THE EUROPEAN CHALLENGER OF THE "OLD" TELCO BUSINESS MODEL

Skype, the VoIP leader, was just awarded with the General Overall Winner Award of the Tornado Insider 2004 TOP 100 hi-tec startups

Edited by Jorge Nascimento Rodrigues, editor of Gurusonline.tv, February 2005

An interview with Niklas Zennstrom, the Swedish CEO and co-founder of Skype Technologies, by Jorge Nascimento Rodrigues, editor of Gurusonline.tv, and Peter Cohan, author and consultant, February 2005

The red "S" in the toolbar of your desktop enables you to call your colleagues, partners, family and friends everywhere in the world, just with a click in a green phone icon. For free - if you call from computer to computer -, or for a bargain if you call phones or mobiles. The "S" is the logo for Skype Technologies, a European startup just born in August 2003. With more than 2 million online users simultaneously in mid February all over the world, Skype is gaining momentum - the Tornado Insider magazine awarded the startup with the Overall Winner award of the 2004 Tornado 100 ranking of European high-tech, biotech and cleantech startups founded during or after 1998.

Skype was founded by two Nordic guys, two serial hi-tec young entrepreneurs, Niklas Zennstrom and Janus Friis, known for their first polemic creation - KaZaA, the world's most downloaded Internet software for sharing files (guess what? Yes, music and movies) with more than 370 millions downloads. Niklas is a Swedish citizen of 38 with a dual degree in business and computer science from Uppsala University, near Stockholm, and Janus is a Danish citizen of 28 that began his career at the help desk of CyberCity, one of Denmark's first ISPs.

Skype like KaZaA is based on P2P - peer-to-peer - platform, a new technology that take off after the 2000 Nasdaq crash. The late young American pioneer Gene Kan told Gurusonline in 2001 that P2P could be the "next hot thing". Skype is challenging the "old" telco business and also "eating" the marketspace of different "messengers" exploring VoIP - the voice over Internet protocol.

Skype is based in Luxembourg, but has offices in London, UK, and Tallinn, Eesti (Estonia). The startup has no more than 70 employees, half in London and half in Tallinn and a few guys in Luxembourg.

If you have not yet "skyped", go to www.skype.com and download the software.

INTERVIEW

As a serial entrepreneur, which company you founded was more challenging? And which one gave your more pleasure?

All companies I have co-founded are challenging in some way. I think Kazaa was more challenging than Skype in that no one knew Janus Friis or I before we set it up. With Skype, we already had a name and a known technology to work with and, as a result, gaining momentum for the company has been easier.

I remember interviewing the late Gene Kan in 2001 about his InfraSearch startup and he answered me that the P2P will be the "next hot thing". Do you think he was right?

Yes P2P technology has already had a major impact on the world, as we know it. Skype's P2P architecture for Internet telephony is more efficient than a traditional telecom provider's network or other VoIP providers because it doesn't need central servers or central resources to scale. Our marginal cost is zero for each call and the cost of adding new users to Skype is less than $0.01.

Voice will be another free Net service like email or browsing?

Yes we believe so. Skype to Skype calls will remain free. With Skype telephony is now a free software application on the Internet.

What will be the long-term impact of VoIP on the incumbent telcos and mobile companies?

Some large telecomms companies will resist VoIP until they see numbers reach critical mass and then it may be too late. But others are already embracing VoIP. We have recently announced partnerships with Cable & Wireless and Hutchison Global Communications Ltd (HGC) in Hong Kong for example. We believe it's not the big that beats the small; it's the fast that beats the slow.

In what services is based your business model? How do you plan to make money for investors and sustain the company? In premium services?

Skype's business model is closer to Yahoo than any traditional telecomms providers like AT&T or new VoIP providers like Vonage. Applying a software business model to an operator problem, P2P Internet telephony enables Skype to outperform traditional providers and VoIP networks. Skype is the leading VoIP-category product worldwide, with more than 27 million registered users, and more than 130,000 new users joining per day. Skype to Skype voice calling will remain free for our users. SkypeOut, our first premium, pre-pay service has more than 880,000 users around the world. We continue to expand payment options and will unveil additional premium offerings throughout 2005.

What's the strategy regarding the future: an IPO in Nasdaq or in a European stock exchange? A third round of financing? Get acquired by an incumbent multinational?

