The Rise and Fall of Skype
If the pandemic had happened ten years earlier, we would all have been Skyping! But Skype seems to be the last thing that we are doing now. So what happened to the company that once dominated the video call world?
In the early 2000s, before the advent of social media apps, Skype was the go-to app for calls, both voice and video calls.
Skype was initially called Skype peer to peer. The peer to peer signifies how they intended to operate. The idea was to offer free calls using a Voice over Internet Protocol (VoIP). The founding team was so confident that one of the founders was quoted saying, ‘We hope that one day instead of saying I’ll call you, people will say I’ll Skype you. They were correct!
Skype was founded by Niklas Zennstrom and Janus Friis. It launched in 2003, and one month into launching, they already had a whooping one million downloads. Safe to say that Skype was one of those few companies that shot up to the stars immediately after launch — Impressive!
Fast forward a bit into mid-2006; Skype could boast of 115million users worldwide and be recognized as the fastest-growing internet company at the time. But unfortunately, Skype was so efficient that some countries had to ban it to protect their phone companies from running out of business.
In 2005, eBay acquired the two-year-old company for $2.6Bn. Although different sources have it that people questioned the amount terming the amount as ‘too much and that Skype wasn’t worth that much at the time. Logically the reason eBay bought Skype was to eliminate the friction of communication between sellers and buyers in e-commerce. However, it didn’t work out as eBay envisaged it would as users didn’t even use it before selling and buying. So it ended up becoming unnecessary.
By the time eBay acquired Skype, it had 50million users and fast-growing revenue annually. But eBay struggled to find a place for Skype to fit into its e-commerce structure, so eBay hired a new CEO called Josh Silverman in February 2008. He directed his efforts toward video calls, revamped the subscription program and created premium accounts. He also created an app for iOS devices which turned out to be a genius move as the app’s download on iOS devices hit a million in two days. Josh’s strategy suggested to pay off as in 2009. Skype grew at about 380,000 users per day and $740m in revenue.
By 2009 eBay sold 70% of Skype to an investment group led by Silvershake for $1.9Bn. Under the new acquirers, the number of downloads increased to 1billion by 2010, roughly one year after purchase, with a near-monopoly on video calls. 25% of the world’s video calls were through Skype in a market growing just from 5% to 6% per year. There were already speculations in the market that Google and Microsoft wanted to buy Skype from eBay. Well, what most people didn’t know at this time was that Skype lost $7m and was in debt of $700m in debt so the buyers would have to act fast to turn the numbers around in their favour.
On May 11, 2011, Microsoft announced that it acquired Skype for $8.5Bn. This purchase also generated talks because this was a price that was 3x Skype’s valuation. A quote from Time Magazine goes like this ‘A few years down the line, Microsoft’s $8.5Bn purchase of Skype will either seem outrageous, or it will look like a good idea’.
The acquisition led to the integration between Skype and Microsoft Teams. Although 2billion users per day used Skype, there was no way Microsoft could not convert this to profit. In other words, Microsoft couldn’t see the impact of the billions of daily users in its balance sheet. Moving forward, Skype struggled to accommodate both personal and business users, which led to Microsoft teams in 2016– The business version of Skype.
Microsoft Teams took many of its features from Skype and improved on all its weaknesses gaining significant market share and attracting 100million daily active users within 4years. That was 2020.
Also, in 2016 Microsoft acquired LinkedIn. So when they wanted to build a video chatting platform, Microsoft offered integration with Teams, Zoom and BlueJeans but not with Skype. Well, many people, including me, believe that the fall of Skype started from there, but that wasn’t the only reason.
With the likes of iOS’ facetime, Whatsapp video call, Zoom, Skype became more sidelined by the users, and they migrated to these other platforms. During the pandemic, Skype users grew from 24million in February 2020 to 40million in March 2020, which was very poor compared to zoom’s daily users, which was 300million.
Microsoft purchased an excellent product. Skype had 40% of the world’s calls at purchase. What has made Skype great was its peer to peer (P2P), which also doubled as its primary source of the problem. If you have once used Skype, you will notice that it works better on your laptop and desktop and its function on mobile devices was terrible. That is because it was built on peer to peer function. However, in 2013 Microsoft migrated it from P2P to cloud server, which isn’t wrong, but Microsoft didn’t get this right as it caused many issues, which made more users quit using Skype. It was not very good for users.
What was a word in the oxford dictionary that has become almost a forgotten term in the history of Technology?
Do you think they could have done something differently?
Do you also think that what Microsoft did was cool?
Let me know in the comments below.
