

  Interestingly to me, I think the, interestingly, the least interesting thing to me that we are going to talk about today is AT&T and Time Warner.

• 1:16:23Speaker 01

  Yeah, I mean, it's 1999 again. What's all this new? And my senior research paper was about net neutrality. Forty-two pages of arguing why that-

• 1:16:34David Rosenthal?

  That is the most relevant and terrifying aspect of this.

• 1:16:38Speaker 01

  It just keeps coming back. And I, every time we get closer to, you know, the telecom and the content, and a gigantic content provider being aligned like this, you know, scares the crap out of me.

• 1:16:50David Rosenthal?

  Yeah, but I mean, I think a little bit like, God, I hope, knocking on wood. You know, it's a little bit like this election cycle. Like it's like you can't fight the forces of history. And like you have these-

• 1:17:03Speaker 01

  Wait, say more about that. How does that-

• 1:17:04David Rosenthal?

  Well, like, that politically, like, we are moving towards a much more progressive society. Like, that's the direction that history is moving. And if you're going to fight that, you're going to be on the wrong side of history. And just like that, in this case, you know, net neutrality is the future and content will be unbundled. And Facebook is worth more than every old traditional media company combined, and that is the future. But what's interesting is that even though, you know, we can sit here and say like, that's the, you know, the right side of history.

• 1:17:44David Rosenthal?

  At times, like these, these forces pop up that are total reactionary, conservative. You know, go back in time, make America great again. And like, hopefully they will lose, right?

• 1:17:57Speaker 01

  I love that you just compared like AT&T and Time Warner's merger to Donald Trump.

• 1:18:01David Rosenthal?

  I did that. I just did that. Yes.

• 1:18:04Speaker 01

  Yeah, the slogan of this, like, year-long process of FCC approval of this thing is going to be make America great again.

• 1:18:11David Rosenthal?

  Yes. All right. We should just leave it at that. Let's talk about the Wirecutter.

• 1:18:16Speaker 01

  Oh, wait, we'll link to this in the show notes, but I tweeted a link to this article the other day that had an awesome graphic of baby, basically the baby bells getting built back together. It is so interesting to look at like the AT&T breakup and kind of the reassembly of the Terminator 2 robot into its former glory. And it's super interesting to see how that's worked.

• 1:18:41David Rosenthal?

  I feel like I should say one more word about what I meant by make America great again. Like Time Warner has many good businesses within it, and it will continue to be decent businesses, especially HBO, probably a really good one. But like by the minute.

• 1:18:57Speaker 01

  Westworld is so good.

• 1:18:57David Rosenthal?

  Yeah. By the minute, that world just becomes less and less relevant. Like, who watches linear television programming anymore? You know, movies are also under, like, there's the old world media companies and the types of content they produce, like, just don't have as important a place in a Snapchat world, you know?

• 1:19:19Speaker 01

  I like it.

• 1:19:20David Rosenthal?

  Okay, The Wirecutter, New York Times.

• 1:19:22Speaker 01

  Yeah. Great for them. God, The Wirecutter is awesome. And I don't think I've bought anything of significance that was not researched on The Wirecutter, The Sweet Home in years. So awesome to see. And I'm an unabashed, you know, fan of the New York Times, and it's great to see them land in one of the media institutions that has figured out how to come into the modern era and like, to your point earlier, go with the version of the future. And I think like, the New York Times had it a lot easier than many smaller regional papers because they were truly a destination site. They had a brand built up. People were going to go there without having someone, without someone needing to share content with them. You just go to the New York Times because it's the freaking New York Times. But like,

• 1:20:07Speaker 01

  Love seeing how progressive they are in, you know, experimenting in VR and buying sites like The Wirecutter. And there's, I was just watching before we were diving into the show, there's a great interview with, it's Brian Lamb, right?

• 1:20:23David Rosenthal?

  Yep.

