Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer for iHeartRadio. And how the tech
Speaker 1: are you? I've got a question for you. Do you
Speaker 1: all remember Skype? Which, actually, if I'm being honest, that's
Speaker 1: kind of a baited question because Skype is still a thing.
Speaker 1: It's not like it doesn't exist anymore. According to a
Speaker 1: Microsoft blog post from February twenty twenty three, quote, more
Speaker 1: than thirty six million people use Skype daily to connect
Speaker 1: through phone calls and chats across borders and around the
Speaker 1: world end quote. Skype is a communications app. It incorporates
Speaker 1: voice and video and text chat into the application, and
Speaker 1: it's been around for a while, and Microsoft was not
Speaker 1: always the own of that application. In fact, I've talked
Speaker 1: about Skype a few times over the history of Tech Stuff.
Speaker 1: I did an episode many years ago about some of
Speaker 1: the worst acquisition deals in tech history, or what are
Speaker 1: perceived to be the worst deals in tech history. These
Speaker 1: are deals that cost a lot of money, but ultimately
Speaker 1: they didn't perform the way the parties expected them to,
Speaker 1: or worse in some cases, they led to the downfall
Speaker 1: of one or all of the parties involved. Skype was
Speaker 1: arguably part of one of these massively bad deals, and
Speaker 1: I've talked about it several other times in this show,
Speaker 1: but I've never dedicated a full episode to Skype itself.
Speaker 1: So I thought it was high time to change that.
Speaker 1: And there's a lot to talk about. In fact, there's
Speaker 1: so much that it's going to be split up over
Speaker 1: two episodes. Now. Tomorrow we're gonna have another episode of
Speaker 1: Smart Talks with IBM, but on Wednesday, I plan on
Speaker 1: bringing the second half of this story, so we'll be
Speaker 1: back with more of this on Wednesday's episode. This whole
Speaker 1: idea was prompted, by the way, because while I was
Speaker 1: doing research for a totally different episode, I found an
Speaker 1: article from July of twenty twenty three titled the Rise
Speaker 1: and Fall of Skype. Now that stirred a memory in me,
Speaker 1: so I plopped on over to YouTube, and sure enough,
Speaker 1: I saw a video that I was on the channel
Speaker 1: Company Man that also was titled the Rise and Fall
Speaker 1: of Skype. Now. That video came out three years ago,
Speaker 1: so in twenty twenty there was the Rise and Fall
Speaker 1: of Skype. Then I found another video from May twenty
Speaker 1: twenty three, so from this year, and it was on
Speaker 1: Tech Inspection and it was called Skype the Rise and
Speaker 1: Fall and Rise again. Then there was another video from
Speaker 1: July twenty twenty three on CNBC titled what Happened to Skype?
Speaker 1: So obviously Skype is something that's had a whole lot
Speaker 1: of ups and downs, and enough for folks to imply
Speaker 1: that the end days were near multiple times over the
Speaker 1: last several years. I'm reminded of those doomsday cults that
Speaker 1: would proclaim the earth would end on a certain day,
Speaker 1: and when that day would come and go, the cult
Speaker 1: would say, oh, you know what, we forgot to carry
Speaker 1: the one, so now it's actually this other date, rents
Speaker 1: and repeat. But why, what the heck has happened? What
Speaker 1: has gone on with Skype to warrant these kinds of
Speaker 1: articles and videos. Why during the lockdown of twenty twenty
Speaker 1: did Zoom take center stage. Why wasn't Skype the big
Speaker 1: name that we talked about. Why does Microsoft tend to
Speaker 1: de emphasize Skype in favor of other tools, notably stuff
Speaker 1: like Microsoft Teams. So we're going to look at the
Speaker 1: history of Skype. The company the app and the phenomenon.
Speaker 1: Let's begin. Our story begins not in video conferencing or
Speaker 1: even voiceover Internet Protocol aka VoIP. No, it actually it
Speaker 1: begins with an era of swashbucklers and buccaneers. Wait, no,
Speaker 1: I'm sorry, I'm actually thinking of the wrong kind of pirates.
Speaker 1: It begins in a tumultuous era in which massive media
Speaker 1: companies were going nuclear in an effort to totally wipe
Speaker 1: out piracy at IP theft, and they didn't care if
Speaker 1: innocent technologies were caught up in the process. It certainly
Speaker 1: didn't care if everyday normal people were caught up in
Speaker 1: the process. That was actually part of the intimidation campaign.
Speaker 1: But that's actually another story. But what we're talking about
Speaker 1: here are the early days of peer to peer technolology.
Speaker 1: So it actually benefits us to understand how this works
Speaker 1: because ultimately it's going to play a big part in
Speaker 1: the Skype story. And in my opinion, the best way
Speaker 1: to do that is to compare and contrast peer to
Speaker 1: peer networking with your typical server client situation. Okay, so
Speaker 1: in a traditional network, you've got servers, like on the web,
Speaker 1: you've got web servers for example. These are the computers
Speaker 1: that are housing the stuff that you want to access.
Speaker 1: This is where all the stuff you want to visit
Speaker 1: or see or interact with. It's where it quote unquote
Speaker 1: lives on the Internet. It's on one of these servers.
