Technology News

Skype: from start-up to $8.5bn sale


Spring 2003: Skype is founded by Niklas Zennström and Janus Friis, two technology developers and entrepreneurs. The pair had already made their name by creating Kazaa, a peer-to-peer (P2P) file-sharing program which – rather like Napster – proved highly popular with PC users but provoked the wrath of the entertainment industry.

Zennström and Friis used P2P technology developed during their Kazaa days to create a free piece of software that allowed people to make voice calls to each other over the internet – without charge. At this time, voice-over-Internet-Protocol (VoIP) services were already being bought by early adopters. Skype, though, grew rapidly in popularity because it was easy to set up and use, required only a microphone and headset, and often offered better quality for long-distance calls than a normal phone line.

Zennström was bullish about Skype's prospects as a disruptive technology from the start – telling in an early interview: "The telephony market is characterized both by what we think is rip-off pricing and a reliance on heavily centralized infrastructure. We just couldn't resist the opportunity to help shake this up a bit."

July 2004: Skype launches SkypeOut, a new service that allows Skype users to call a landline or mobile phone. Charges began at just two euro cents a minute to landlines within Europe, the US, Australia and New Zealand. The next month an Apple-compatible version of Skype was offered.

January 2005: With Skype attracting 23 million registered users during its first 18 months, analysts calculate that its popularity will soon eat into the profitability of traditional telecoms companies.

April 2005: Skype hits the 100-million downloads mark, fuelled by rapid take-up of broadband.

August 2005: Google wades into the VoIP market with its own application, Google Talk. Skype hits back immediately through an alliance with Intel, which invested an undisclosed sum in the company. Microsoft was also investing in VoIP that month, snapping up a small internet calling start-up called Teleo in an attempt to improve its MSN Messenger app.

September 2005: After weeks of rumors, eBay agrees to buy Skype for $2.6bn in cash and stock. The merger of an internet telephony company with an online auction house is hailed by some analysts as a breakthrough moment, with some arguing that eBay was well positioned to monetize Skype's user base – which has doubled to 52 million since the start of the year. Others, though, suggest that the deal might prevent Skype from ever truly challenging the traditional telephone industry.

December 2005: Skype launches video calling, a service already offered by several other VoIP companies.

May 2006: SkypeCasts, which allow up to 100 people to join a single call, are created to capitalize on the boom in social networking.

January 2007: US court rejects a $4bn (£2.4bn) lawsuit which claimed Skype's underlying technology violated various patents.

October 2007: Two years on, and with little sign of integration between the pair, eBay admits that its acquisition of Skype has not been a runaway success. It takes a $900m impairment write-down – effectively admitting that it overpaid for the company. While the number of registered users has grown to 220 million, eBay chief executive Meg Whitman admits that usage levels are not high enough. Zennström also steps down from Skype, having formed a new P2P video company called Joltid.

April 2009: eBay announces plans to float Skype on the stock market. "Skype is a great standalone business, with strong fundamentals and accelerating momentum. But it's clear that Skype has limited synergies with eBay and PayPal," says John Donahoe, eBay's chief executive.

June 2009: Plans for a Skype IPO are thrown into confusion as it emerges that Zennström and Friis still own some of the key technologies which Skype is built on, despite selling the company to eBay in 2005. Their threat to withdraw Skype's right to use this code could sink the flotation, analysts warn. Both sides begin legal action.

September 2009: eBay abandons the planned IPO, and instead sells a 65% stake in Skype to a group of investors for $2bn. This includes a venture capital firm owned by Marc Andreessen, the technology pioneer who created the Netscape browser in the 1990s. But the legal problems linger – instead, Zennström's Joltid launches fresh legal action against both eBay and Skype claiming copyright violation.

November 2009: Joltid takes a 14% stake in Skype, in return for dropping its lawsuits and injecting a substantial amount of capital into the firm. This left Skype's new owners holding 56%, with eBay still owning 30%.

August 2010: Skype announces plans to float on the US stock market. It also faces opposition from BSkyB over the trademark for 'Skype' in Europe.

May 2011: Skype is rumored to be changing hands again, with Facebook and Google both reportedly holding talks with the company. Then, on 10 May, Microsoft announces its $8.5bn takeover.