Skype - The Rise and Fall?

[Music] Skype is a classic at this point I say that because they're the original the industry of online communication has exploded and Skype was the first big name associated with it I don't think I'll ever separate the two in my mind it even became part of our everyday language you would say things like Skype me about it or I'll Skype you later tonight actually when I think about that I don't feel like you hear those as often anymore is that how people perceive them that they're on their way out or at least not anywhere near the level they once were because I want to touch on that in this video Skype has had an interesting journey that I want to break up into three distinct stages in the first stage they were independent growing from nothing to a multi-billion dollar valued company in the second stage they were owned by eBay and in the third stage they were owned by Microsoft at that third stage might be the most controversial so today I'm gonna talk about how they grew so large and where they stand today but first does anyone remember cuz it was one of those decentralized peer-to-peer music file sharing websites very similar to Napster they would connect people directly to each other rather than going through a centralized server it simply put they were all just ways for everyone to download music for free cuz that was created over in Europe by these two guys from Sweden and Denmark their names word not the easiest for me to say but I'll give it a try Niklas Zen strum and Janus fries all right Niklas had a degree in Business Administration and engineering physics and spent three years working for a Swedish telecommunications company so I'd say he had a good foundation for this cuz I was launched toward the beginning of 2001 actually only four months before Napster was forced to shut down and if you can imagine the copyright laws attached to these songs made operating these companies very difficult it was constant legal battles by the end of 2001 cos I was dealing with these same copyright issues I imagine these two either didn't see much of a future for the company or simply didn't want to deal with the nonstop legal battle so by the end of that year they sold Quezada an Australian company called Charmin Network's I know I really took a turn there I should be talking about Skype and Here I am talking about cos ah well here we go the reason I've been talking about cos ah is because right after they sold it those two men went on to start Skype and can I take a minute to point out the similarities between Kazaa and Skype they both operate on this decentralized peer-to-peer model in both cases there's nothing between the users it's just a direct connection in one case the users they're sharing their music and then in the other case they're just sharing their voices in fact the last two letters of Skype are short for peer-to-peer the PE part it was originally referred to as sky peer-to-peer which was shortened to Skype er and then of course down to Skype if it was my decision I think I would have stuck with Skype er as a cool sound to it but I suspect they saw value in having that catchy one syllable name the actual service of Skype was first offered as a beta version in August of 2003 and was instantly a success stayed over a million registered users by the end of that year it's because they had such a great business model that allowed them to grow there was three main parts to it I think that most would agree the most important part was offering their service for free just thanked for any small business they would be almost guaranteed to attract some customers by giving away the product for free the obvious issue with that is you can't afford to give away too much of your product but Skype didn't have to worry about that the peer-to-peer nature of their service meant they didn't have to pay for servers or bandwidth or whatever you would expect them to have to pay for so unlike most businesses they were able to serve additional users without adding additional costs which proved to be a great way to build a strong user base to go along with that word-of-mouth advertising it can be so effective and this was a perfect service for it because it required two people to use it just an example if you were gonna call me later maybe I'll recommend you download skype and we could talk that way because it'll save us some money that's it right there there's a new Skype user and then maybe they'll tell someone else about it meanwhile Skype is getting all this advertising for free also for the third part they did have some costs they were a business after all but they even had an alternative way to cover those they would pay for them by selling portions of the company to private investors now the new question is why would that private investor be interested what would the payoff be for them they invested with the promise that Skype would add paid services eventually and start collecting some money the idea that the money's not here now but it will be here soon so to summarize all of that for almost a year Skype collected no revenue but was able to build their user base to millions of people once they were established in July of 2004 they finally launched their paid service it was called Skype out and it would allow customers to call people that weren't on skype less than a year later they launched the opposite service called Skype in that allowed customers to receive calls from people that weren't on skype they still weren't profitable but now they were bringing in millions of dollars in sales and that's better those sales along with a rapidly growing user base attracted the attention of eBay which leads us to our second stage in 2005 Skype was acquired by eBay of her 2.6 billion dollars half of it in cash and the other half was an eBay stock which I have to admit sounds a little pricey for a two year old company with sales of around sixty million dollars that wasn't even turning a profit 2.6 billion dollars that's hard to justify but as I said if they were growing fast so they must have figured it was worth the premium also they felt confident that they'd be able to integrate it into their online auctions sort of opening communications between the buyers and the sellers and hopefully making the process run a little smoother PayPal is the other company that comes to mind a babe ought them a few years earlier with similar intentions of integrating it into their auctions and making the process run smoother I wouldn't say this worked out in the way they envisioned here when you buy something on eBay do you really want to talk to or for heaven's sake video chat with the person who sold it to you why would you really just talk through emails and that's enough those emails proved to be the preferred method for eBay communications so Skype didn't turn out to be especially valuable for their service then in 2009 four years later eBay sold about 