Speaker 1: So let's think of a basic function like visiting a
Speaker 1: web page. So what's really going on when you visit
Speaker 1: a web page is that you're a computer through a
Speaker 1: web browser. This is the client sends a request that
Speaker 1: goes out to a specific web server. It's the web
Speaker 1: server that is home to the document the web page
Speaker 1: in this case that you actually want to access and see.
Speaker 1: So your browser, the client asks the server, the computer
Speaker 1: holding the document, may I please have a copy of
Speaker 1: this specific web page? And assuming you have permission to
Speaker 1: access that web page, the server then sends it along
Speaker 1: and your browser will display the page for you to
Speaker 1: see and interact with. So in this system, you've got
Speaker 1: a centralized authority, the web server. So actually you've got
Speaker 1: lots of centralized authorities. They are authorities over whichever documents
Speaker 1: they host. So that means there's a single place for
Speaker 1: you to go in order to get what you want.
Speaker 1: If that source gets overwhelmed for some reason, let's say
Speaker 1: there's a heavier than normal amount of traffic. Maybe there's
Speaker 1: a distributed denial of service attack against the server. Well,
Speaker 1: that affects your experience. The entire Internet is made up
Speaker 1: of servers that act as the sort of centralized silos
Speaker 1: of data. I should also mention that typically there are
Speaker 1: also backup servers, so there's redundancy in the case that
Speaker 1: primary servers go down. I say that just so that
Speaker 1: you don't think that there's one and only one computer
Speaker 1: out there that hosts your favorite website or whatever. Anyway,
Speaker 1: let's compare this with peer to peer networks. Back in
Speaker 1: nineteen ninety nine, a college student named Sean Fanning created
Speaker 1: a service built on top of this different approach to networking. So,
Speaker 1: instead of having centralized servers serving various clients, Fanning's approach
Speaker 1: had peers. Every computer that joined the network was a peer.
Speaker 1: It was equal to every other computer on the network.
Speaker 1: Each computer could share resources and information with other computers
Speaker 1: on that network. Fanning developed some software to facilitate this,
Speaker 1: and in the software, you could create and designate a
Speaker 1: folder as being shaable. Other computers that on that peer
Speaker 1: to peer network could access anything that was stored inside
Speaker 1: this shareable folder on the individual's computer, just as your
Speaker 1: computer could access similar folders on other computers that were
Speaker 1: joined to this network, which made it very easy to
Speaker 1: distribute files across the network. It was a very efficient approach.
Speaker 1: Let's say you joined the network after it's been around
Speaker 1: for a while, and a lot of computers on this
Speaker 1: particular network happened to have a file that you need,
Speaker 1: and they have stored that file in these shared folders.
Speaker 1: So your computer could start a download and even shift
Speaker 1: to pull data from a different source if for some reason,
Speaker 1: the connection between you and the first source you connected
Speaker 1: to starts to go bad. Let's say that there's like
Speaker 1: some Internet traffic spike or something. Your download could shift
Speaker 1: back and forth to continue downloading that file from different sources,
Speaker 1: assuming that all the same file. Fannings software was called Napster.
Speaker 1: Now you may have heard of it, and while you
Speaker 1: could use Napster to distribute pretty much any kind of file,
Speaker 1: Fanning's emphasis was on digital audio, primarily in the form
Speaker 1: of MP three files. The software took off at college campuses,
Speaker 1: where students had access to decent Internet connections. They could
Speaker 1: rip music off their CD collections. They could convert these
Speaker 1: digital audio files to MP three's, they could store those
Speaker 1: MP three's in a shared folder for Napster. Then they
Speaker 1: could hop on Napster and look for other music to
Speaker 1: fill out their collections while offering up their own collection
Speaker 1: for other folks to download. So folks were sharing music
Speaker 1: like crazy lots more. As these peer to peer networks grew,
Speaker 1: they became more efficient. Right, if you have lots and
Speaker 1: lots of people who all have the same files, it
Speaker 1: suddenly becomes much more efficient to distribute those files. And
Speaker 1: so music sharing or piracy, depending on your point of view,
Speaker 1: was really becoming very popular enter the music studios, primarily
Speaker 1: led by the band Metallica, which really went hard after Napster. Now,
Speaker 1: it's a pretty well known fact that established media will
Speaker 1: eye any innovation that involves home media with suspicion. The
Speaker 1: recordable cassette tape, the VHS tape, the writeable CD, digital
Speaker 1: audio files, all of these were viewed with consternation from
Speaker 1: the music industry. They pushed back against all of these
Speaker 1: innovations to some extent. In some cases, they tried to
Speaker 1: prevent it from even becoming a thing because they argued
Speaker 1: that it constituted an existential threat to the entire industry.
Speaker 1: But this time it really felt like an existential threat,
Speaker 1: right because recordable cassettes, Yeah, that could potent actually eat
Speaker 1: into a little revenue. But you know, making a copy
Speaker 1: of a cassette or copying music off of some other
Speaker 1: medium to cassette, that takes a lot of time. The
Speaker 1: quality isn't always there. It's not like the ideal way
Speaker 1: of pirating music. But here we were talking about addigital
Speaker 1: audio file that could end up spreading across hundreds of
Speaker 1: thousands of computers. Now it was getting scary. Folks could
Speaker 1: download the Napster software, they could hop onto a peer
Speaker 1: to peer network, and they could pirate tons of content.
Speaker 1: And like I said, the music industry would go nuclear
Speaker 1: against Napster and its users, demanding huge amounts in damages
Speaker 1: along the way, amounts that far outstripped anything that the
Speaker 1: company's lost. And also, as I've said many times before,
Speaker 1: you can't actually prove that there was a loss in
Speaker 1: revenue at all when someone downloads something with out paying
Speaker 1: for it. And the reason you can't prove a loss
Speaker 1: in revenue is you can't prove the person who stole
Speaker 1: the thing Otherwise would have paid for it, and no
Speaker 1: physical copy of the thing had been lost, so it's
Speaker 1: not like you can't sell the things. Still, the thing
Speaker 1: still exists. Someone just made an illegal copy of it.
Speaker 1: But you also can't say that the person who made
Speaker 1: the illegal copy would have otherwise bought the thing, so
Speaker 1: you can't prove there's a loss in revenue. This is
Speaker 1: like a fundamental flaw in the way the music industry
Speaker 1: went after pirates and services. It's entirely possible that the pirate,
Speaker 1: were they honest, just would have gone without rather than
Speaker 1: having bought the media or whatever, which means you haven't
Speaker 1: lost any revenue. Right Like, if I don't buy your thing,
Speaker 1: it doesn't mean I stole from you. It just means
Speaker 1: I didn't buy it. But the copying part made it
Speaker 1: much more complicated. Anyway, that's a rabbit hole we can't
Speaker 1: really go down. I've talked about it in previous episodes. Anyway, So, oh,
Speaker 1: what does all this have to do with Skype? Well,
Speaker 1: a judgment on the Napster case brought against the app
Speaker 1: by the aforementioned ban Metallica was going on. There was
Speaker 1: also a pair of developers out in Amsterdam who launched
Speaker 1: a similar peer to peer service. This one was called Kazah.
Speaker 1: They had been working on it since two thousand and
Speaker 1: While Napster took a rather lackadaisical stance on the whole
Speaker 1: sharing of copyrighted material, Kazab at least outwardly urged users
Speaker 1: to not engage in piracy. You could still share files
Speaker 1: across the network, but they were supposed to be ones
Speaker 1: that you had the authority to share. Of course, lots
Speaker 1: of folks didn't really follow that philosophy, and piracy across
Speaker 1: Kazab wasn't really that different than piracy across Napster, which
Speaker 1: would ultimately lose its various court cases. Now. The developers
Speaker 1: for kaza were Nicholas Zenstrom and Janis Freese, who had
Speaker 1: been working together since the mid nineties. Zenstrom is a
Speaker 1: decade older than Freeze, and both of them worked at
Speaker 1: a telecommunications company in Denmark called Tella II. The two
Speaker 1: men are really interesting contrast. Zenstrom is from Sweden. He
Speaker 1: earned degrees in engineering, physics, and business administration. He started
Speaker 1: at Tella IO back in nineteen ninety one and rose
Speaker 1: through the ranks pretty quickly. He's an entrepreneur who has
Speaker 1: led numerous companies over the course of his career. Janas
Speaker 1: Freese is from Denmark, and unlike Zinstrom, Freeze doesn't hold degrees.
Speaker 1: In fact, he's a high school dropout. He was one
Speaker 1: of those kids who became fascinated with programming and networks
Speaker 1: early on, and rather than pursue an education, he jumped
Speaker 1: into working at companies that were introducing internet services. Now
Speaker 1: keep in mind this was in the early days of
Speaker 1: the general public even learning what the Internet was and
Speaker 1: how to access it. Freeze joined Tella two in nineteen
Speaker 1: ninety six. He would run the customer support department and
Speaker 1: worked with Zenstrom on a few projects at company. The
Speaker 1: two men worked well together and they decided to leave
Speaker 1: Tellatu to create their own company and product, and Kaza
Speaker 1: was born. I was born as the music industry was
Speaker 1: pushing hard against peer to peer networks. Okay, we're gonna
Speaker 1: take a quick break to thank our sponsors. When we
Speaker 1: come back, we'll talk more about Kaza and then Skype. Okay,
Speaker 1: before the break, I was talking about Zinstrom and Freeze,
Speaker 1: the two guys from Tella to who left the company
Speaker 1: to form their own company to create Kaza. They were
Speaker 1: also joined by a trio of Estonian software developers, and
Speaker 1: I'm going to butcher the pronunciation of these names, just
Speaker 1: as I always do. But here we go John Tollin,
Speaker 1: Atti Heinla and Pritt Casasalu. These developers would become the
Speaker 1: core team behind Kazah and later on Skyte Mike Napster.