• 1:20:23Speaker 01

  Yeah, with Brian Lamb talking about how he loves doing what they do with The Wirecutter because rather than writing news, he's writing something that just helps people. He's like, this is a thing that people find continual value in over and over again. We figured out when to refresh it, what to refresh it with, how to tell people that we've refreshed the guides, and we just build a solid, long, like, many multiples of hours longer than anybody would ever take to write a piece. And it's a phenomenal piece of content that's super engaging, that actually helps people. And, you know, I think it's interesting what we'll see as they start to bundle it in more with The New York Times, coupling some of

• 1:21:08Speaker 01

  these buyer's guides with more investigatory pieces. And the example he uses is like, it's like, why can't anyone make a good Wi-Fi router, is the investigatory piece that someone writes?

• 1:21:21David Rosenthal?

  What happened with the Samsung Galaxy Note 7?

• 1:21:24Speaker 01

  Right, right. But then coupling that with a buyer's guide for wireless routers or phones, like, what is actually the one that you should go by? And I think we're gonna see, you know, the continued evolution of digital journalism.

• 1:21:37David Rosenthal?

  All right. With that, should we do a carve out?

• 1:21:40Speaker 01

  We should. Although I feel like I've been just sitting here doing carve outs for the last few minutes. I read, finally got around to reading the super long form piece from The New Yorker called Sam Altman's Manifest Destiny.

• 1:21:52David Rosenthal?

  Oh, it's a great article.

• 1:21:53Speaker 01

  Yeah, it's like, it's interesting. So for a little background, Sam took over Y Combinator from Paul Graham, and sort of like revamped the whole thing, made it significantly larger, opened up new divisions, hired a whole bunch more people, and frankly, expanded the scope of the ambition significantly.

• 1:22:13David Rosenthal?

  Hugely, yeah.

• 1:22:14Speaker 01

  And it's...

• 1:22:17Speaker 01

  You either really buy into it, or you think the piece is a mega puff piece. But no matter what, reading it leaves you with this mindset of a widened ambition and thinking about like, oh, I've been thinking too small. And it's, I love when things reset my perspective like that. So highly recommend it.

• 1:22:37David Rosenthal?

  Yeah, really, really good piece. Also highly recommended regardless of what you think about Y C or about Sam.

• 1:22:42Speaker 01

  And I fall on the side of like, I think everything Sam's done is, I'm on team Sam.

• 1:22:50David Rosenthal?

  Yeah, I agree. Like the not everything he's doing will work. And that's the point.

• 1:22:56Speaker 01

  Right.

• 1:22:56David Rosenthal?

  That you can't be to have that scale of ambition. You know, you need to be comfortable with failure and that's eminently laudable.

• 1:23:04Speaker 01

  May the failures be colossal and the successes even more so.

• 1:23:07David Rosenthal?

  Yeah, totally. Great piece. Go read it. My carve out for the week, super fun one. One of my really good friends from business school, Jake Saper, who is a venture capitalist at Emergence Capital, is the star of the hottest thing to hit the Bay area and Silicon Valley since Silicon Valley, and that is Soma the Musical.

• 1:23:32Speaker 01

  No way.

• 1:23:33David Rosenthal?

  Yes, which ironically Jake is the star of the show and he plays the entrepreneur in the musical, opened and ran in San Francisco last week and was a huge success. And so big shout out to lots of articles you can go read about it. We'll link to some. Big shout out to Jake and very, very well done. Hopefully coming to a Broadway stage near you soon.

• 1:24:01Speaker 01

  That's awesome. Yeah, if you want to see a great show or you know, talk about enterprise SaaS, go talk to Jake.

• 1:24:06David Rosenthal?

  Yeah, totally.

• 1:24:09David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:24:15Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:24:26David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 1:24:46Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system, so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:24:59David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:25:10Ben Gilbert?

  Well, that's all we've got today. If you aren't subscribed and want to hear more, you can subscribe from your favorite podcast client. If you feel so inclined, we would love a review on iTunes, or please tweet, Facebook, share with your friends, and we are @acquiredfm on Twitter.

• 1:25:24David Rosenthal?

  We'll see you next time.

• 1:25:25Ben Gilbert?

  See ya.