Skype

What did it do?

Skype was a communications app offering voice and video calls over the internet, video conferencing, instant messaging and file transfer. Users could also call landlines and mobile phones using credit. The app was created in 2003 by the Swede Niklas Zennström and the Dane Janus Friis together with four Estonian developers, and the company behind it was Luxembourg-based Skype Technologies.

Why did it shut down?

From 2005 onwards Skype changed hands frequently, passing first to eBay, then to investment funds and, in 2011, to Microsoft. Microsoft used Skype to replace its own Windows Live Messenger and moved its infrastructure from a peer-to-peer architecture to a centralised, Azure-based system. Daily users rose by 70 per cent at the start of the pandemic, but decline followed and daily users fell to 36 million in 2023. Over the same period Teams, Microsoft's own workplace communication platform, reached 300 million active users and was seen as one of the main reasons businesses dropped Skype. Microsoft announced in February 2025 that it would close Skype, and the service ended on 5 May 2025.

The story

Skype's name came from sky and peer-to-peer, the phrase describing the network architecture the software relied on. The final r was dropped so that a suitable domain name could be found. When the Swede Niklas Zennström and the Dane Janus Friis released the app with four Estonian developers in 2003, talking for free from your computer to someone on the other side of the world was revolutionary.

Growth was dizzying, and Skype changed hands often. In September 2005 eBay bought Luxembourg-based Skype Technologies for around $2.6 billion. In 2009 eBay sold 65 per cent of the company to Silver Lake, Andreessen Horowitz and the Canada Pension Plan Investment Board for $1.9 billion. In May 2011 Microsoft bought Skype for $8.5 billion and used it to replace its own Windows Live Messenger. That year most of the development team, and 44 per cent of employees, were based in the Estonian cities of Tallinn and Tartu. Having passed 660 million registered users by the end of 2010, Skype saw more than 50 million concurrent online users in January 2013.

Under Microsoft the infrastructure was rebuilt from the ground up: in 2012 the network began to rely entirely on servers run by Microsoft, and in 2017 the peer-to-peer model was abandoned in favour of a centralised, Azure-based service. The app itself was redesigned several times. At the end of March 2020, at the start of the pandemic, daily users rose by 70 per cent on the previous month; but decline set in afterwards, and daily users fell to 36 million in 2023. By the second quarter of that year Teams, Microsoft's own workplace communication platform, had reached 300 million active users, and its success was seen as one of the reasons businesses abandoned Skype.

In February 2025 Microsoft announced that Skype would be retired on 5 May 2025 and replaced by the free version of Teams. The shutdown was completed that day, and the site began redirecting users to Teams.

Skype's story shows that even the product that created a category can be sacrificed when its owner has a more strategic sibling in the portfolio. A twenty-one-year journey that began as a start-up ended with a tech giant choosing between its own products.

Lessons for founders

• Creating a category does not guarantee you will stay in it; as usage habits shift towards workplace and mobile apps, renew the product just as fast.
• When selling to a large company, ask whether the buyer's portfolio contains a product that competes with yours, and which of the two will survive in the long run.
• Frequent infrastructure and interface changes wear down loyal users; aim to make architectural transitions without users noticing.

Sources

1. Skype (Wikipedia)
2. Microsoft is shutting down Skype in favor of Teams (The Verge, 2025-02-28)
3. Microsoft is shutting down Skype after a 21-year run. Here's how it lost out to video call rivals (CNBC, 2025-02-28)
4. Microsoft confirms takeover of Skype (BBC News, 2011-05-10)

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