Speaker 1: Kaza became the target of lawsuits. It was another peer
Speaker 1: to peer sharing network and lots of people were using
Speaker 1: it to share content that they didn't have their right
Speaker 1: to do so. In early two thousand and two, the
Speaker 1: company suspended downloads of the software because it was under
Speaker 1: so much pressure, and then Zinstrument Freeze made the decision
Speaker 1: to sell Kaza to another company called Sharman Networks, located
Speaker 1: out of Australia. A fun sign note. The owner and
Speaker 1: operator of Sharman Networks was a matter of secrecy, which
Speaker 1: was probably necessary due to the scrutiny of the music
Speaker 1: industry at the time. Nicki Hemming served as CEO, but
Speaker 1: the music industry suspected that there might have been a
Speaker 1: co owner lurking in the shadows and really went after them.
Speaker 1: Others suspected that Hemming was the sole owner, that she
Speaker 1: had done just a bang up job at creating a
Speaker 1: complicated corporate structure that obfuscated that fact. Now, I suppose
Speaker 1: that's a story for another time, but it does point
Speaker 1: out that selling off Kaza was a really good and
Speaker 1: timely decision, particularly since Australian authorities, under the direction of
Speaker 1: the music industry, raided Sharman Network's offices in relation to
Speaker 1: Kaza in two thousand and four. By that time, the
Speaker 1: original team was well clear of it. But let's get
Speaker 1: back to Zenstrom and Freeze and the Estonian developers. It's
Speaker 1: two thousand and two. They've sold off Kaza, and they
Speaker 1: started to ideate on how to leverage peer to peer
Speaker 1: technology in a way that you know, wouldn't necessarily bring
Speaker 1: down the music industry's wrath upon them or any other
Speaker 1: media industry. So they started looking at stuff like voiceover
Speaker 1: Internet Protocol or VoIP. To do that, they founded a
Speaker 1: new company called Jolted Joltid, And while VoIP was an
Speaker 1: early focus, the company really was about creating a way
Speaker 1: for here to peer networks to scale quickly. We'll chat
Speaker 1: about that in just a moment. To be clear, though
Speaker 1: VoIP wasn't brand new in two thousand and two, they
Speaker 1: didn't invent VoIP that actually had its history back in
Speaker 1: the mid nineteen nineties when a company called vocal Tech
Speaker 1: developed this protocol, and it does just what it says
Speaker 1: on the ten. It utilizes the Internet to facilitate voice
Speaker 1: calls between people. So instead of connecting via the plane
Speaker 1: old telephone service aka POTTS and yes it's a real acronym,
Speaker 1: users would instead make calls over the Internet, and thus
Speaker 1: they would bypass things like those pesky long distance phone charges.
Speaker 1: For those of y'all who have never had to deal
Speaker 1: with that, it used to cost extra to make telephone
Speaker 1: calls outside of your immediate service area. In a few
Speaker 1: places like here in the United States, you used to
Speaker 1: have to pay extra for a phone call if you
Speaker 1: wanted to call someone who lived further than a couple
Speaker 1: hundred miles from you. With VoIP, you could even make
Speaker 1: an international call and still bypass those expensive fees. So
Speaker 1: you could see why it would be really attractive. Now.
Speaker 1: Some of the early VOPE applications were purely PC based,
Speaker 1: so it wasn't super convenient. You had to be at
Speaker 1: your computer to make a call, and the person on
Speaker 1: the other end had to be at their computer to
Speaker 1: receive a call. Early VOPE systems didn't allow for voipe
Speaker 1: to landline or cell phone calls or vice versa. But
Speaker 1: we're talking about the mid nineties when a good chunk
Speaker 1: of folks didn't even have a cell phone, and smartphones
Speaker 1: were essentially another decade out. I mean, there were some
Speaker 1: early smartphones, but consumer smartphones wouldn't become a thing until
Speaker 1: two thousand and seven. So most people who are making
Speaker 1: a phone call were doing so when they were at
Speaker 1: home or they were at work, and they were using
Speaker 1: a landline anyway. Later on, companies would create telephone handsets
Speaker 1: that could connect to a PC network and make voipe calls,
Speaker 1: where you would have of what looked like a normal
Speaker 1: cordless telephone, but it would connect to your computer as
Speaker 1: opposed to your phone line. By combining VOPE services with
Speaker 1: peer to peer infrastructure, the group hit upon a phenomenon.
Speaker 1: You see. One of the challenges when you offer any
Speaker 1: service does not have to be VOIPD. It could be anything.
Speaker 1: One of the challenges that a lot of young companies
Speaker 1: face is scalability. So you might easily be able to
Speaker 1: handle demand in the early days of your product or
Speaker 1: service when very few people have access to it. But
Speaker 1: obviously you want your product to be a big success, right, Well,
Speaker 1: the challenge comes when demand starts to outpace your ability
Speaker 1: to meet that demand. If your servers can comfortably handle
Speaker 1: a few thousand users at once, but tens of thousands
Speaker 1: of people are trying to access it, you've got a problem.
Speaker 1: Scaling can be expensive, and often it can become more
Speaker 1: complicated than just throwing more resources at it. This is
Speaker 1: one of those big challenges that startups face to this day.
Speaker 1: It's also one of the big reasons for the dot
Speaker 1: com crash. There are lots of reasons for the dot
Speaker 1: com crash, but one of them was that there were
Speaker 1: a lot of companies that had a good idea, but
Speaker 1: it was way too expensive to scale it to a
Speaker 1: point where they could actually do what they were hoping
Speaker 1: to do beyond a small service group. Now, the beauty
Speaker 1: of peer to peer networks is that computers that join
Speaker 1: the network share their resources with one another, so you
Speaker 1: aren't reliant on a centralized server or even a collection
Speaker 1: of servers. The capacity to meet demand grows as the
Speaker 1: actual network grows. It sidesteps the scalability issue, and arguably
Speaker 1: this was the most genius aspect of Skype in those
Speaker 1: early days, so the founders called their solution Global Index
Speaker 1: or GI software. The core group built Skype on top
Speaker 1: of GI software, and they launch on August twenty ninth,
Speaker 1: two thousand and three. So we've just passed the twenty
Speaker 1: year anniversary of Skype this year. The name Skype actually
Speaker 1: came from a combination of the word sky and the
Speaker 1: phrase peer to peer. At least one online source I
Speaker 1: saw said that the name initially was going to be Skyper,
Speaker 1: but they ended up shortening it to Skype because there
Speaker 1: were some competing products some Internet domains that had Skyper
Speaker 1: as the domain, and they just wanted to avoid any
Speaker 1: issues with that, so they switched to Skype instead. As
Speaker 1: Skype launched, it was free to use, or initially it
Speaker 1: was Windows based. You would download a client and you
Speaker 1: could use Skype for free. There were no fees for
Speaker 1: long distance or international calls. For folks who lived in
Speaker 1: remote places but who still had internet service, it could
Speaker 1: be a big plus over traditional telephone service. The only
Speaker 1: limiting factor, at least initially, was that the person with
Speaker 1: whom you were trying to have a conversation also needed
Speaker 1: to have Skype installed. On their computer. Both parties needed Skype.
Speaker 1: If you had it and no one you knew had it,
Speaker 1: well it doesn't do you much good. So it was
Speaker 1: the kind of service that only has value as people
Speaker 1: adopt it. But once they did, it was easyps limon
Speaker 1: squeeze and the elegant solution of using peer to peer
Speaker 1: technology really paid off. As long as folks in your
Speaker 1: region had Skype installed, service was pretty darn good. The
Speaker 1: more people who adopted it, the better the service got,
Speaker 1: because again that meant that these computers were sharing resources.
Speaker 1: Got to remember that a lot of people just let
Speaker 1: their computers stay on all the time, and so it
Speaker 1: could run the Skype peer to peer software in the
Speaker 1: background even if someone wasn't actively using their computer, and
Speaker 1: so it could contribute to the service this way. The
Speaker 1: more folks who downloaded and installed it, the better it got.
Speaker 1: This was key to Skype's success as it was not
Speaker 1: the first VoIP product on the market right like it
Speaker 1: was almost a decade out from when Voipe first appeared,
Speaker 1: but other VoIP services followed the traditional client server infrastructure,
Speaker 1: so they had challenges with scaling the service up as
Speaker 1: adoption increased because the servers were running all the systems
Speaker 1: in the background, so if more people were using your service,
Speaker 1: you had to add more servers. The beauty of Skype
Speaker 1: was that it just got better as more people joined it.
Speaker 1: Now at this stage, the team referred to Skype as
Speaker 1: being in beta. For those of y'all who are not
Speaker 1: familiar with the term beta testing, it is a stage
Speaker 1: in development where the programmer or programmers who are responsible
Speaker 1: for this app or service or whatever, they roll it
Speaker 1: out to a test group and that test group use
Speaker 1: the app, and then they give feedback on it, and
Speaker 1: they also alert if they run into any bugs or anything.
Speaker 1: It's a way to make sure that the service is
Speaker 1: actually stable and useful, that the features make sense and
Speaker 1: everything before you roll it out to an even larger
Speaker 1: group of people. Skype would stay in beta for quite
Speaker 1: a bit, but it was an open beta, so really
Speaker 1: anyone could participate. They just had to download and install it,
Speaker 1: at least anyone on Windows machines. Initially, it would take
Speaker 1: a bit before Apple would get its own client for Skype.
Speaker 1: And that makes sense again that they had it as
Speaker 1: an open beta approach, because if it's a peer to
Speaker 1: peer network, it's only as good as the number of
Speaker 1: people who have joined on right, you don't want to
Speaker 1: limit that. If you had a closed beta for a
Speaker 1: peer to peer network, then you might not have the
Speaker 1: density of that network to make the service useful, and
Speaker 1: you also would have people who actually were interested in
Speaker 1: talking to each other. You'd have a bunch of individuals
Speaker 1: who were all part of a beta, but they didn't
Speaker 1: know each other, and they'd have no reason to talk
Speaker 1: to one another. That would not be a really successful approach. Now.
