Throwback: 22 Years of Skype (Premium)

Last week, Microsoft revealed the inevitable and announced it would finally kill Skype. So let's take a walk through the history and relive the events that led to this sad and avoidable fate.
? Microsoft acquires Skype
On May 10, 2011, Microsoft announced it would acquire Skype Communications, makers of the popular Skype communications service, for $8.5 billion in cash. At the time, it was Microsoft's biggest acquisition by far, but you may be surprised to know that it's still the software giant's fourth-biggest acquisition overall, behind Activision Blizzard (2023, $68 billion), LinkedIn (2016, $26.2 billion), and Nuance (2021, $19.7 billion). So Microsoft spent more on Skype than it spent on GitHub (2018, $7.5 billion) or Nokia (2013, $7.2 billion). (Those numbers are not adjusted for inflation.)

Skype had an interesting history before Microsoft came calling. It was founded in Luxembourg in 2003 by individuals from Sweden, Denmark, and Estonia who were inspired by a file sharing service of that era called Kazaa to use a peer-to-peer (P2P) networking protocol to make voice calls less expensively via the Internet. It was acquired by eBay in September 2005 for $2.6 billion, but it fared poorly under the e-commerce giant. eBay took a $1.4 billion write-down on Skype in 2007, and then the company decided to divest itself of the business in 2009.

After exploring various options, including a potential IPO, eBay sold a majority stake (later revealed to be 70 percent) in Skype to an investor group led by private equity firm Silver Lake. (My big memory of Silver Lake involved Dell; it was central to Michael Dell's temporary privatization of his company in the 2010s.) When Microsoft acquired Skype, eBay recouped its investment in the company and walked away with a net gain of $1.4 billion (coincidentally the same amount it had previously written down).

But why even acquire Skype? After all, Microsoft had been a major player in Internet communications services since the 1990s.
? The Skype pre-history
The history of Microsoft's consumer communications services and products is convoluted. It started with Microsoft's embrace of the Internet in the mid-to-late 1990s, and its then rapidly evolving families of online products and services. Key among them was The Microsoft Network (MSN), initially a dial-up Internet service provider (ISP) competitor to AOL and CompuServe that was bundled with Windows 95 in 1995, and Hotmail, the (first-ever) web-based email service Microsoft had acquired in 1997 for $400 million. Microsoft initially rebranded Hotmail as MSN Hotmail in keeping with its use of the MSN brand for its consumer-oriented Internet products and services. And its first consumer Internet messaging service was likewise announced, as MSN Messenger, in July 1999.

MSN Messenger, like its parent brand, would undergo a regular series of rebrands, strategy shifts, and other changes over the next decade. (I wrote about the history of MSN...