Skype: Lessons Learned from a Dead Unicorn

Om Malik wrote an amazing piece (Skype is dead. What happened?) on the demise of Skype and there are lessons to be learned here for founders – and investors.

At launch, Skype was a seminal technology that upended communications. Prior to the launch of the peer-to-peer network, long-distance calls were prohibitively expensive. Suddenly, one could call anywhere in the world for free, as one can do with so many services today – now, even video, of course. At one point, like Zoom, Skype was a verb.

As for the lessons:

Heads up to investors who focus on founders/team members being subject matter experts: Skype was a telecommunications service – and none of the founders had a telecommunications background.? They came from peer-to-peer file sharing – Kazaa for those who remember the service - and gaming.

Product/market fit: Skype – short for Sky Peer to Peer - had 10k installs the day it launched in 2003 and 11 million users in its first year – the apotheosis of product-market fit. Boom! It snowballed from there. Three years later, it had been downloaded over 187 million times. Another plus, as one of the founders pointed out, was that people needed to talk to each other, which upped the download rate. Sharing is pairing – exponentially.

It was also easy to use. An easily navigable UI is always critical.

The history:

Ebay bought Skye in 2005 for $2.6B. Great idea to pair with online auctions, but the technology couldn't be integrated. Oops. And there were no synergies. Double oops. It grew under eBay: it was a great service, after all. But at the end of 2008, with over half a billion registered users and 105 million connected monthly users, it was acquired by Silver Lake, then by Microsoft in 2011 for $8.5B. Cha-ching for both Silver Lake and eBay, who retained a share after the company. Then-MSFT CEO Steve Balmer planned to incorporate it into the MSFT's existing businesses.

Unfortunately, Ballmer had a track record of buying companies and not knowing what to do with them and Skype was no exception. Worse, Whatsapp came along and ate Skype’s lunch. No more snowball effect: along came an avalanche. Compared to Whatsapp, and with no innovation incorporated into it along the way, Skype was bloated and complicated. Lesson to founders: always keep it simple and easy to use, which are not exactly hallmarks of Microsoft technologies. “Microsoft is where consumer brands go to die," said Malik and truth be told, same can be said of Google/Alphabet in many cases. (15 Biggest Acquisitions And What Happened To Them).

Meanwhile, Microsoft launch Teams, and leeched users from Skype. The writing was on the wall and finally on the pages of the tech press. Skype will go offline in May.

The Post-Mortem:

As we’ve warned you many times, no one stays on top forever. New technologies always come along, and they’re usually leaner, meaner and easier to use. Innovate or move to the back of the line. To Facebook’s credit, and how often do you hear us utter those words, with their acquisitions of Whatsapp and Instagram, for example, those technologies become integral parts of the company.

So, founders, the question becomes when it comes to an acquisition, do you want a bit of cash and TechCrunch headline, or the legacy? When was the last time you used Skype, as opposed to the ‘gram? Or even hear Skype mentioned, save for that it’s shutting down?

But many companies sunset once they’ve had their day in the sun. Times and tech change and if you don’t continue to innovate, you’re out of the race and it’s the glue factory for you.

“Skype is what happens to when cool startups end up at boring big companies where founders have checked out,” was one of the reader comments in the Malik piece, and there’s a big heads up to acquirers, who often jettison the founders after not to long a time. That’s where the vision and the passion come from. Sure, the Skype founders, eBay and Silver Lake made their money, but without vision and innovation, it was game over.

As Malik observed, Skype truly changed things. “Skype was a great early introduction to distributed internet, one that was free from the legacy of client-server models that dominated the world at that time. In a way, Skype was what Web3 wants to be — a large, massive network loosely coupled.”

So, so long and thanks for all the fish. It’s too bad that Skype never figured out a pathway to profitability and got into bed with the wrong partners.

Skype changed things but committed one of the biggest of founder mistakes: the company never created a pathway to revenue and built a real business. Without that and pay attention founders, because here comes the legacy: Skype – both a game-changer and a cautionary tale to remember. And in not too long a time, a name to forget. Onward and forward.

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