Speaker 1: One early beta build in two thousand and four added
Speaker 1: in the feature that would let PC users make Skype
Speaker 1: calls to landlines. The feature was called Skype out, and
Speaker 1: unlike the PC to PC calls, this one would actually
Speaker 1: cost money. So you can make a call from one
Speaker 1: PC to another for free, but if you were using
Speaker 1: your PC to call someone's landlined, you actually had to
Speaker 1: pay money for that. The initial fee I believe was
Speaker 1: two euro cents a minute for landlines that were within Europe,
Speaker 1: the US, Australia, and New Zealand, but these fees were
Speaker 1: typically lower, sometimes like significantly lower than the long distance
Speaker 1: and international call fees that telecommunications companies would charge you,
Speaker 1: so lots of people loved it. Lots of people started
Speaker 1: to use it. It was a way of sidestepping those
Speaker 1: incredibly expensive fees, and Skype's popularity grew as a result.
Speaker 1: This was also around the time that develop finally created
Speaker 1: an Apple computer compatible version of Skype. I say finally
Speaker 1: it was, you know, within a year of them launching.
Speaker 1: It wasn't that long. But still it shows a big
Speaker 1: difference too, right, because Apple in the early two thousands
Speaker 1: was starting to gain more momentum. But you have to
Speaker 1: remember that in the mid to late nineties, Apple was
Speaker 1: a very different company and it was on the verge
Speaker 1: of falling apart. By the early two thousands, it had
Speaker 1: started to mend that that reputation and was becoming well
Speaker 1: known for things like the iMac computer. So it was
Speaker 1: not a high priority because there was still a much
Speaker 1: larger concentration of Windows machines out in the world than
Speaker 1: Apple machines. But it's good to see that it took
Speaker 1: only like a year before the Apple version came out. Now,
Speaker 1: over the next two years, Skype would grow and with
Speaker 1: beta versions point nine point ninety seven one point zero
Speaker 1: to one point for rolling out to users. By January
Speaker 1: two thousand and five, Skype had boasted twenty three million
Speaker 1: registered users, and analysts began to i Skype as being
Speaker 1: a potentially disruptive product. Like we talk about disruption and
Speaker 1: tech a lot, typically we mean that some startup has
Speaker 1: come up with an idea that can upset the apple
Speaker 1: cart for an established industry. In this case, clearly Skype
Speaker 1: was a potential disruptor for the telecommunications industry. Skype's popularity
Speaker 1: grew in two thousand and five, helped in large part
Speaker 1: by the spread of broadband service, which was really becoming
Speaker 1: a thing by the mid two thousands. More folks were
Speaker 1: getting better access to the Internet and they weren't necessarily
Speaker 1: having to rely upon dial up modems to do it.
Speaker 1: And with that access came the potential to leverage technologies
Speaker 1: like VoIP, and by April Skype marked to milestone. It
Speaker 1: had one hundred million downloads. Now, keep in mind this
Speaker 1: is downloads, not registered users. Right at January they had
Speaker 1: twenty three million registered users. In April they have one
Speaker 1: hundred million downloads. But you know, you could have one
Speaker 1: person install Skype on multiple machines, you still have just
Speaker 1: one registered user doing that. So it's not in apples
Speaker 1: to apples comparison, but it was showing that. In two
Speaker 1: thousand and five, Skype was growing significantly. By August of
Speaker 1: two thousand and five, competition was starting to pop up,
Speaker 1: and again there had already been voipe services on the market,
Speaker 1: many offered by the telco companies that were attempting to
Speaker 1: guard their respective lunches out of fear of Skype gobbling
Speaker 1: them up. So Google launched its own VoIP service called
Speaker 1: Google Talk. Microsoft had acquired a company called Teleio that
Speaker 1: was in the VoIP business and was eyeing an opportunity
Speaker 1: to incorporate voipe features into Imson Messenger, and Skype, out
Speaker 1: of a effort of self preservation, aligned itself with Intel.
Speaker 1: They formed a partnership, and Intel made an investment into Skype.
Speaker 1: And then we get to it, the acquisition that makes
Speaker 1: the worst deals of all time lists. eBay made an
Speaker 1: offer that the Skype folks couldn't refuse. It was a
Speaker 1: two and a half billion dollar offer plus another half
Speaker 1: billion incentives for Skype. Guardian actually has it listed all
Speaker 1: the way up to three point one billion dollars when
Speaker 1: it was all said and done. I don't know where
Speaker 1: they got their math on that. Almost everyone else says
Speaker 1: either two and a half or two point six billion dollars.
Speaker 1: But the company known for online auctions and storefronts wanted
Speaker 1: to buy Skype for a truly princely sum, and that
Speaker 1: happened on September twelfth, two thousand and five. We're going
Speaker 1: to take another quick break. When we come back, we'll
Speaker 1: talk more about what happened in the wake of this
Speaker 1: massive deal. Okay, we're in the fall of two thousand
Speaker 1: and five. At that time, eBay's CEO was the serial
Speaker 1: executive leader, Meg Whitman. That name might sound familiar to you.
Speaker 1: Meg Whitman served as the head of several companies during
Speaker 1: pivotal moments in their respective histories, often with things being chaotic.
Speaker 1: Besides eBay, Meg Whitman was also the helm of Hewitt
Speaker 1: Packard during a pretty rough patch for that company's history.
