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Skype boss found route to Silicon Valley on Piccadilly line | Friday interview

Skype chief executive Tony Bates taught himself programming on the way to work, but must now learn how to make a profit from the web phone service

At first glance, Tony Bates is a typical member of California’s techno-aristocracy. The 44-year-old chief executive of internet phonebox Skype lives in Los Altos near San Francisco, goes to the same gym as Apple’s new boss, Tim Cook, and his company has just been sold to Microsoft for .5bn (£5.26bn).

Except that for Bates, the journey to the heart of Silicon Valley’s elite did not begin at one of America’s Ivy League universities: it started on the Piccadilly line of the London Underground. At 19, having quit his mechanical engineering course at South Bank Polytechnic, he taught himself code by reading programming manuals on the way to work.

Like the best American dream-spinners, Bates enjoys telling his story. He was born in Isleworth, west London, and raised in Teddington by his mother, a hairdresser, and his stepfather, a builder. “I do come from fairly humble beginnings.”

After two decades in the United States, the accent is mid-Atlantic, but there are glimpses of the London boy in the odd dropped consonant and the ready grin.

Pausing during a quick tour of Skype’s European operations, Bates has arrived at the Guardian’s offices to set down a marker. Skype currently has 170 million active monthly users. With Microsoft’s backing, he wants to get to 1 billion, though he has not said by when.

“Our goal and mission is to become a global communications service provider and reach billions, not hundreds of millions, and we won’t stop until we get there,” he says.

Bates has revealed that when he was an executive at electronics firm Cisco, he and his wife wrote down their goals. It was 2007, he was 40, and he wrote that he wanted to become a chief executive before the age of 45. He listed four companies. One of them was Skype. So what were the others?

“That I’m keeping quite personal – because you never know!” The freckled face cracks into a smile. “When you set a goal it’s a personal thing and that goal should be very big, hairy and audacious.”

Bates knows the internet from the inside, and from its very beginnings as an academic resource. His first job was at the University of London computer centre as a network operator.

Gateway to the future

At the interview, he didn’t know what a network was. “It was a life-defining moment for me. I went into this room and there were just these racks of equipment with flashing lights.”

He was looking at banks of low-speed modems, located in what was to become one of the gateways where the US internet, developed for research purposes by the military, government and academics, plugged into its European cousin.

He stayed at the University of London for six years, then came a couple of years in Amsterdam, working on a European Union project to agree standards for web addresses. The chance of a job in the US came with an offer to join MCI, later bought by telecoms group WorldCom. With commercial traffic now piling on to the internet, MCI had won a contract to build a beefed-up network for the US government’s national science foundation, which funded university research.

“It was the biggest, baddest thing on the planet. It was so big that we would carry everyone else’s traffic. We were defining size and scale in a way that had never been done before.”

Two years later he went from the east to the west coast and joined Cisco, as a member of the chief technology officer’s team. He caught the eye of Cisco’s boss, John Chambers, and was groomed into management, staying for 15 years. Chambers taught him about setting stretching goals and taking calculated risks. “I didn’t have a formal background in programming or hardware and yet I was charged to build the single largest router that has ever been built – even today – from scratch with a 0m budget.”

Bates clearly likes big things. To the uninitiated, routers are the pieces of kit which chop up web pages and emails into thousands of tiny packets of information and choose the route by which they will travel through the web to their destination.

It was a five-year project from start to finish, and to motivate his team Bates told them that the router should be commercially available before his then newborn son was old enough to click a mouse.

Every once in a while, he would bring in a photo of his child – sitting, crawling, learning to walk. “We made it, but it was touch and go,” he says.

By the time he left in October 2010, Bates was running Cisco’s enterprise, commercial and small business group, with a team of 15,000 and bn of revenue. He had joined the board of YouTube as its first outside director, and during the remaining few months before it was bought by Google had been drawn to the social media scene, where names like Facebook complete decades of a real-world company life cycle in a few months or years.

The move to Skype was a risk. It was an entry into the top of the internet’s hottest business area, but one in which names like Myspace and Bebo can burst into the public consciousness, only to disappear just as quickly.

Skype is a little different. Bates classes it as social media, part of what he calls the online “town square” phenomenon, but it is also an internet utility. It has been through many ups and downs and changes of ownership, but is still growing and celebrated its eighth birthday this August.

The technology is simple enough for grandparents to use it to communicate with grandchildren, and sophisticated enough to conduct virtual US army weddings between soldiers on the battlefields and wives back home on base.

Founded in 2003 by a Swede and a Dane, Skype was bought two years later by eBay in 2005 for .6bn. There it languished, until, in 2009, eBay sold a 70% stake to private equity and the new owners cast about for a chief executive. Bates was asked to prepare a stock market listing. But his dream of becoming a chief executive was to be short-lived, because Microsoft came calling with a bulging pocket book.

He believes he now has a mandate from Microsoft boss Steve Ballmer to expand the company as he sees fit. The .5bn takeover deal has yet to be completed, yet Skype has already completed the m acquisition of a messaging technology company, GroupMe.

“Steve Ballmer and I were really aligned on how they would run Skype, and the fact that we were to be an independent division – they had never done that before with an acquisition.”

Bates is walking a tightrope. To survive, Skype must be on mobile phones, not just home computers. To do that, it must be neutral, with friends among the best carriers and handset makers.

Since Google’s acquisition of Motorola this summer, the three major operating platforms are now closely tied to one handset maker. Apple has always made both the iPhone’s software and hardware, but Google is buying Motorola to strengthen Android, and Microsoft has allied itself to Nokia. Skype is caught somewhere in the middle.

Telecoms challenge

“There is a constant tension between the handset vendors, the operating system makers and the carriers. We think we are there to help them differentiate.”

His other challenge is to make money. Although 35% of customers claim to use Skype for business, just 6% pay. In 2010, revenues were 0m, with 4m in operating profits, but the company still reported a loss of m.

Bates is based near Microsoft’s head office in Palo Alto, but Skype is a genuinely international company. Its registered headquarters are in Luxembourg, its largest engineering hub is in Estonia, and there are significant operations in London and Stockholm. “I believe we have one of the only global companies. Most that say they are, are run out of the US.”

Bates says this means he uses Skype video-calling every day. “It’s not because we want to eat our own dogfood, it’s how we work.” The trick will be to persuade more people to work that way, and to pay for the convenience. A very typical challenge for today’s Silicon Valley kings. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds