- Skype was launched in Estonia in 2003 as a way to communicate via voice calls over the internet.
- It quickly gained popularity, reaching over 11 million users in its first year.
- eBay acquired Skype in 2005 for $2.6 billion but struggled to integrate it into their business.
- In 2011, Microsoft purchased Skype for $8.5 billion with plans to incorporate it into their existing products.
- However, Skype failed to innovate and keep up with competitors like WhatsApp and Microsoft Teams.
- Microsoft Teams, launched in 2017, became a direct competitor to Skype and has been more successful in attracting users.
- Skype has become bloated and complicated, while apps like WhatsApp and Teams offer simpler and more user-friendly experiences.
- Skype's decline was further accelerated by the COVID-19 pandemic, with users favoring apps like Zoom and Teams for virtual communication.

- Microsoft's Teams has surpassed Skype in popularity and usage.
- Teams has seen significant growth, with 75 million daily users in April 2020.
- Skype had 40 million daily users in March 2020.
- Microsoft has not confirmed Skype's current daily user count.
- Skype's future is uncertain, with migration to other platforms being risky.
- Skype's founders have moved on to other ventures.
- Microsoft is trying to make Skype more popular with features like the Bing chat bot.
- Skype's profitability has been limited, and its user data and profitability are not well-known.
- Skype still has 36 million daily active users, but its user base is declining.
- Skype achieved its goal of providing free internet communication to millions of people.

At its height, Skype – a telecommunications app founded by Scandinavian entrepreneurs Niklas Zennström and Janus Friis, and Estonian engineers Ahti Heinla, Priit Kasesalu, Jaan Tallinn and Toivo Annus – had 560 million registered users. In 2005, just two years after its launch, the app was acquired by eBay. Later, a majority stake was sold to private equity firm Silver Lake. Microsoft then acquired Skype in 2011 for $8.5 billion. While it was revolutionary in its time, Skype’s journey has been full of ups and downs. Now that Microsoft has rival Teams, the future of Skype is uncertain. CNBC explores the company’s past, present and what’s next for the company.

Chapters:
00:00 Introduction
01:09 The early days
06:38 Microsoft era
11:36 What’s left for Skype

Produced and Edited by: Sydney Boyo
Additional Reporting: Jordan Novet
Additional Camera: Kaspar Pokk and Virgo Pärn
Animation: Christina Locopo
Supervising Producer: Jeniece Pettitt
Post Production Support: Tala Hadavi
Additional Footage: Getty Images, Jaan Tallinn, Skype, Microsoft Teams, Ambient Sound Investments, Starship Technologies, LinkedIn

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#CNBC

What Happened To Skype

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 2 Scandinavian entrepreneurs to transform the way we communicate across borders with an app called Skype.

Skype came out in the early 2000s 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.

And Skype was the first to really bring this to the masses.

This is a 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 1 of Microsoft's biggest acquisitions in 2011.

Skype was launched in 2003 after Scandinavian entrepreneurs Nikola Zennström and Janis Friis teamed up with 4 Estonian tech developers and former schoolmates, Jan Tallinn, Prii Kaisalu, Toivo Anus and Antti Heinle.

Heinle left Skype in 2008 and now runs Starship Technologies, a robot delivery business.

As a chief technical architect at Skype, he helped design it from the ground up.

It took a relatively short amount of time, I think about 9 months, to develop the initial concept.

We were smart engineers, we learned on the go.

I think that was the key thing about why it worked so well.

It didn't look like telecom, it didn't behave like 1.

So they thought completely differently about what they could do with Skype.

Jan Tallinn was a founding engineer at Skype, and he went on to start the Center for the Study of Existential Risk at the University of Cambridge.

At the time we started Skype, we already had a bunch of experience from a previous project, things like Kazaa and a few of the other projects that didn't go anywhere.

Even more important, before that, we had experience programming 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 1 of the world's most downloaded Internet softwares to build Skype.

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 pretty much in the first day.

1 thing that we did borrow from Kazaa was this online counter, like how many users are currently connected.