70% of Skype to a private investment firm called Silver Lake partners for the price of 1.9 billion which did value the company at around two point seven five billion which is similar to what they bought it for so yeah a similar price but it is after four years of growth so I'm gonna go ahead and say that they did overpay when they bought it talking about overpaying is a good transition into their third stage because in 2011 Microsoft bought 100 percent of Skype for the price of eight point five six billion dollars in cash valuing them at over three times higher than the deal two years earlier it was actually Microsoft's largest acquisition until they bought LinkedIn in 2016 when this deal happened most people were saying that they seriously overpaid for it and from a financial standpoint it's hard to argue the year before Skype did have eight hundred and sixty million dollars in revenue but it resulted in an 8 million dollar loss still Skype did not make any money from the beginning and they always did a good job in generating business but it always had a hard time turning a profit it helped them build almost seven hundred million dollars in debt as well so it made everyone question why Microsoft saw them to be so valuable at the time of the sale Skype CEO who was then in charge of that division under Microsoft said together we will be able to accelerate Skype scold to reach 1 billion users daily that was a far-off goal because they were currently at about 65 million monthly users so that makes me think that the premium was based on expected growth from the free service which among other things can potentially translate to more paying customers which was somewhere between 8 and 9 million per month at the time another reason for the acquisition was to complement Windows Live Messenger formerly called MSN Messenger in 2011 it actually had far more active monthly users than Skype somewhere around 300 million soon after the acquisition they made it possible for the users of the two services to communicate with each other and then years later they discontinued Windows Live Messenger and sort of shoved all those users on to Skype they also did a very similar thing with Lync it was a similar service but specialized for business use within a company Microsoft integrated the two and then in 2015 rebranded linked as Skype for business and then now Skype for business is being replaced by Microsoft teams and that's a whole other thing what about Windows Phone 7 their phone operating system that was another potential use for Skype earlier in that same year Microsoft had announced that Nokia phones would primarily use it and then two years later they actually acquired Nokia altogether it was all considered to be a bit disastrous but maybe integrating the Skype app into those phones in some way could be a good way to utilize it it's also a popular belief that they bought Skype partially as a defensive move Google Facebook Cisco were all thought to be considering it so Microsoft came in and took it for themselves before any of them had a chance when it comes down to it the purchase was a bit of a gamble but they had some unique uses for it in some high expectations when it came to growing their user base I don't have a perfect answer as to whether or not it was a smart decision by Microsoft or eBay for that matter I can say that they did both help grow the skype name but maybe not enough I can see how some would consider this a failure think back throughout their existence all three stages there were high hopes for Skype people were buying into this company for far more than it was worth at the time because they always saw future potential in the beginning it was these private investors then it was eBay and then it was Microsoft every one of them were criticized for paying too much at the time and in reality I don't think it ever has met that sky-high potential the current estimates have them at about 300 million monthly users which is still nowhere near that optimistic goal of 1 billion per day set years ago quite honestly I can't even imagine them ever reaching that mark I think the real issue with Skype today is they're missing out on market share like I said in the beginning online communication services have been exploding Skype was the original they had a tight hold on that market for years but not as much today as the market grows and more users enter it they're missing out on potential customers more often than not which ever service you use is probably dependent on what you're using it for it there's so many of them whatsapp from Facebook is ridiculously popular they also have the messenger app there's viber slack duo discord even Apple's FaceTime app or their eye messages can be considered competitors now instead of one real choice if there's 50 of them so it's not that Skype is fallen or is on the brink of shutting down but rather it's that they fail to keep up with the others and it appears lower in relation but really with all these apps made available with all these different features optimized for different uses and integrated into different things I don't see how Skype could have possibly maintained their position over them maybe just a thought if they had introduced a bunch of specialized apps just one called Skype gaming or Skype friends or you know what I'm saying branch out and expand with the market since this is proven to be a very wide subject I want to include a few extra things for you to consider related to why the Microsoft stage has been so controversial first off I don't want this to turn into a customer service review but Skype users have been getting upset with the service all of these rebrandings and mergers with their other various websites have resulted in constant changes in the interface and many times seemingly for no reason and then people have been forced into creating Microsoft accounts it's a popular opinion it that the service has become more complex yet less reliable also I should mention that Skype no longer uses that once important peer-to-peer system soon after Microsoft took control and they essentially switched it over to their centralized servers which has led to a scandal involving the interception of user data so those are just a couple reasons why Skype users may not be thrilled with Microsoft's involvement let me know in the comments what do you think about Skype today and what do you see for the future are they gonna go up or down and what do they need to do if they want to rise back to the top of their industry also are you a Skype user or have you been one in the past and maybe you just use them less now because you're using some of the others in addition to it so what were your Peaks years I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 1,248,720

Rating: 4.9185286 out of 5

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Id: fgLWceBcMUc

Length: 13min 36sec (816 seconds)

Published: Wed Apr 15 2020