Skype at 10: How an Estonian startup transformed itself (and the world)

Chapter 3: Skype is in the dictionary

It’s generally a pretty good sign when the name of your fledgling startup becomes part of the lexicon in countries around the world.

“I remember around 2005, Skype was listed in an Austrian dictionary,” Zennström says. The credibility of being placed in an official dictionary is “exactly where you want to be,” he says.

Skype amassed 4.1 million users in its first business quarter, and 19.8 million in its first year.

Employees remember the early days at Skype not unlike how astronauts might remember a trip to Mars – a long haul to a thrilling new destination, but the ride was bumpy and at times conditions were a tad Spartan.

The booming Skype couldn’t hire fast enough, and its main office in Tallinn – which didn’t have meeting rooms – quickly ran out of space. Employees worked from stairways, corridors, bean bags and the floor – whatever reasonable real estate they could claim. The air was thick with the toil of 50, then 75, then 100 developers working long days, plus the smell of the meat and instant mashed potatoes they heated in the communal kitchen. Still, no one seemed to register the lack of creature comforts.

“The atmosphere was electric,” Zennström says. “We weren’t managers and employees, we were on a mission to change the way people communicate. Everyone we spoke to could see it was working. We worked very hard, long hours with lots of travel, but people enjoyed what they were doing.”

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At the height of the growth, office manager Heidy Heinpalu was setting up 10 new hires a week. Skype’s original office in Tallinn was near a college with an excellent computer science program, which produced a steady influx of ambitious twenty-something graduates. Skype also encouraged employees to recruit contacts, friends and family.

“In that first group of employees, everybody knew someone,” Heinpalu says. “And the city’s best all came to Skype.”

Skype offices started coming online elsewhere in Europe, the U.S. and Asia. When Simon Longbottom started working for Skype in London in 2006, he was surprised by how often people worked remotely. At Skype, it wasn’t about having the odd conference call here and there. Skype’s worldwide employees used their own product for any and all regular, day-to-day work communications.

“I remember thinking ‘How could that possibly work?’ But sure enough it did, and seven years later it’s now commonplace,” says Longbottom, senior director of product marketing. “It was all about instant messaging, audio and video calls, and taking away the barrier of cost. It was really that simple. I wouldn’t say it was perfect by any stretch, but it was definitely the forefront of a new way of working.”

Longbottom says Skype circa 2006 was truly something to behold.

“What I found was a very creative company desperately trying to keep up with the growth, constantly trying new things, and trying to bring order to the chaos of all the countries in the world where Skype was growing so fast,” Longbottom says.

Tomas Rehor experienced this new frontier firsthand. The senior development lead joined Skype in 2007 as the company’s first employee in Prague. There was no local office yet, so for the first few months he telecommuted from cafés, occasionally flying to Tallinn. When the Prague office officially opened five months later, Skype was looking to hire 20 people, but had only found two.

“It was a generous-sized space. I personally tried out all the seats to find out which was the best one,” Rehor says. “The contractors looked at us trying out chairs and said, ‘So when is the rest of the company moving in?’ and we said, ‘This is it.’ It certainly didn’t have the feel of working for a big, international company – more like a startup.”

If the Tallinn office was sparse to begin with, Skype more than made up for it in the years to come. There were all the Silicon Valley-style tech company treats – chic, modern office spaces, meals and drinks for employees, swag, a pool table. And then there were the somewhat atypical benefits – a sauna used for meetings and parties, a sand volleyball court just outside the front door and some spectacular parties.

In fact, Skype the startup was rather well-known for its parties. Heinpalu planned most of them. She recalls fondly the first item of company swag she arranged for employees – a red and white football jersey (soccer, for you Americans).

“They loved those shirts, and they looked like kindergarten kids, all smiling and dressed the same in red and white,” Heinpalu says.

A Field Guide to Skype Employees slideshow

At another company party, she decided Skype’s founders should tend bar. She expected them to protest, or at least to bail promptly after an hour.

“I had to drag them out from behind the bar after two hours, they were so excited,” she says. “And the employees loved it, too.”

Skype employees played with a devotion akin to their immense work habits. At company meetings and celebrations, they took care of business, sure. But they also raced Go Karts, shot paintballs, cycled, danced, and occupied hotel pools until the wee hours of the morning. They welcomed new employees with personal airport pick-ups and open arms, and gleefully initiated them with the dreaded Millimallikas shot at a local bar.

“It’s a culture where everybody is self-motivated and passionate about the work they do. For nobody it was a job. For everybody it was a mission,” Rehor says. “There’s always been a real push to preserve that Skype culture, even though Skype was growing.”

It was this unique company culture, configured in a flurry of work and play while Skype was at a cruising altitude, which acted as a sort of mortar when the company hit turbulence.

Even as Skype encountered the expected technical difficulties of a rapidly growing Internet company, it enjoyed immense attention from all parts of the globe, including Silicon Valley. That attention was hard to ignore. In a dramatic deal in 2006 (detailed exquisitely in the tech press), eBay acquired Skype for $3.1 billion, hoping the technology could help its users validate the authenticity of their transactions.

Following the acquisition, Skype was housed in a small, historic Victorian house on the eBay campus, affectionately referred to as The Skype Inn. Over the next three years, Skype was as popular as ever, which was great for the brand but came with significant technological growing pains. Though Skype had millions of devoted users, eBay struggled to understand just how to incorporate Skype technology into its online transactions – and never quite managed it. The technological hiccups, the shaky acquisition, and Skype founders’ complicated relationship with both eBay and their creation led Fortune to dub Skype the Kurt Cobain of technology companies – “wildly popular, deeply troubled.”

"We weren’t managers and employees, we were on a mission to change the way people communicate."
- Niklas Zennström , one of Skype’s founders

In 2009 eBay sold Skype to a consortium of private investors, including Zennström and Friis, Silver Lake Partners, Andreessen Horowitz, and the Canada Plan Pension Investment Board.

Skype’s new owners dismantled the product and started over to create a network that would work on mobile phones. And they pursued partnerships that would help Skype find a home beyond the PC. It was a rocky period of layoffs, restructuring and re-architecting, shaking Skype to its very foundation.

But within two years, Skype was no longer “deeply troubled” – rather, it had expanded to millions more users and had plans to go public. However, when the call came that Microsoft was interested in the company, Skype answered. In 2011, Microsoft acquired Skype for $8.5 billion.

Looking back at their formative years, Zennström says, the company’s founders did the best they could with their wildly popular brainchild.

“When you build a company, when you grow a company, there's always things you can do better. Of course there were things we could have done differently,” Zennström says. “There’s just so many opportunities all around the world and of course you get distracted here and there; that's just the nature of things. It’s never going to be perfect, but we did a good job of getting this company off the ground – especially a company born outside of Silicon Valley.”

For many longtime employees, change has been the only constant. Even as the company changed hands several times, grabbing headlines along the way, Skype employees tried to stay focused on the product and the millions of users who depended on it. It was those users’ personal stories that served as the “artificial horizon” that helped employees keep the company flying level as Skype experienced dramatic change inside and outside its walls.

Staying focused in the midst of hyper-growth and turbulence was no small task. Technically speaking, it takes a whole lot of engineering to outrun extinction.

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