05/12/2021

092- Birth of VoIP – 2001

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Another differentiator is that Skype is free and simple to set up,
and it costs us virtually nothing for a new user to join the Skype network,
which is why we can offer the service for free.  Niklas Zennström

BlueMoon Interactive, an Estonian company, was founded by Ahti Heinla, Priit Kasesalu and Jaan Tallinn.  It created FastTrack software for file sharing.

March 2001 Janus Friis, a Dane, and Niklas Zennström, a Swede, acquired FastTrack and developed KaZaa through the jointly-owned Dutch company, Consumer Empowerment.

FastTrack was the protocol and KaZaa was the file-sharing service that distributed music tracks, rather like Napster.  FastTrack was also used as the basis for both Grokster and iMesh.

But KaZaa became discredited when it was accused of distributing malware to its users.  Like Napster it was also routinely sued by record companies for copyright infringement.  The demise of Napster in July 2001 rather took the wind from its sails.

The original Estonian team then developed Skype and sold it to the same Scandinavian partners who released it in August 2003.  The Skype name was a contraction of ‘Sky peer-to-peer’; it does not use a server but connects peer-to-peer.  Skype asked users to define unique Skype identities and using these they were able to talk to others by text or chat.  Video was soon added and users could make free unlimited text, chat and video calls.

They could also use the service for a fee to make and receive phone calls to and from phone subscribers; though for obvious reasons there was no connection to emergency services.  New features were added regularly, for example from January 2006 video conferencing was available.  By April that year Skype had 100 million users.

October 2005 eBay acquired Skype for $2.6bn, with the founders offered several performance based bonuses that might earn them another $1.5bn.  Zennström remained the CEO of Skype.  During 2008 it was the bonuses that led to the relationship between eBay and the Skype founders becoming fraught. 

2007 While under eBay ownership Friis and Zennström also developed Joost, an interactive software application for distributing video files over the Web.

eBay sold off 65% of Skype in November 2009 for $2bn to Friis and Zennström’s company which was supported by a series of investing organisations. 

By then Skype had around 500 million registered users spread across the globe; the sale valued it at $2.75bn.  By the end of 2010 Skype had grown to having 663 million registered users.

May 2011 Microsoft acquired Skype for $8.5bn – some thirty-two times its operating profit!  This was Microsoft’s biggest cash deal; Friis and Zennström each received $1bn.

The acquired business was operated by the Microsoft Skype Division, based in Luxembourg with most of its executive team in Estonia.

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