The rise and growth of Skype: A Baltic success saga

Markets are divided over whether the buy is the right strategy for Microsoft as Skype had recorded a net loss of about $7 million in the year ended December 31. There are analysts who think the biggest acquisition by Microsoft in history is a smart long-term strategy.

However, the argument doesn’t eclipse Skype’s huge success story. It started from scratch about 8 years ago and created multi-billion dollar value in a short span of time. Apart from creating value and emerging as a strategically important player in the voice and chat connectivity segment of the exploding web business, Skype also won real big time suitors like Microsoft, Google and Facebook.

Perhaps the rivals' attempt to outbid each other and own Skype resulted in the Estonian company attracting a premium price.

Here is a sneak peek into Skype's rise and growth, which is essentially a stupendous Baltic success saga:

Skype was founded in 2003. The Luxembourg-based Skype is owned by an investor group led by Silver Lake and which includes eBay Inc, Joltid Limited and Skype founders Niklas Zennström and Janus Friis, the Canada Pension Plan Investment Board and Andreessen Horowitz.

Skype's website says the service had an average of 124 million connected users per month in the second quarter of 2010. Skype users made 95 billion minutes of voice and video calls in the first half of 2010, approximately 40 percent of which was video.

Tony Bates, a 20-year veteran in Internet and telecommunications industries, is Skype's Chief Executive Officer. Before joining Skype, Bates was Senior Vice President and General Manager of Cisco’s Enterprise, Commercial and Small Business Group.

Skype has offices in Europe, the US and Asia. It also has offices in San Jose and Brisbane. As of May Skype had 911 employees. Its total revenue as of December 31 was $859.8 million and it recorded a loss of $6.9 million during the period.

The Skype software was developed in Estonia by three programmers, Ahti Heinla, Priit Kasesalu and Jaan Tallinn. Skype was their second technological coup, after having launched the software Kazaa in 2001, which grew into a humungous internet exchange site for pictures, songs and videos.

After the formal founding of the company in 2003 by two entrepreneurs, Swedish-born Niklas Zennström and Janus Friis from Denmark, Skype witnessed astonishing growth. In three years, Skype had 115 million customers, making it the fastest growing internet community at that time.

The new technology opened up an extremely cost-effective business model with almost complete elimination of expensive infrastructure investments, Credit Suisse wrote in a note.

We are launching Skype as the telecoms company of the future, said founder Zennström at the launch. Co-founder Friis put it this way: We hope that one day, instead of saying 'I'll call you', people will say 'I'll skype you'.

In 2005, Skype was taken over by the American online auction house eBay for $2.6 billion but eBay sold 70 percent of the stake to Silver Lake Partners.

Skype had announced its plan to go public in August 2010, but it was delayed after a management change at the top level. However, rumors have been doing the rounds regarding plans to go public in the second half this year.

As of last year, Skype had 663 million registered users. Here's what you find in Wikipedia about the breadth of Skype services across the world: In 2010, a report by TeleGeography Research stated that Skype-to-Skype calls accounted for 13% of all international call minutes in 2009; out of the 406 billion international call minutes a total of 54 billion were used by Skype calls.

Earlier this year, Skype acquired Qik, a mobile video sharing platform. On March 28 this year, Skype accounted for a record 30 million online users simultaneously.

There were reports last week that Facebook and Google, preeminent online media giants, were in talks with Skype. Analysts and observers shared near unanimous view that Skype would be a better partner for Google and Facebook than Microsoft.