Skype, at one time the favorite Peer-2-Peer (P2P) calling service of a generation raised on MSN Messenger, can be termed the precursor to the myriad social messaging and networking apps we have on our phones today. First released in 2003, Skype eventually went on to upend the international call market. By 2014, Skype accounted for nearly 40% of the international call market. In other words, by 2014, nearly 214 billion minutes of calls were being made through Skype.
What helped Skype morph into the behemoth it became? And what can others learn from their story? Read on to find out.
It’s All About The Team
The success of an early stage startup is very much down to its founding team and the dynamics between them. The founding team behind Skype looked nothing like the typical MacBook-toting, ‘Silicon Valley Startup Guy’ types we’ve come to know and recognise in recent years. Instead, Skype’s founders were..rather ordinary, but a well functioning unit with complementary skills. First there was Niklas Zennström, a Swede who was employee No.23 at Swedish telco Tele2. Then there was Janus Friis, a Dane who worked his way up in customer service for a Danish telecom operator. Programming was the responsibility of Jaan Tallinn, Ahti Heinla, and Priit Kasesalu, Estonian schoolmates who once learned PHP over a weekend in order to win a coding assignment for Tele2 (where Niklas also worked). Rounding out this team was Toivo Annus, who was well versed in project management.
The perfect combination of skills to build a product!
Just Because You Fail, Don’t Throw The Baby Out With The Bathwater
Not many know that Skype was actually born out of the remnants of a previous product– Kazaa, which was built by this founding sextet. A P2P file-sharing platform similar to Napster, but without the requirement for an intermediary server, the founding team envisioned Kazaa to be everything Napster was not. This meant staying on the right side of the law and creating a better, faster backend.
It didn’t take long for Kazaa to succeed. Within a very short time after its launch in September 2000, Kazaa became the most downloaded program on the internet, picking up users at the rate of one per second.
Then came trouble.
Like Napster before it, Kazaa also found itself on the wrong side of the law. But not for lack of trying. Zennström and Friis tried, and failed, to seal a deal with US film and music companies. Lawsuits started raining on them, and the team found itself hiding from an army of ferocious US lawyers. Some of the attempts to haul the Kazaa team in front of the law are so mind-boggling that they deserve to be included in a Hollywood movie. Take for instance the time when Zennström went to see a play at a Stockholm theater and was approached by a stranger. The individual is said to have handed Zennström’s wife a bunch of flowers and held out an envelope containing a summons for Zennström. The Swede made a run for it; the summons failed to be duly delivered. He was similarly pursued in London, this time by a motorcycle, but Zennström managed to give the messenger the slip.
Having eventually made peace with the film companies and music labels, the Kazaa team looked at a new, but less legally fraught outlet for their new P2P technology. The founders had been smart enough to isolate Kazaa’s intellectual property in a shell company based in the British Virgin Islands. As they toyed with various ideas at a local bar, Annus and Friis had their “eureka!” moment—they could make voice calls cheap and easy by sharing data peer to peer just as Kazaa did. They even talked about creating Wi-Fi phones, an idea that would later be implemented in Skype. In the spring of 2003, an early alpha was coded and shared for testing with about 20 people.
The name of the project originated from the words “sky” and “peer.” Following the example of Napster and others, the name was shortened to “Skyper.” But because the domain Skyper.com was already taken, the ‘r’ was shaved off. “Skype” it was.
Beta Testers Can Be Wrong Too
To a devout follower of the ‘Lean Startup’ methodology, there is no way forward except through MVPs and beta testing. In principle, this is not a bad idea at all. But sometimes, the initial feedback you receive can be worthless. Just ask the Skype team.
When Skype was first released, talking to a computer was seen as an extremely silly thing to do— as silly as talking to your hand did when mobile phones first appeared. Feedback on the initial version of Skype was not exactly enthusiastic. The sound was glitchy, for instance. But when testers realized that they could now speak via computer to people on the other side of the world for free, attitudes change. The key however, is to make sure customers understand your entire value proposition.
Simple Is Beautiful
One of the biggest drivers of Skype’s early success was the simplicity of the app. The team did a fine job of making the technology easy to use, and the friendly, soothing UI didn’t scare away anyone. Careful attention was paid to ensure that unlike other services, Skype slipped easily through firewalls. The program left no footprints on the Internet, the call quality was great, and the service worked like a charm. Right from the beginning, Skype’s product managers were clear in their vision to make sure Skype remained usable to everyone. “Right from the start we set out to write a program simple enough to be installed and used by a soccer mom with no knowledge of firewalls, IP addresses, or other technological terms,” proclaimed one of the early Skype employees, Lauri Tepandi.
