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Tellme shows the upside of Microsoft purchase

Tellme Microsoft
"We are pretty much doing everything we were doing before — just a lot more of it," says Tellme general manager and founder Mike McCue of his company being bought by the software giant.Paul Sakuma / AP
/ Source: The Associated Press

Mike McCue hasn't talked to Yahoo Inc. co-founder Jerry Yang since Microsoft Corp. ambushed the Internet pioneer with an unsolicited takeover bid a month ago.

But McCue would like his old friend to know that becoming a Silicon Valley subsidiary of the world's largest software maker can work out well.

Becoming a cog in a corporate machine isn't something McCue had in mind during the eight years that he spent building Tellme, which makes the technology behind directory assistance and other voice-controlled services. It ranks as Microsoft's largest Silicon Valley acquisition so far.

( is a joint venture of Microsoft and NBC Universal.)

After Tellme began making money in 2004, McCue envisioned the Mountain View-based company would remain independent so it could eventually make an initial public offering of stock.

But his feelings changed after Microsoft's chief executive, Steve Ballmer, persuaded him to fly up to Seattle to meet two days before last year's Super Bowl.

After being assured that Tellme would be able to retain its Silicon Valley office, identity and quirky culture, McCue negotiated an $800 million sale to Microsoft and agreed to stay on as general manager. It's a decision that he says he doesn't regret 10 months into the marriage.

"We are pretty much doing everything we were doing before — just a lot more of it," said McCue, 40.

Because of the vast differences in size, the Tellme deal obviously isn't an apples-to-apples comparison to Microsoft's proposed $40 billion acquisition of Yahoo, which contends it's worth even more money despite a two-year earnings slump.

If the deal eventually gets completed as most analysts anticipate, combining Microsoft's online services with Yahoo's sprawling Internet franchise is expected to be a complicated and painful process that will probably involve significant layoffs.

In contrast, Tellme was so small that its payroll has expanded slightly since the Microsoft acquisition, to 360 employees.

But Tellme's experience as a Microsoft subsidiary so far indicates the Redmond, Wash.-based company's pledge to preserve Yahoo's brand, spirit and Silicon Valley presence may not be an empty promise.

Tellme's warehouse-like office located along some railroad tracks about six miles north of Yahoo's Sunnyvale headquarters looks pretty much like it did during a visit seven years ago. Some workers dart down the aisles on scooters and patio-style umbrellas loom over desks made out of doors bought from Home Depot.

"We were a little skeptical when Microsoft first bought us, but they really do seem to value our talent and the DNA our of our company," said Sarah Caplener, a Tellme employee since she got out of college seven years ago.

Caplener and other employees aren't thrilled with the added layers of bureaucracy that the Microsoft ownership has wrought. There are also regular trips to Redmond, Wash., a journey some would rather not have to make.

But Microsoft's executives sometimes make it easier by coming to Tellme. Microsoft Chairman Bill Gates even paid a visit last August and spent several hours swapping ideas with the Tellme engineers responsible for programming a system that provided voice-automated responses to about 2 billion phone calls last year.

The Gates session is just one example why Tellme employees believe they are helping Microsoft develop technology that's more elegantly designed and easier for customers to use, said Peter Monaco, Tellme's director of application engineering. "We feel like we are having as much of an influence on Microsoft as they are having on us."

McCue's background made it seem unlikely that Tellme would ever end up being sold to Microsoft.

Before starting the company in 1999, McCue struck it rich as a vice president of technology for Netscape Communications, the Web browser pioneer that helped open up the Internet to the masses.

Netscape fell on hard times, though, after Microsoft began bundling its Web browser into its ubiquitous Windows operating system, relying on tactics that a federal judge later determined were illegal.

The U.S. Justice Department's case against Microsoft was driven in large part by complaints from Netscape and other Silicon Valley companies that contended the software maker had abused its monopoly power to compensate for a lack of innovation.

But McCue said he got over any hard feelings long ago as he got to know more Microsoft engineers and even hired some of them to work at Tellme before he sold the company.

Even former Netscape CEO Jim Barksdale says he doesn't hold any grudges against Microsoft. As an early investor in Tellme, Barksdale said he was thrilled when McCue told him about Tellme's sale to his old nemesis.

"I am one of Microsoft's biggest fans," Barksdale said. "They are a wonderful company and their cash looked good to me. Every deal is different, but this one was great for Tellme."

Microsoft so far hasn't been able to lure Yang, who is also Yahoo's chief executive, to the negotiating table.

If Yang doesn't come around, Microsoft has indicated it will try to oust him and Yahoo's other nine board members in a hostile takeover attempt. Microsoft has until March 14 to nominate an alternate slate of directors.

Like many other Silicon Valley observers, McCue expects Yang to sit down with Ballmer before then, unless Yahoo is successful in its efforts to line up a better deal.

"A really great entrepreneur ultimately has to follow the best path forward for the employees, shareholders and the vision that you are pursuing," McCue said. "I am pretty confident those three things will be on Jerry's mind when he finally makes his decision."