Speaker 1: She also helmed Quibi. That was the short lived short
Speaker 1: form media company that came out the same year as
Speaker 1: we got a you know, global pandemic. Quibi launched and
Speaker 1: crashed in less than a year. So not like big
Speaker 1: bright things to cheer about in Meg Whitman's trophy case
Speaker 1: right there. But that's not to say that Whitman is
Speaker 1: or was a poor leader, but she is linked with
Speaker 1: some pretty questionable deals and the purchase of Skype is
Speaker 1: way up there. So at the time, Skype's revenue was
Speaker 1: in the low millions of dollars, which isn't bad, mind you,
Speaker 1: but it's hardly a powerhouse. However, the product's potential was enormous,
Speaker 1: you know. The chance to push traditional telephone companies aside
Speaker 1: and to become the dominant means with which people can
Speaker 1: communicate long distance was undeniably powerful. But there were skeptics
Speaker 1: who were questioning if eBay could even find a way
Speaker 1: to monetize the service effectively, or to integrate it into
Speaker 1: eBay itself, or preferably both. The one bit that seemed
Speaker 1: to make the most sense was that eBay also owned PayPal,
Speaker 1: and so the guess was that eBay would build in
Speaker 1: the ability for Skype users to leverage PayPal to pay
Speaker 1: for services like making calls to landline. And eBay also
Speaker 1: had a huge user base, so potentially that could mean
Speaker 1: a surge in Skype adoption. But beyond that, there was
Speaker 1: a big old question mark hovering over this deal. One
Speaker 1: thing that eBay was hoping for was to use the
Speaker 1: service to connect buyers and sellers so that they could
Speaker 1: talk with one another during things like an auction, but
Speaker 1: it turned out eBay users didn't have any desire to
Speaker 1: do that. With eBay's international scope, voice communication wasn't necessarily
Speaker 1: viable in the first place, just due to language barriers,
Speaker 1: and a lot of people preferred the anonymous approach of eBay,
Speaker 1: so speaking to someone else over a voice call would
Speaker 1: strip away at least some of that anonymity, so the
Speaker 1: company didn't actually see many folks adopt the service for
Speaker 1: the purpose that they were hoping for. Then there was
Speaker 1: the clash in corporate cultures. So eBay got its start
Speaker 1: as a plucky startup. When Meg Whitman joined the company,
Speaker 1: there were only thirty employees at e but by two
Speaker 1: thousand and five, eBay had grown into a much larger,
Speaker 1: more corporate company. Meanwhile, Skype had a more rebellious startup culture,
Speaker 1: so the two didn't really mix well, and there was
Speaker 1: a lot of overturn in Skype, the Skype division of
Speaker 1: eBay and the managerial side. Some of the founders would
Speaker 1: leave the company. At that point, Wheen of the Estonian
Speaker 1: developers decided to pack up and leave. Once the acquisition
Speaker 1: was complete, jolted the company that Freese and Zenstrom had founded.
Speaker 1: It continued to license the underlying peer to peer technology
Speaker 1: to eBay, which is a matter that would become important
Speaker 1: a few years further down the road. In December two
Speaker 1: thousand and five, Skype introduced a new major feature, video calling. Again,
Speaker 1: Skype wasn't the first company to or division in this case,
Speaker 1: to provide internet video calling. It wasn't even the first
Speaker 1: VoIP service to do that, but it would be a
Speaker 1: major feature that would open up new possibilities for users.
Speaker 1: Way back in the day, I actually used Skype to
Speaker 1: connect with podcast co hosts to create some silly shows
Speaker 1: that I haven't done in years. The Skype developers kept
Speaker 1: working on new features, even as the culture clashes meant
Speaker 1: that there were fairly frequent changes in you know, managers.
Speaker 1: By May of two thousand and six, Skype launched Skype Casts.
Speaker 1: This would allow a conference room of up to one
Speaker 1: hundred people, so you could like broadcast one to one
Speaker 1: hundred where it's kind of like a lecture, or you
Speaker 1: could have a huge meeting. Sort of the features that
Speaker 1: you would see later on in products like Zoom By
Speaker 1: October of two thousand and seven, eBay had to make
Speaker 1: a tough admission. The acquisition had not gone the way
Speaker 1: meg Whitman and her team had hoped it would. The
Speaker 1: goal was to integrate Skype into eBay and to build
Speaker 1: a monster of a revenue generator, but that just didn't
Speaker 1: pan out. So the company chose to take a nine
Speaker 1: hundred million dollar write down on this deal, and that
Speaker 1: essentially was eBay saying, yeah, we paid way too much
Speaker 1: for this, kind of like you know in an eBay
Speaker 1: auction where you get caught up in the excitement as
Speaker 1: you're bidding for that vintage Bart Simpson action figure and
Speaker 1: you end up spending like five times more than you
Speaker 1: had planned on. Not to bring up personal examples or anything.
