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.