We'll continue to grow, as The Global Internet Telephony Company in defining a new market and a new opportunity using technology much like global Internet brands such as Google, EBay or Amazon.

Which competitor is most threatening to Skype and why? Which competitor is most vulnerable to Skype and why?

We don't look at what other companies are doing, our core DNA is listening to our user base and innovating according to their demands.

Aren't you afraid that Skype can have the same fate as Napster?

No. Different industry,

In what kind of mobile platforms are Skype working on?

Skype is committed to extending communications mobility and platform Choices. Skype currently offers products for MAC, Windows, Pocket PC and Linux. Skype is available for Wi-Fi enabled PDA handsets and for laptops, so users can benefit from free voice calls wherever there is a Wi-Fi hot spot anywhere around the world.

How secure his Skype service?

Skype calls are end-to-end encrypted for superior privacy.

Can you refer with whom do you intend to integrate Skype into other applications?

Skype API (Application Program Interface) included in the latest version of Skype for Windows, enables hardware devices and software applications to seamlessly integrate with Skype's award-winning Internet telephony software. Non-commercial developers worldwide may freely integrate the Skype API in compliance with the Skype software End User License Agreement (EULA). Commercial, affiliate and other Skype partnership opportunities are handled on an individual basis.

Where you leave nowadays most of the time?

I spend more time in London with regular visits to our offices in Luxembourg and Tallinn. I also travel the world extensively to visit our partners or prospective partners.

As you like to travel a lot, what part of the World is more attractive for you?

I think all countries I visit have something that is attractive. For example, I love Portugal and Spain for the friendly people, great climate and good seafood.

SKYPE FIGURES

Number of users and countries at this moment

Skype is the leading VoIP-category product worldwide, with more than 27 million registered users in 210 countries and territories worldwide (every country in the world).

Growth of new users per day?

More than 130,000 new users joining per day.

In which countries the penetration is higher?

These are our top five countries:
The US
Poland
Germany
France
Brazil

Why?

It's primarily because of high telecom costs and large expat communities. Also in Poland communities share broadband in housing estates.

Highest number of simultaneous users online?

More than 2 million in mid February

Press contacts: Daniel Twigg

eBay buys Skype (September 2005)

«It was an opportunity too good to miss.»
Skype spokesperson Daniel Twigg

Why Skype accepted the acquisition deal proposed by eBay?

We had strategic discussions with a number of different companies. In our conversations with eBay it became apparent to both sides that together we had an amazing opportunity to join together and do great things for both businesses. It was an opportunity too good to miss. We have a strong admiration for the focus and operational excellence of eBay. We respect PayPal, who we regard highly as a Skype payment provider and e-commerce enabler worldwide. We already have a great working relationship with Paypal – they have over 72m account holders, working more closely can radically accelerate the growth of both our free and paid-for services. Our management teams have a shared, long-term vision about an Internet-enabled future, and together we can do great things. We have a complementary culture, and deep understanding of communities and viral network effects. eBay is one of the world’s two largest Internet businesses, and the most powerful technology brand in the world — growing faster in brand value than Apple, Samsung and Google. eBay has market dominance in the US, accounting for 24% of all US e-commerce.

What's the sinergy between the two businesses?

By combining Skype with eBay and PayPal, we can create an unparalleled ecommerce and communications engine for buyers and sellers around the world. Skype can accelerate the velocity of trade on eBay and the volume of payments through PayPal,while opening up new lines of business and creating significant new monetization opportunities for the company. In turn, eBay and PayPal can accelerate the growth of Skype and make it the voice of the Internet.

Skype strategy will be changed?

By remaining independent, Skype will be able to continue our sole focus on voice communications. We will all work together to take advantage of the synergies we see in this deal, and our founders and core management team will stay on to continue to build Skype.

The founders' team will continue?

Yes, we created a deal which fully motivate me and the entire senior team to be a long-term part of the business. Niklas and Janus are focused on building Skype as a successful company for the long-term, and that includes continued, active involvement in its growth. Skype will become a stand-alone business unit of eBay Inc., with and we will report in to eBay’s CEO. We will keep our brand name and continue our rapid innovation. We don’t anticipate any big changes in management at Skype, and we still have the same business objectives.