And then when we launched Skype, we started calling our friends and, come on, come online, we need to make the number go up.

And suddenly we saw the number starts just going up like crazy without any help from our friends.

10,000 people downloaded and installed our app on the first day.

It immediately signaled to everybody that this is something really successful.

This is something that that we really catch on.

And very soon it was not 10,000, but it was 100,000.

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.

1 thing that really helped Skype to be successful is that it is a product that you as a consumer cannot possibly use alone.

You have to tell somebody else that, hey, you know, 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 talked to each other immediately.

I never really experienced anything that easy to use, even if the quality wasn't that great before that.

Like I can say 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 eBay 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.

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?

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.

EBay retained a 30 percent 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 Skype continued to grow like crazy.

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 a number of users that log in 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 Silverlake 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.

I expect Skype to be an accelerant of our financial results.

You know, the truth of the matter is, communications is 1 of the big scenarios that's driving our financial success and Skype's 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 1000000000 daily users.

They've failed to capitalize on Skype 100 percent.

G-Bomber 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.

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 say that Skype's 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 1 contact list.

We think of the user experiences 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 1 call.

But in the previous year, Team announced it could support up to 300 people on 1 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 1,000.

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.

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.

And the way technology is moving now, they know there are a lot of options, and they'll find another 1.

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.

20 years later and Skype's founders have moved on, going on to start their own companies.

Ati Heinle is a CTO and co-founder of Starship Technologies.

He teamed up with another Skype founder, Janis 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 Jan 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 AI will need Skype if that happens.

Like 1 thing that is guaranteed is that there will be like massive changes now.

So I'm not sure if video calling will be a thing even like 5 years from now.

I myself use Skype right now fairly little.

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 asking too much

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?

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 from 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?

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.

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.


Speaker 0: Remember this? You might know this iconic ringtone, but probably haven't heard it in years.

Speaker 1: The blings and ringtones and so forth, it's nostalgic to me.

Speaker 0: 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 2 Scandinavian entrepreneurs to transform the way we communicate across borders with an app called Skype.

Speaker 2: Skype came out in the early 2000s as a way for people to communicate, mainly by voice calls over the internet. It was basically an alternative to using your phone.

Speaker 1: 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.

Speaker 0: This is a 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 1 of Microsoft's biggest acquisitions in 2011. Skype was launched in 2003 after Scandinavian entrepreneurs Nikola Zennström and Janis Friis teamed up with 4 Estonian tech developers and former schoolmates, Jan Tallinn, Prii Kaisalu, Toivo Anus and Antti Heinle. Heinle left Skype in 2008 and now runs Starship Technologies, a robot delivery business. As a chief technical architect at Skype, he helped design it from the ground up.

Speaker 1: It took a relatively short amount of time, I think about 9 months, to develop the initial concept. We were smart engineers, we learned on the go. None of us had any telecoms background.

Speaker 3: I think that was the key thing about why it worked so well. It didn't look like telecom, it didn't behave like 1. So they were such outsiders. So they thought completely differently about what they could do with Skype.

Speaker 0: Jan Tallinn was a founding engineer at Skype, and he went on to start the Center for the Study of Existential Risk at the University of Cambridge.

Speaker 4: At the time we started Skype, we already had a bunch of experience from a previous project, things like Kazaa and a few of the other projects that didn't go anywhere. Even more important, before that, we had experience programming computer games for a decade.

Speaker 0: The group used knowledge they learned building Kazaa, a peer-to-peer file sharing platform that at the time was 1 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.

Speaker 4: The fact that Skype is going to be big became clear pretty much in the first day. 1 thing that we did borrow from Kazaa was this online counter, like how many users are currently connected. And then when we launched Skype, we started calling our friends and, come on, come online, we need to make the number go up. And suddenly we saw the number starts just going up like crazy without any help from our friends.

Speaker 1: 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 we really catch on.

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.

Speaker 0: 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.

Speaker 1: 1 thing that really helped Skype to be successful is that it is a product that you as a consumer cannot possibly use alone. You have to tell somebody else that, hey, you know, 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 talked to each other immediately.

