Skype board member looks back at the last two years, and why the company today is worth $8.5 billion to Microsoft.
By Ben Horowitz, contributor
All these b$%^&#s and n@#$%s still hatin'
I used to be ballin', but now I'm Bill Gate-in
—Lil Wayne, Bill Gates
Shortly after we started Andreessen Horowitz in mid-2009, we, along with our partners at Silver Lake Partners and Canada Pension Plan Investment Board, bought majority ownership of Skype from eBay for slightly more than $2 billion. The investment generated a tremendous amount of controversy for us. Marc and I were known as angel investors, so investing $50 million of our new $300 million fund in one deal surprised people. While consistent with our stage-agnostic strategy, it was a very big deal very early on in the fund. To make matters more exciting, other investors and writers broadly criticized the deal. Joe Nocera of the New York Times wrote:
"Many people on Wall Street—and a number of telecommunications experts I spoke to this week—were stunned by the price Skype sold for, and not just because we're in the middle of a recession."
That controversy ended this morning when Microsoft announced that it was buying Skype for $8.5 billion -- 18 months after we bought it from eBay.
What it looked like back then
Let's look back at the original decision and see why it turned out well. At the time, people criticized us for two primary reasons:
1. Ebay might not have owned Skype's underlying intellectual property. Skype's founders, Niklas Zennstrom and Janus Friis, held an IP claim against Skype. Many speculated that the founders would use their claim to shut down Skype and leave investors with nothing. This made the company theoretically impossible to buy. As Nocera wrote:
"And so, the mystery of the Skype deal: why were the winning bidders willing to pay so a high price for a company whose very existence could be threatened by this lawsuit? One possibility is that they have nerves of steel. The other is
I'd say it is premature to say this acquisition turned out well. They have 30% of all international calls, which is stupendous, but is it stupendous if it was all for free, and they didn't make any money off it? I would say Microsoft and Skype's attempt to conquer all of telephone is still up in the air.
It reminds me of Nelson Bunker Hunt's attempt to corner the silver market, which worked out very badly indeed.