Microsoft officially announced the closure of Skype on May 5th, prompting users to switch to the free version of Microsoft Teams. While this move may not come as a surprise to many, given the app’s prominence in the 2000s, offering chat and voice services for 21 years, there are several aspects worth revisiting.
Skype was launched in 2003 by Janus Friis and Niklas Zennström, the founders of Kazaa, a P2P file-sharing app. Originally catering to Estonia, Skype’s name is derived from “sky peer to peer” and highlighted its free online voice calling or VoIP capabilities.
The user base of Skype grew rapidly, reaching 11 million in 2004 and skyrocketing to 54 million in 2005, leading eBay to acquire the business for $2.6 billion. At that time, Skype’s revenue model involved paying for calls to landline and mobile phones, with eBay viewing the acquisition as enhancing buyer-seller communication processes and facilitating quicker transactions.
As Skype experienced monumental growth during the eBay era, boasting 405 million users in 2008, revenue also increased. However, a shift came when John Donahoe replaced the CEO at eBay, viewing Skype as a non-core business. Subsequently, amidst the global economic downturn in 2009, eBay faced declining sales and plummeting stock prices, prompting the decision to spin off Skype’s IPO and release an app on the iPhone, though the IPO never materialized as Silver Lake and other investors agreed to purchase 70% of Skype’s shares.
Subsequently, the investors managed to enhance Skype’s value, culminating in its sale to Microsoft in 2011 for $8.5 billion. This strategic move led eBay to pocket around $2 billion from the deal. Steve Ballmer, Microsoft’s CEO at the time, envisioned Skype as the centerpiece for all communication services within Microsoft, integrating with Lync, Windows Live Messenger, Windows Phone, and Xbox.
Skype faced competition as smartphone chat and voice apps gained traction, including Apple’s FaceTime and Facebook’s acquisition of WhatsApp in 2014. Meanwhile, Microsoft revamped Skype’s interface and later introduced Teams to target organizational clients, rivaling Slack, ultimately leading to an overlap in chat app services.
Since then, Microsoft has placed a significant emphasis on Teams, especially during the COVID-19 pandemic when the use of chat and video call apps surged. Satya Nadella, Microsoft’s CEO, has prioritized Teams’ feature development, with an increasing user base, while refraining from discussing the Skype business with investors since 2017.
The last disclosed user count for Skype by Microsoft was 36 million daily users in 2023, with the current numbers remaining undisclosed before the closure announcement.
TLDR: Microsoft announced the closure of Skype, nudging users towards Microsoft Teams, marking the end of an era for the once-prominent chat and voice service.
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