Speaker 3: I never really experienced anything that easy to use, even if the quality wasn't that great before that. Like I can say it was just so dead simple.

Speaker 0: 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.

Speaker 1: A lot of people after the eBay acquisition started criticizing eBay, that, you know, why did they do this? You know, was the acquisition price too high?

Speaker 3: They completely didn't understand the complexity of the product, how difficult it would be for them to actually make it work with eBay.

Speaker 0: Despite skepticism, Whitman praised the acquisition.

Speaker 5: 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.

Speaker 2: 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.

Speaker 0: In 2008, John Donahoe took over as president and CEO of eBay and he wanted Skype gone.

Speaker 6: And the only question was, was there synergy with eBay's other businesses? And the answer that's no.

Speaker 3: 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.

Speaker 0: 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 percent stake in the company and gained $1.9 billion in cash.

Speaker 4: Once eBay realized, actually, there isn't that many synergies with Skype, they mostly left Skype alone, which was great because Skype continued to grow like crazy.

Speaker 0: 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 a number of users that log in 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 Silverlake 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.

Speaker 7: I expect Skype to be an accelerant of our financial results. You know, the truth of the matter is, communications is 1 of the big scenarios that's driving our financial success and Skype's going to accelerate that.

Speaker 0: 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 1000000000 daily users. But things didn't work out as planned.

Speaker 3: They've failed to capitalize on Skype 100 percent. G-Bomber was the king of buying things and not knowing what to do with them.

Speaker 0: And today, Microsoft says it has 36 million daily active users.

Speaker 3: 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.

Speaker 0: 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.

Speaker 3: 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 say that Skype's missteps allowed WhatsApp to grow and become this big.

Speaker 0: 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.

Speaker 8: 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.

Speaker 0: But Microsoft's corporate VP tells a different story.

Speaker 9: We see it as complementary on the core infrastructure, right, so the communications, the idea of having 1 contact list. We think of the user experiences 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.

Speaker 2: 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.

Speaker 0: For example, in 2021, Skype announced it would support up to 100 people on 1 call. But in the previous year, Team announced it could support up to 300 people on 1 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.

Speaker 8: 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.

Speaker 0: In response to Zoom, Microsoft added updates to Teams, such as breakout rooms and increasing the number of meeting participants to 1,000. 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?

Speaker 8: It's hard to retire a product with 40 million users because migration is risky. Migration could easily happen. And the way technology is moving now, they know there are a lot of options, and they'll find another 1.

Speaker 2: Today Skype exists, but it's not the phenomenon that it was in the 2000s. Skype is a product with an uncertain future.

Speaker 3: 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.

Speaker 0: 20 years later and Skype's founders have moved on, going on to start their own companies. Ati Heinle is a CTO and co-founder of Starship Technologies. He teamed up with another Skype founder, Janis 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 Jan Tallinn spends most of his time discussing the dangers of unchecked AI development.

Speaker 4: 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 AI will need Skype if that happens. Like 1 thing that is guaranteed is that there will be like massive changes now. So I'm not sure if video calling will be a thing even like 5 years from now.

Speaker 1: I myself use Skype right now fairly little. I still have it installed on my phone, but my primary communication methods now are elsewhere.

Speaker 0: With apps like WhatsApp and Zoom being a clear choice for many people, can Skype make a comeback?

Speaker 4: Skype had a really good run and then perhaps asking too much

Speaker 2: for a 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 from Microsoft today.

Speaker 0: 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.

Speaker 3: I think the challenge for Skype, like most large social platforms, has been that despite scale, the profits remain pretty thin.

Speaker 2: There were years when Skype was not profitable, and that includes the time that it was under the ownership of eBay.

Speaker 0: So has Skype fulfilled its full potential or did it just become obsolete?

Speaker 2: 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.

Speaker 3: There was a time and a place for Skype. It had everything going for it. And now other people have everything going for it.

Speaker 1: 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.

See all CNBC transcripts on Youtube

What Happened To Skype