The Skype Hypergrowth Story

“How can they be so good?” — the strange story of Skype opens with my original question.

“Fifteen years ago this week, Skype went live for the first time. By 2012, Skype accounted for a whopping 167 billion minutes of cross-border voice and video calling in a year… more than twice that achieved by all international carriers in the world, combined.” — Ars Technica

I maintained a spreadsheet with the daily download and concurrent user numbers, and compared them to Hotmail (we coined the term “viral marketing” to describe it’s unprecedented growth rate, and were eager to find more.)

I fondly remember negotiating the first VC round for Skype from my 2003 Christmas vacation in Lake Tahoe. We chose Index Ventures as our European partner. Negotiations were complicated because the founders, Zennström and Friis, would not travel to the US for fear of being arrested for their prior startup, the music-sharing service Kazaa (it ultimately cost them $100M in payouts). But we closed the round on my birthday in 2004, and the company was acquired the following year for $2.6 billion.

Reflecting on the engineering team from my homeland of Estonia:
“‘I remember wondering: how can they be so good?’ Jurvetson told me, speaking about the Estonian core of Skype. ‘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, 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, who had already cashed in on Hotmail, was fascinated by Skype’s talented team. (Nowadays, he’s busy financing anything Elon Musk lays his hands on.) Jurvetson attended Skype’s Supervisory Board meetings in Tallinn and, on one occasion, brought his father Tõnu with him. (Tõnu reminisced on the Radisson hotel’s rooftop terrace about his departure from Estonia 60 years before, when he had escaped the Soviet invasion during World War II.)

After the meetings, Zennström and the Americans blew off steam in nocturnal Tallinn. Late one evening, the board members embarked on a kayaking trip on the Baltic Sea during which Zennström’s kayak was capsized by a wave from a passenger ferry.

In the end, the VC investments were repaid ‘only’ 40 times over, and Jurvetson was right about the talent of the Skype team. From its $8 million, Jurvetson’s firm made $300 million in less than two years.”

And then Microsoft bought Skype for $8.5 billion.
“I call Steve Jurvetson on the other side of the Atlantic. He struggles for half an hour but cannot get Skype to work. I call his mobile. ‘Did Microsoft mess Skype up?’ I ask him. ‘I wouldn’t be surprised, Microsoft has messed up almost everything,’ he replies. ‘Being owned by a large company with other business interests across the globe is a negative for Skype. A big multinational, like eBay or Microsoft, needs to accommodate business partners and governments across the globe, which limits Skype’s ability to pursue growth aggressively in ways that threaten the entrenched government or business interests. For example, Skype for Wi-Fi-enabled cell phones has been delayed by pressure from wireless carriers who see their voice revenue at risk.’”

From Toivo Tänavsuu’s article

My Skype Flickr posts over the years.