April 18, 2006 5:59 pm

Skype chief’s disruptive vision

For the head of a company that wants to revolutionise the way the world communicates, Niklas Zennström is surprisingly hard to contact. The website of Skype, which enables free calls over the internet, gives no office location or contact number.

Maybe the fast-talking Swede, who launched Skype with his business partner Janus Friis in 2003 and sold it to Ebay last year for an upfront payment of $2.6bn, is making a point to those of us who have yet to cast off earth-bound telephonic shackles for unlimited conversation in cyberspace?

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In Skype’s London office, tucked away in a featureless Soho side street near Piccadilly Circus, Mr Zennström laughs at the notion and explains that operating a tele­phone switchboard does not fit the business model.

“We have more than 80m users and we’re getting 250,000 new users a day,” he says. “We provide a service for free. If we had full customer service for everyone, we’d have so many people calling us that . . . it would be too costly.”

The office does have “a few” landlines, including one for faxes, but inquiries are dealt with most quickly by filling in a form on the website, he says. In my experience, trying to contact companies this way is ineffective. Then again, Skype is not like most companies.

Mr Zennström’s admirers in the venture capital community say he is a potential Michael Dell, Jeff Bezos or even Bill Gates, to whom he bears a physical resemblance. If you did not know what he looks like, however, it would be hard to spot the boss in the open-plan office.

He sits in a corner at a long desk shared with half a dozen colleagues, glued to a computer screen. It is not even his seat, since others can use it when he is travelling.

When the London team flew to a company meeting in January in Estonia, where Skype develops its software, the 6ft 5in chief executive sat between two other passengers in a middle row near the back of economy class.

He walks into the meeting room wearing an open-neck checked shirt and dark cords and clutching a polystyrene coffee cup, with which he fiddles as he talks.

Beneath the laid-back appearance, however, is an iron will. The Skype mission is more important than status and job titles – and he expects all his employees to feel that way too.

“If people start to position themselves internally to get more power or a better job, they are in the wrong company,” he says. “We don’t have time for all this internal politics that happens in big companies. In the beginning, we made several hires that were not good. You need to notice that early on and get rid of people.”

Mr Zennström, who has just turned 40, is known for developing disruptive technologies. He and Mr Friis created Kazaa, the software that enabled millions to share copyrighted music illegally over the internet and brought litigation down on their heads.

What set him on this path? The son of teachers in Uppsala, he denies being a radical. But as a consumer he dislikes overweening corporate power. “It’s everyone’s obligation to fight against monopolies and also companies that provide bad services,” he says.

After doing two degrees at once in engineering and business, he gained experience as a manager and business developer at the fast-growing Tele2, which he describes enthusiastically as the first European telecoms company to challenge an incumbent in an open market.

There he hired Mr Friis, a “brilliant” young Dane with little formal schooling but an intuitive capacity for unconventional business models, and the two have worked closely ever since.

Mr Zennström is a natural leader, according to Howard Hartenbaum, who tracked him down and became Skype’s first investor when venture capitalists in Europe “wouldn’t touch him with a 10ft pole” because of the entertainment industry’s litigation over Kazaa and post-dotcom wariness.

Mr Hartenbaum, now a partner at Draper Richards, a west coast venture capital firm, recalls being “sucked into” Mr Zennström’s vision. “I was tempted to leave venture capital and just follow him. I probably should have because I would have owned more stock. But I bought enough.”

Unlike most companies, Skype makes no money from the majority of its customers, who use its free downloadable software to make calls from their computers. Its revenues – $60m last year, with a target of $200m this year – come from the small minority who pay to make and receive calls to and from landlines and mobiles (SkypeOut and Skype­In), and services such as voicemail and personal ring tones.

Mr Zennström bristles at any suggestion of an Ebay “takeover”. Skype still has its own strategy, budgets, culture and brands, while taking advantage of synergies with Ebay, he says. “One of the important things for us, but also one of the great things with Ebay, is that we wanted to make sure that we could merge with a bigger company but that Skype stays as one company. Meg [Whitman, Ebay’s chief executive] said: ‘Take advantage of the resources we have, but we’re not going to tell you what to do because you’re the best in the world to run your own business.’ ”

Now that Skype is part of Ebay, however, he cannot comment on when it will break even or what percentage of users pay for premium services. What about the apparent contradiction in its strategy? The founders say they want to “make it possible for the whole world to talk for free”, yet their revenue-generating services rely on the survival of traditional telephony.

The “whole world” vision is rather a distant one, he admits. “At some point that revenue model will disappear but that point is quite far in the future,” he says. “You cannot completely believe that charging for phone calls is completely going away.” Meanwhile, Skype is developing other services with hardware and software manufacturers, mobile phone companies, retailers and even the recording industry.

His biggest challenge is controlling the company’s spiralling growth and communicating a common culture to new recruits in Europe, Asia and the US. He and Mr Friis now have an eight-strong management team, including two who have come from Ebay and experienced its phenomenal growth.

Communicating via Skype’s technology is not enough with a workforce that has almost quadrupled in a year to about 300 and comprises 30 nationalities. “There are a lot of times when you need to make sure people from different offices are meeting each other. We have a lot of social events, organised and unorganised.”

Nor can culture be imposed. “It’s how you operate, how you behave. It starts when we are hiring people. They need to be really thrilled about Skype as a movement, rather than a place to work.”

Mavericks are welcome, up to a point. “You cannot have a team full of those people. You need to have very good project managers. We never have a shortage of ideas. The challenge is to decide which are the right ideas and then implement them.”

Will the serial entrepreneur who has co-founded four companies be tempted to move on? He and Mr Friis have a strong incentive to stay, with revenue and profit targets that, if met, would push Skype’s final sale price from $2.6bn to more than $4bn under an earn-out arrangement.

He also says that this is the peer-to-peer technology that they have been searching for since 2000 and he wants to see it through. “The day you realise you don’t really know what more to add, that’s the day when you shouldn’t be here any more. I don’t know if I’m going to be here for the rest of my life. But as long as you have that drive, it’s fine.”

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