March 22, 2010 2:01 am
Niklas Zennström may be mellowing. Over the past decade his technology companies Kazaa and Skype have torn up the rulebook for the music and telecoms industries, but these days the maverick entrepreneur and investor is talking about co-operation and partnership as much as about “disruption”.
Ten years ago, Mr Zennström and his business partner Janus Friis began developing the Kazaa peer-to-peer filesharing program, which was used to distribute pirated music and movie files around the world, contributing to a collapse in record and film industry revenues.
Today, coming full circle, Atomico is investing in a number of companies, such as the Spotify-competitor Rdio, that could help the music and film industries defeat piracy and regain revenues.
“Piracy won’t be a big problem going forward, because what you are starting to see now is companies providing really good businesses and services online to provide music and movies. Consumers as a whole are not pirates, most of them are decent people who want to pay for good services, if they are not overpriced,” Mr Zennström said.
He stressed that his original vision for Kazaa was to distribute legal content from the music industry, but the record labels were not prepared for the idea at the time.
“When you’re starting companies, timing is everything. We could not get any agreements. The rest is history,” he said.
The rather bloody history includes a series of lawsuits that culminated in Kazaa paying $100m in damages to the record labels.
But the music industry, having seen sales fall 30 per cent over the past five years, has now become more willing to negotiate more creative deals. And unlike some venture capitalists, Atomico will not be afraid to back content-led businesses.
“If you don’t have a way to work in tandem and in conjunction with the content industry, but you try to be counter to them, you will not really be able to make money from it.
“If you want a company to be sustainable and make money, you have to do something in partnership,” Mr Zennström said.
It is a lesson that was reinforced by the failure of another venture backed by Mr Zennström and Mr Friis – Joost, which aimed to become an online video content hub.
Joost failed to secure enough TV and film content to attract an audience and shut down most operations last year.
Mr Zennström has not completely lost the fire in his belly, however. He is still looking for market-changing companies.
“You try to find a company that has a technology or business model that is completely different to the incumbents, which can create a sustainable competitive advantage – provide services at a fraction of the cost and still make money.”
Skype, Mr Zennström’s internet telephony business, which was sold to Ebay for $2.6bn in 2005, is still one of Europe’s biggest start-up success stories, and he is hoping to inspire new entrepreneurs to be similarly ambitious.
“You don’t need to have 1,000 super-smart entrepreneurs, you need to have a few of them to make a difference. Our job is to identify them and inspire them to think even bigger.”
Mr Zennström advises the entrepreneurs he backs not to sell out too early.
“When a company starts to have traction, it gets phone calls from larger companies who want to acquire them for a much smaller amount than they could realise by continuing to grow as a private company.
“We try to encourage those companies when they get those phone calls to say ‘no’. They are a sign that the company is doing something right.”
Mr Zennström also remains convinced that Europe is a good place to invest in technology, despite recent difficulties that tech companies have found in raising money, as well as the region’s patchy record of creating global leaders.
“The European landscape has been changing, with more entrepreneurs coming out of the woodwork.
“While there may be more opportunities in the US, the ratio between opportunities and investors are much, much better in Europe.
“Europe has very good infrastructure and there is no lack of talent. What we need to do is try to bring out these opportunities and to inspire entrepreneurs to think bigger,” Mr Zennström said.
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