Skype is all-but confirmed to be acquired by Microsoft for over $8 billion, including debt.
It’s a long road for a company founded back in 2003 that went through fundings, acquisitions, divestures, and a postponed IPO. It started in the small country of Estonia with a failed company, and it became a phenomenon that took over the world.
Here’s a look at those moments.
KaZaA was a peer-to-peer file-sharing app introduced in 2001 that took off like a rocket after Napster was crushed by lawsuits. Of course, KaZaA was crushed to death by lawsuits almost immediately as well. But there was something there.
KaZaA was at core a very efficient technology for transmitting data very fast and very efficiently. Using that to let people share music is illegal. Using that to let people make free phone calls over the internet could be huge. In January of 2003, Friis and Zennstrom raised money from Bessemer Venture Partners for their idea.
Like all beta software, the first version of Skype was hokey and buggy. Calls would drop, voice quality was terrible. But hey--free phone calls! On the internet! There was definitely something there.
A great startup isn't just about a great team and a great product. Sometimes you need a big trend as well. Photo sharing apps started around 2003 for the same reason Skype took off: a critical mass of people started getting broadband connections, which made voice a much more viable proposition.
Throughout 2004 and 2005, Skype grows like a rocketship.
Did we mention the thing lets you do free phone calls?
The deal was $2.6 billion in cash and stock, and a further $1.5 billion in earnout, which was never paid. Skype kept growing like a weed, but generating revenue was always hard.
It seems like it was always part of the product, wasn't it?
In 2007, Skype's CEO Niklas Zennstrom steps down with only one third of his earnout paid. Even though Skype keeps growing, its expected synergies with eBay's core business don't materialise and the thing doesn't really generate cash.
Skype is basically breakeven on its freemium business model, with 6% of users paying for phone calls to landlines. To make money it needs enterprise customers. But the problem is that most conferencing providers like Cisco-owned WebEx are pretty tightly entrenched there.
It was probably only an opening gambit, however. Investor groups started circling, including Skype's original founders, Niklas Zennstrom and Janus Friis.
In August, eBay agrees to sell Skype to a group, but the deal is blocked by a lawsuit from Skype's founders
Here's the reason for the lawsuit: when the Skype guys sold the company, they actually didn't sell the intellectual property to Skype's peer-to-peer protocol. They kept that with a company they own, Joltid. Incredibly, eBay agreed to this.
The group that wanted to buy Skype included VC firm Index Ventures and its Partner Mike Volpi, who had previously been CEO of Joost, the Skype founders' next venture after Skype, which also used the same protocol.
The lawsuit alleged (probably correctly) that Volpi was brought on board to use trade secrets he gained from Joost to help replace the Skype protocol uses so that the company wouldn't be dependent on its long-gone founders.
The goal of the lawsuit was to push Index and Volpi out, and the Skype founders in. Hardball!
Yowza. Playing hardball works. The other investors in the deal, including Silver Lake Partners and VC firm Andreessen Horowitz, gave Volpi the shove and grudgingly let the Skype guys in.
That was kind of weird so soon after having been bought out for $2.5 billion. But we got to look at the company's financials, with revenue almost a billion -- but still unprofitable.
That was a surprise. It looks like Skype's IPO filing was just a way to put itself up for sale. By playing off Facebook and Google, it got Microsoft to swoop in with a huge offer.
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