Remember this?
You might know this iconic ringtone, but probably haven't heard it in years.
The blings and ringtones and so forth.
It's nostalgic to me.
It all started here in the tiny country of Estonia, only 12 years after
the collapse of the Soviet Union.
A group of childhood friends teamed up with two Scandinavian entrepreneurs to transform
the way we communicate across borders with an app called Skype.
Skype came out in the early 2000 as a way for people to
communicate mainly by voice calls over the Internet.
It was basically an alternative to using your phone.
Right now, this is completely commonplace.
Back then, that was not the case and Skype was the first to really bring this to the masses.
This is the story of Skype and how it went from hundreds of millions of monthly users to a
nostalgic sound of the past.
CNBC explores Skype's past its present and what's next for the company after it
was one of Microsoft's biggest acquisitions in 2011.
Skype was launched in 2003 after Scandinavian entrepreneurs Niklas
Zennström and Janus Friis teamed up with four Estonian tech developers and former
schoolmates Jaan Tallinn, Priit Kasesalu, Toivo Annus and Ahti
Heinla. Heinla left Skype in 2008 and now runs Starship Technologies,
a robot delivery business.
As the Chief Technical Architect at Skype, he helped design it from the ground up.
It took a relatively short amount of time, I think about nine months, to develop the initial
concept. We were smart engineers.
We learned on the go.
None of us had any telecoms background.
I think that was the key thing about why it worked so well.
It didn't look like telecom.
It didn't behave like one.
So there were such outsiders, so they thought completely differently about what
they could do with Skype.
Jaan Tallinn was a founding engineer at Skype, and he went on to start the Centre for the Study of
Existential Risk at the University of Cambridge.
At the time we started Skype, we already had like a bunch of experience from a previous project,
things like Kazaa and a few other projects that didn't go anywhere.
Even more importantly, before that, we had experience programing computer
games for a decade.
The group used knowledge.
They learned building Kazaa, a peer-to-peer file sharing platform that at the time was one of the
world's most downloaded Internet softwares to build Skype.
Skype stands for Skype peer-to-peer.
The software initially used Voice Over IP technology, which allowed users to make and
receive calls over the Internet, and it caught on quickly growing to over 11 million users
in its first year.
The fact that Skype is going to be big became clear.
Like pretty much in the first day.
One thing that we did borrowed from Kazaa was this online counter, like how many users
are currently connected?
And then this like when we launched Skype, we started calling our friends and come on, come
online. We need to need to make the number go up.
And suddenly we saw like the numbers that just like going up like crazy
withou, without any any help from our friends.
It really captivated people.
10,000 people downloaded and installed our app on the first day.
It was a very big number back in 2003.
It immediately signaled to everybody that this is something really successful.
This is something that that will really catch on and and very soon it was not 10,000, but it was
100,000. It was a million.
It was 10 million and so forth.
It snowballed from there.
In the same year the app was launched, laptop sales surpassed desktop sales for the first time,
and by 2005, Skype had 59 million registered users and had been downloaded more than
182 million times worldwide.
One thing that really helped Skype to be successful is that it is a product that you as a
consumer can not possibly use alone.
You have to tell somebody else that, hey, you know, you get this app as well because then you
can talk to me for free over the Internet and we can see each other and so forth.
So that meant that people naturally talk to each other immediately.
I never really experienced anything that easy to use,
even if the quality wasn't that great before that.
Like it was just so dead simple.
Skype's early success made it attractive to investors.
In 2005, eBay bought Skype for $2.6 billion under then
president and CEO Meg Whitman with the idea of integrating online shoppers and
sellers.
A lot of people after the acquisition started criticizing eBay
that, you know, why did they do this?
You know, was the acquisition price too high?
They completely didn't understand the complexity of the product, how difficult it would
be for them to actually make it work with eBay.
Despite skepticism, Whitman praised the acquisition.
What we bought was the leader in voice communications in every country of the world.
We think we bought a tremendous business in addition to some really interesting synergies with
PayPal and eBay. And as a result, we feel like we paid a fair price.
It's true that under eBay we can say that Skype grew
in terms of users and in terms of the number of minutes people were paying to call from Skype
to landlines and mobile phones.
That's great. But ultimately what happened is that there were no synergies
that Meg Whitman had imagined.
In 2008, John Donahoe took over as president and CEO of eBay and he wanted
Skype gone.
And the only question was, was there synergy with eBay's other businesses?
And the answer to that is no.
I thought it was a ludicrous idea, and I still think it's a ludicrous idea.
I mean, there's a reason why it didn't work out and they had to spin out the company and sell it
again.
Ebay decided to sell Skype briefly exploring IPO options, but settling on selling the
majority of its stake to private equity firm Silver Lake in 2009.
The deal valued Skype at $2.75 billion.
Ebay retained a 30% stake in the company and gained $1.9 billion in
cash.
Once eBay realized actually there isn't that many synergies with Skype.
They mostly left Skype alone, which was great, because they just Skype kind of continued to grow
like crazy.
Under eBay, Skype did grow at the end of 2007, Skype had over
200 million registered users with over 50 million connected monthly users.
Connected users are defined by Skype as the number of users that login in a given
calendar month.
By the end of 2009, Skype had nearly 500 million registered users, with
105 million of those being connected.
By 2010, Skype had 560 million registered users and over 207
billion minutes of voice and video conversations, once again making it attractive
to investors.
Google and Facebook were rumored to have interest in the company, but in May 2011, it was
Microsoft that announced the purchase of Skype from Silver Lake for a whopping $8.5
billion, meaning Silver Lake more than tripled its investment, while eBay gained an
additional $1.4 billion on its original investment.
So I expect Skype to be an accelerant of our financial results.
You know, the truth of the matter is communications is one of the the
big scenarios that's driving our financial success.
