Business Technology

Thursday 22 March 2018

Silicon Valley is yesterday says Skype's co-founder

Skype co-founder Niklas Zennström says Silicon Valley is no longer the centre of the tech universe and good start-ups can come from anywhere, including Ireland. John Kennedy reports

STANDING before me is one of the internet’s greatest heroes. Around the world today close to 600 million people have Niklas Zennström and his business partner Janus Friis to thank for being able to stay in touch with loved ones in ways that were unthinkable a decade ago.

Today people can make free video or voice calls in real-time via broadband or their smartphones, not to mention low-cost fixed and mobile telephone calls, through Skype.

Before Skype, Zennström and Friis had run a peer-to-peer file- sharing company called Kazaa. After selling it, they started Skype in Sweden in 2003 and very quickly realised that if they were to succeed they needed to go international first and not try to be a success at home. They sold Skype to eBay in 2005 for $2.6bn. In 2009, Zennström was part of the consortium that bought Skype from eBay and he currently sits on the board of the internet telephone company.

Zennström and Friis now run their own venture capital firm Atomico, which has a fund of $165m and has invested in 30 companies such as and Xobni.

Zennström chuckles as I gush about the marvel of Skype and how it keeps my world-strewn family in touch. He reminds me that therein lies one of the best lessons at discovering a technology success.

“When we launched Skype in 2003, voice over IP (VOIP) had already been invented; companies that had tried had failed. When we started no one was interested in us. If you only invest in trends then you shouldn’t be a venture capital investor. It’s not like spotting talent. If someone sat in front of me telling me their technology was the best thing since sliced bread and I believed that person, then it would have the potential to be the next big thing. It’s all about people who are moving against the trend.”

He has a point. Apple spotted the perfect intersection between broadband, MP3 downloads and hardware and created the iPod. Tablet computing was already eight years old before Steve Jobs brought out the iPad and restarted the genre. Timing, it seems, is everything.

According to Zennström, who now sits on the other side of the table as a venture capitalist, there has never been a better time for internet investments, with exciting companies like Groupon, Zynga, Yelp and Twitter shaping the landscape.

Compared to a decade ago when the dotcom downturn began, he says: “The difference is it’s more and more about infrastructure, the more broadband connections people have, and now we have an explosion in mobile broadband. Next year 50pc of all phones in the US will be smartphones; what we’re seeing is companies growing faster and faster.

“When we were starting with Skype we realised we were growing faster than AOL did, faster than Yahoo! did, faster than eBay, PayPal and all the Web 1.0 companies did and at about the same speed as YouTube.

“If you look at the curve now, other companies like Zynga and Groupon are growing even faster than Facebook. What you see now is companies who are starting later tend to grow faster and that’s just a function of more and more people on the internet and who have broadband.

“Today compared to 10 years ago we are so dependent on online, not just for fun; we do our banking and our shopping, we communicate and work online. We are so dependent on online services today I think we are going to see the continuous growth of companies.

“You mention the speedbump in 2000 with the dotcom crash, what actually happened there was a financial crash caused by the expectations of companies to monetise faster than many of them did.

“But the underlying growth of internet services did not slow down, so more and more people were using internet services despite the downturn. If you look at the recession we’re in, it really has little impact on models or the time we spend online. If anything, we spend more time online because people with less money use online services that are more cost efficient,” Zennström says.

One of the points that he labours to make is how the world no longer pivots on Silicon Valley and that any company anywhere, whether in Dublin, Cork, São Paulo or Taipei, with the right product and broadband access, can create a great service or product.

“Today we are not as much dependent on hotbeds like Silicon Valley so I think there is no reason why the next Google or Facebook or Skype is not going to come from Ireland as anywhere else in the world.

“It is all about encouraging those people thinking about starting companies but may be holding back because they don’t dare. One of the problems we have in Europe in general is we’re afraid of failure. A lot of people who are smart and have the right idea are afraid to leave their job because ‘what if it fails and what will people say?’. That is something we need to work on culturally and that’s why the US is better because if you fail people would say ‘good on you; what did you learn?’”

Zennström and Friis started the London-based Atomico a few years ago because they wanted to invest in great technology companies, not just European ones but also around the world.

“I thought the market was underserved from the point of view of entrepreneurs who turned out to be investors in other entrepreneurs. It’s like you almost have to be a disruptive entrepreneur to find one. The interesting thing is it is difficult to know what is going to be the next big thing. No one knew that search would be big when Google started. The existing search companies at the time like Alta Vista and Yahoo! were getting out of search and becoming portals.”

Zennström warns anyone thinking of embarking on a start-up venture to remember that it’s not a job, it’s a lifestyle choice.

“You’re going to be doing this 24 hours a day, seven days a week. It’s going to be hard work but it’s going to be very rewarding. It’s great fun and it’s a good journey.

“The other bit of advice I have is don’t go to Silicon Valley. Silicon Valley is yesterday. What you need to think about is the world as a market. Silicon Valley is a small place, the US market is not the biggest market anymore – Google makes more revenues in Europe than in the US.

“There are more technology IPOs happening in China than in the US. If you look at mergers and acquisitions (M&A) transactions, they are happening everywhere – Japanese firms are acquiring Brazilian firms, French companies are acquiring American firms. Also, today you have pretty good venture capital investors in Europe.

“Another advantage is that if you come from a smaller country like Ireland, and if you’re successful here, it’s too small of a market. You have to think internationally.

“We realised that when we started Skype in Sweden. If we had been successful in Sweden we mightn’t have been as successful as we were globally. I also realised that being from a neutral country like Sweden, people were happy to meet you and that works for the Irish as well.

“I would encourage anyone starting a technology or internet company today to think about emerging markets in Latin America. Brazil is growing fast, so too is China and Japan. They are big markets. It’s no longer just about Silicon Valley,” Zennström affirms.

© Silicon Republic Ltd 2010

All content copyright 2010, Silicon Republic Ltd — all rights reserved


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