From the time it launched, Skype captured the attention of investors thanks to its ability to scale fast and ship new features at astonishing speed, with a small team of around 20 employees. On its first day of launch, Skype was downloaded by 10,000 people. Within a couple of months, it already had one million users. Throughout this time, Skype rarely faced a service outage. The key to this solid performance was Skype’s tech team, who weren’t in the habit of flinching in the face of adversity. Even though they lacked many resources, Skype’s tech team was forever confident of their skills and creativity in deploying code.
Steve Jurvetson, an early investor in Skype remarked “I remember wondering: how can they be so good? How can such a small group can do so much so quickly, compared to typical development efforts in, for example, Microsoft? I had the impression that maybe coming out of a time of Soviet occupation, when computers were underpowered, you had to know how to really program, effectively, and parsimoniously, being very elegant in sculpting the programming code to be tight, effective, and fast. [That’s] not like in Microsoft, which has a very lazy programming environment, where programs are created that have memory leaks and all sorts of problems, that crash all the time and no one really cares—because it’s Microsoft!”
Jurvetson was right about the Skype team’s talent. Priit Kasesalu, one of the tech whiz’s in Skype Six (as they are now referred to), is just one example of how talented Skype’s tech team was. A high school friend of Jaan Tallinn, Kasesalu hacked modems as early as the Soviet era at the House of Young Technicians, and is a game fanatic whose home is ‘filled with servers’. According to a famous anecdote often heard in the Skype offices, when Tallinn and others argue about the technological feasibility of some kind of mechanism, Kasesalu usually comes to them and says, “Stop, I’ve figured it out.”
Do Away With The B.S.
Skype’s founding culture, one which did away with the superfluous in favor of practicality and straightforwardness, was another key driver of growth for the company. New ideas were welcomed with open arms, and there were countless instances where ideas were programmed into a product the moment they popped into someone’s mind. Some coders would have an idea in the morning and by the same evening, it might already have 10,000 users.
When the price list was being drafted for Skype Out, a service that would allow users to make Skype calls to telephone networks, the Skype team didn’t bother with market research. After all, they were launching something completely new. There was no precedent, and nowhere to go look for data on how much people would be willing to pay. Instead, two Skype employees devised the list in one night, using nothing but Excel. This may not be the best approach to follow at all times. But the point is that you don’t have to overcomplicate things (and beware of analysis paralysis).
Skype’s ‘No B.S. approach’ (which we at Calcey also love and preach) permeated throughout the company. Every week, five to ten 10 employees joined the company. The screening system was simple and very much the product of Toivo Annus, one of the founders who was in charge of global development. You were hired if you passed the test assignment. Wage negotiations were often redundant—if you deserved to be in the company, you’d be paid what you needed.
Skype’s culture attracted employees from far and wide. Eileen Burbidge, an American, ditched Yahoo and Silicon Valley to come and work for Skype. Burbidge was taken aback by the Skype culture but in a good way. “Having just come from 11 straight years of working in Silicon Valley, I was super impressed and actually amazed that these technical leaders seemed not to have any ego at all, didn’t care about titles, didn’t care about roles or pointing fingers and were all insanely committed to seeing the ‘project which had turned into a company succeed,” said Burbidge. “They had a sense of responsibility and discipline that I had never witnessed before.”
Used to American small talk, Burbidge quickly realized it would not work in this environment.
“I was used to greeting people with a ‘ping’ or a ‘you there?’ followed by a ‘how are you?,’ ‘having a good day?,’ ‘am I interrupting?,’ or ‘can I ask you a question?’ But for Toivo all of this was superfluous and simply needless cycles. He would just reply with one word: ‘Ask.’” Burbidge told VentureBeat. Of course, Toivo and the rest of the Skype team were not being rude towards Burbidge. It was just that with English being a second language for most employees in Skype’s Tallinn headquarters, many didn’t possess the vocabulary to engage in pointless small talk. According to Burbidge, now a partner at London-based Passion Capital, this was a coincidence that ended up being very good for Skype’s culture.
Thanks in large part to its culture, and scrappy, ‘never say die’ attitude, Skype’s success paid off handsomely for most of the company’s initial employees and investors. In 2005, eBay agreed to acquire Skype for USD 2.5 billion in cash and eBay stock. Then in 2009, eBay divested Skype to a consortium of investors including Silver Lake, Andreessen Horowtiz, and the Canada Pension Plan Investment Board for US$1.9 billion, valuing Skype at US$2.75 billion.
Then came the announcement to top them all.
In 2011, Microsoft acquired Skype for USD 8.5 billion…in CASH. At the time, the deal was perhaps the largest carried out by Microsoft, and rightfully turned many a head. But how Skype has fared since then is a story for another day.
Today, Skype may be a shadow of its former self, a company in decline even. But that’s very much part and parcel of a company’s lifecycle. However, the lessons startups and founders can learn from Skype’s early days, will forever remain invaluable.