Speaker 1: At this point, Zenstrom stepped down from Skype. He had
Speaker 1: stuck it out for two years under eBay leadership, but
Speaker 1: he felt it was ready to move on, and while
Speaker 1: Skype boasted more than two hundred and twenty million registered users,
Speaker 1: the usage rate just wasn't high enough to make it
Speaker 1: a big success for eBay at the time. In two
Speaker 1: thousand and eight, Meg Whitman left eBay. John Donahoe became
Speaker 1: the new CEO of the company, and the following year,
Speaker 1: in two thousand and nine, eBay announced a plan to
Speaker 1: spin off Skype and to hold its own initial public
Speaker 1: offering or IPOH. But now we get into that complication
Speaker 1: that I had mentioned earlier, because Zinstrom had left eBay
Speaker 1: right but Zinstrom still was in charge of the company Jolted,
Speaker 1: the company that created the peer to peer network that
Speaker 1: said it was licensing to Skype. So Zinstrum and Freeze
Speaker 1: still were very much active with Jolted, and they were
Speaker 1: arguing that Skype's technologies were completely dependent upon their products,
Speaker 1: and the decision to spin Skype off would not entirely
Speaker 1: be eBay's own because they didn't own the IP of
Speaker 1: that technology, and they threatened to pull that IP from Skype.
Speaker 1: So essentially they were saying, the foundational technology upon which
Speaker 1: Skype is built that belongs to us, and we will
Speaker 1: take it if we don't have a spot at this table.
Speaker 1: And this set off a massive legal kerfuffel, so by
Speaker 1: September two thousand and nine, eba Bay had to abandon
Speaker 1: any plans of spinning off Skype as its own company. Instead,
Speaker 1: the eBay chose to sell off a majority of its
Speaker 1: steak sixty five percent of its steak and Skype, and
Speaker 1: it would sell that to a group of investors including
Speaker 1: Mark Andresen. Jolted filed a lawsuit against eBay and argued
Speaker 1: that it should receive compensation for the continued use of
Speaker 1: Jolted technology, and it got very very messy, with people
Speaker 1: asking like, what is going to happen here? How is
Speaker 1: this deal going to unfold? By November two thousand and nine,
Speaker 1: the dust actually started to settle because eBay and Jolted
Speaker 1: came to an agreement. Jolted would drop its lawsuit against
Speaker 1: eBay and in return, Jolted would receive a fourteen percent
Speaker 1: steak in Skype. So the full pie for Skype by
Speaker 1: the end of all this mess looked something like this.
Speaker 1: Fifty six percent on worship of Skype went to a
Speaker 1: group of investors including Mark and Jason, who had been
Speaker 1: part of some massive Internet deals throughout the entire era
Speaker 1: of the Internet. Still as to this day, That's all
Speaker 1: I'll say about that, because I would need to do
Speaker 1: another episode to talk all about Mark and Json. Anyway,
Speaker 1: fourteen percent of Skype would go to Jolted. eBay would
Speaker 1: actually retain the final thirty percent, and this deal was
Speaker 1: like a two billion dollar deal as well. So while
Speaker 1: some people talk about the acquisition of Skype as one
Speaker 1: of the worst Internet deals of all time or worst
Speaker 1: deals of all time in the technology sector, I would
Speaker 1: argue that in the long term it probably wasn't that bad.
Speaker 1: It certainly wasn't as bad as like AOL Time Warner,
Speaker 1: for example. It didn't have as big an effect as that.
Speaker 1: And part of that is because while eBay paid way
Speaker 1: too much for Skype, the fact that they were able
Speaker 1: to recapture some of that by selling off some of
Speaker 1: the ownership to this group of investors and then retain
Speaker 1: thirty percent of it themselves meant that further down the line,
Speaker 1: they were able to kind of recoup their costs. So
Speaker 1: I don't think it was as bad a deal as
Speaker 1: a lot of people say. Anyway, a few more years
Speaker 1: went by, a couple more years, Skype continued to grow
Speaker 1: in popularity, and now we're up to twenty eleven and
Speaker 1: another huge deal is on the horizon. And I'm talking
Speaker 1: really huge because Skype had a new suitor. So eBay,
Speaker 1: like I said, had purchased the company for somewhere in
Speaker 1: the neighborhood of two point six billion dollars in two
Speaker 1: thousand and three, and it had sold off a portion
Speaker 1: of at stake for around two billion, And now a big,
Speaker 1: big company by the name of Microsoft had come calling,
Speaker 1: and Microsoft would make an offer on Skypeype that would
Speaker 1: put that two point six billion dollars well into the
Speaker 1: rear view mirror. It was a deal that again shook
Speaker 1: up the tech space, especially in tech journalism, because people
Speaker 1: were just thinking, like, we went through this in two
Speaker 1: thousand and three, now we're going through it again in
Speaker 1: twenty eleven for an even larger amount of money. And
Speaker 1: I'm dancing around it because in our next episode, we're
Speaker 1: going to talk more about what happened when Microsoft made
Speaker 1: the offer and ultimately acquired Skype, as well as some
Speaker 1: massive changes that would happen to the service as a
Speaker 1: result of this acquisition, including moving the service off of
Speaker 1: that peer to peer infrastructure that had been powering it
Speaker 1: since its founding. But that will wait until our next episod,
Speaker 1: where we'll talk more about what has happened to Skype
Speaker 1: in the year's following Microsoft's acquisition. In the meantime, I
Speaker 1: hope you are all well, and I'll talk to you
Speaker 1: again really soon. Tech Stuff is an iHeartRadio production. For
Speaker 1: more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,
Speaker 1: or wherever you listen to your favorite shows.