And Skype is going to accelerate that.
Under then CEO Steve Ballmer, Microsoft's plans included incorporating Skype into its
existing products, including the Xbox, Outlook and smartphones.
As part of the announcement, then Skype CEO Tony Bates announced Skype's goal to reach
1 billion daily users.
But things didn't work out as planned.
They failed to capitalize on Skype 100%.
Steve Ballmer was the king of buying things and not knowing what to do with them.
And today, Microsoft says it has 36 million daily active users.
What happened with Skype is the story of every large
company with a lot of middle management.
They didn't innovate on the product for a very long time.
Tony Bates can say whatever he wants to say in reality is that the whole thing
blew up on his watch.
In 2017, WhatsApp reached 1 billion users.
By 2020, it had 2 billion.
And like the early days of Skype, it uses Voice Over IP to transmit calls.
The reason WhatsApp worked was it was just simple and it was easy and it
wasn't really fussy.
And Skype by then had become bloated, slow, complicated.
In fact, I'll go as far as saying the Skype missteps allowed WhatsApp to
grow and become this big.
In 2016, in response to Slack, a growing messaging platform, Microsoft
announced Teams.
However, when Teams launched in 2017, it became a direct competitor of Skype.
Microsoft Teams has been successful at taking users from Skype.
It's provided a number of additional features that Skype honestly does not have at this
time.
But Microsoft's Corporate VP tells a different story.
We see it as complementary on the core infrastructure, right?
So the communications, the idea of having one contact list, we think of the user
experience as being unique and distinct for those teams is focused increasingly more on some
communities work, getting groups of people to do that.
Skype is more point to point family, much more for international expansion.
Microsoft is pouring a lot of engineering resources into making
Teams a big destination for communication.
It's not doing the same thing with Skype.
For example, in 2021, Skype announced it would support up to 100 people
on one call.
But in the previous year, Teams announced it could support up to 300 people on one call.
And in 2020, when the Covid-19 pandemic made virtual communication a priority,
many people's go to were apps like Zoom and Teams, not Skype.
A lot of users went to Zoom because it was available.
Skype was known as well, but they were already on the
downslope. With the move to Teams.
In response to Zoom, Microsoft added updates to Teams such as breakout rooms and
increasing the number of meeting participants to 1000.
It also made some changes to Skype, including allowing virtual backgrounds.
But Teams still grew at a faster rate.
In July 2019, Microsoft announced Teams had 13 million daily
users. By November, it was 20 million.
That number soared in March 2020 during the pandemic to 44 million growing
by 12 million over a seven day period.
In that same month, Skype had 40 million daily users, but by
April 2020, Teams had 75 million daily users.
Microsoft would not confirm how many daily users Skype had in the same period.
However, it told CNBC that Teams usage is at an all-time high and surpassed
300 million monthly active users this quarter.
So, how close are we to seeing Microsoft retire Skype?
It's hard to retire a product with 40 million users because
migration is risky.
Migration could easily happen in the way technology is moving now.
They know there are a lot of options and they'll find another one.
Today, Skype exists, but it's not the phenomenon that it was in the
2000s. Skype is a product with an uncertain future.
Microsoft is where consumer brands go to die, just like AT&T
used to be the place where all Internet services used to go and die.
It's the same thing.
20 years later and Skype's founders have moved on, going on to start their own
companies. Ahti Heinla is the CTO and co-founder of Starship Technologies.
He teamed up with another Skype founder, Janus Friis, to start the company.
Starship specializes in autonomous robot delivery and says it has done millions of deliveries
across 50 locations around the globe.
Niklas Zennström went on to head Atomico, a venture capital firm, and Jaan
Tallinn spends most of his time discussing the dangers of unchecked AI development.
I don't know what the future holds for Skype.
I mean, I'm concerned about humans being wiped out, so it's unlikely that I will need we need
Skype if that happens.
One thing that is guaranteed is that there will be massive changes now, so I'm not sure if
video calling will be a thing even like five years from now.
I myself use Skype right now fairly little.
It is. I still have it installed on my phone, but my
primary communication methods now are elsewhere.
With apps like WhatsApp and Zoom being a clear choice for many people.
Can Skype make a comeback?
Skype had a really good run and then perhaps like asking too much
too for like a bigger, bigger run.
Anything is possible.
Microsoft is trying to make Skype happen in a bigger way now.
There's the Bing chat bot that has generative artificial intelligence, which is all the
rage now. And you can talk to Bing in Skype.
Will that make Skype explode in popularity or make a
comeback? I don't think so.
Microsoft, as a rule, cares about being profitable.
I would not be surprised to learn that Skype is basically
paying for itself, but not making a huge amount of money for
Microsoft today.
Right now, not much is known about Skype's user data or profitability, since Microsoft has
sporadically provided data since its acquisition in 2011.
CNBC reached out to Microsoft for an interview with the current Head of Skype, but we're told
he was not available.
In a statement, it told CNBC more than 36 million people use Skype
daily. Our goal with Skype continues to be to deliver the best possible
experience to users, regardless of the platform they choose.
I think the challenge for Skype, like most
large social platforms, has been that despite scale,
the profits remain pretty thin.
There were years when Skype was not profitable and that includes the time
that it was under the ownership of eBay.
So has Skype fulfilled its full potential or did it just become
obsolete?
Skype is not obsolete.
It has 36 million daily active users.
That is small when you compare it with other assets out there online.
But we can't say that Skype is over with because we're going to get millions of
people mad at us. People still insist on using Skype, fewer and fewer
people, but some do.
There was a time when a place for Skype, it had everything going for it
and now other people have everything going for it.
We wanted to give a lot of people, millions of people, hundreds of
millions of people, billions of people access to free communication over the
Internet. We absolutely accomplished that goal.