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 several years ago in Throwback: Inside MSN (Premium).) But the basics of Messenger at launch remained generally consistent through the time of the Skype acquisition in 2011. And it wasn’t until two years later that the Messenger products and services were discontinued to complete the transitions to Skype as a product and as Microsoft’s brand for consumer Internet communications.

“The MSN Messenger service is a free Internet messaging service that allows users to communicate with the greatest number of Internet users and offers the tightest integration with popular Microsoft communications tools,” Microsoft explained in the press release announcing MSN Messenger in 1999. “MSN Messenger Service tells consumers when their friends, family, and colleagues are online and enables them to exchange online messages and e-mail with the more than 40 million users of the MSN Hotmail web-based e-mail service as well as with people using AOL Instant Messenger. This marks the first time consumers can use a single instant messaging application to exchange messages with friends and family.”

That latter bit is interesting for a few different reasons. One, this is a theme that Microsoft would repeat across various product generations, with Windows Phone offering a similar integrated messaging solution over a decade later, in that case via a single messaging app that initially supported text messaging (SMS/MMS), Skype, Facebook Messenger, and any third-party services that wished to join (none did). And two, AOL–the dominant ISP and messaging service at the time–actively worked to block this integration, which Microsoft had done without its support or involvement in a bid to quickly attract users.

MSN Messenger 7 (2005)

Oddly, MSN Messenger initially offered only text-based messaging, plus related capabilities we would today define as “presence”: Microsoft pushed a separate video conferencing service called NetMeeting that was itself the result of an acquisition and was first bundled with Internet Explorer 3 in 1996. But audio and video capabilities were later added to MSN Messenger. And by the mid-2000s, NetMeeting had been discontinued and MSN Messenger had been rebranded to Windows Live Messenger as part of Microsoft’s expansion of Internet services capabilities at the time.

“Microsoft today previewed two new Internet-based software services–Windows Live and Microsoft Office Live–designed to deliver rich and seamless experiences to individuals and small businesses,” Microsoft announced in November 2005. “The new offerings combine the power of software plus services and are compelling enhancements to the Microsoft Windows and Microsoft Office products (respectively). In particular, Windows Live helps bring together all the elements of an individual’s digital world while Office Live helps small companies do business online.” The Live brand was chosen because of the popularity of Xbox Live, a gaming service Microsoft had previously launched in 2002. (And to add to the confusion, Microsoft kept the MSN brand alive to “deliver rich programmed content” alongside Windows Live.)

Windows Live consisted of several products and services, including Live.com (an Internet portal, or home page, backed by “cutting-edge technologies” like RSS and AJAX), Windows Live Search, Windows Live Mail (a rebrand of Hotmail), Windows Live Safety Center (web-based virus scanning and removal), Windows OneCare Live (an ill-conceived “PC health” subscription service), Windows Live Favorites (a service for accessing your IE-based favorites from any Internet-connected PC), and, yes, Windows Live Messenger.

“Windows Live Messenger helps individuals deepen their connections with the people they care about through instant messaging, file and photo sharing, PC-based calling, and more,” Microsoft explained at the time. “Windows Live Messenger will enter the beta stage later this year. More information is available at http://ideas.live.com.”

That website explained that “Windows Live Messenger will be the next-generation MSN Messenger. It will have everything you already love about Messenger–your contact list, emoticons, and instant access to your friends via text, voice, and video–plus new ways to connect and share documents with almost magical ease. As always, it will be free to download Messenger and use most of its features.” MSN Messenger would offer “all your familiar winks and emoticons, plus some cool new ones,” free real-time text, video, and voice conversations, the ability to affordably call domestic and international mobile and line-line telephone numbers via MCI Web Calling, and document sharing via a feature called Shared Folders.

At one point, MSN Messenger was the most popular Internet messaging service on earth, with over 165 million customers using the product, and 15 million people using the service simultaneously and exchanging over 2.5 billion messages each day. And by 2010, the renamed Windows Live Messenger had over 300 million monthly active users. But shifts in personal computing usage, and new competitors with new ideas, contributed to its decline. Google launched Google Talk in 2005, and the history of its subsequent updates and replacements is even more convoluted than that of MSN Messenger. Apple released iChat for Macs in 2002, and replaced that with iMessage (Messages) for Macs and iPhones in 2011. (Plus, FaceTime for video calls in 2010.) And then there was Skype, which achieved a sort of cross-platform ubiquity. Mobile messaging, first popularized by Blackberry, exploded along with the iPhone and Android, leading to the rise of WhatsApp (2009), WeChat (2011), and others.

? Skype at Microsoft

It’s important to remember where Microsoft was as a company in 2011 when it acquired Skype. Apple had released the iPhone in 2007 and then the iPad in 2010, upending personal technology along with Android (2008), putting mobile at the center. Microsoft’s core businesses were shifting. A few highlights from its first earnings announcement of 2011 include:

• The company had sold over 300 million Windows 7 licenses by that point, and it was deferring revenues to ensure a steady 20 million units reported per quarter. But it had just announced that its successor would “support system-on-a-chip architectures,” meaning mobile chipsets like those used by iPhone and iPad, and that would not go well at all.
• Server and Tools, which was still firmly in the on-premises server business, was still seeing double-digit revenue growth each quarter. But it had announced what was originally called Windows Azure a year earlier, setting the stage for a coming cloud era.
• Bing, Microsoft’s renamed online search service, was fumbling along, but online advertising was a growing business with double-digit revenue gains.
• Microsoft had just completed the migration to the successful ribbon user experience in Office 2010, with strong growth across commercial and consumer customers. But it had also just announced Office 365, the successor to the poorly received Business Productivity Online Suite (BPOS), and the predecessor to Microsoft 365 that would help power the coming cloud era.
• Microsoft sold 8 million Kinect add-ons for the Xbox 360, an unexpected mid-lifecycle bump that helped trigger 21 percent growth in console units sold. That success would be short-lived: Kinect sales quickly dropped off a cliff, and its decision to bundle a Kinect with its next Xbox console would prove disastrous.
• Windows Phone 7 had just launched and was not doing well, but Microsoft kept that detail to itself. It would kill this platform within a few years after acquiring most of Nokia and then writing that off soon thereafter.

Put simply, Microsoft was in transition. There were clear threats–from Apple on mobile and from Google online–but it was still using its time-worn playbook of leaning heavily on legacy successes like Windows and Windows Server. More to the point for this history, Microsoft was also still pushing heavily in the consumer space, an effort it would come to largely abandon aside from Xbox and the consumer version of Microsoft 365, two products that aligned well with the cloud-focused Microsoft that would emerge in 2013-2014. And so a consumer-oriented Internet communications service, like that offered by Skype, seemed to make sense to Microsoft at the time. But it was controversial outside the company.

“I feel that Microsoft purchased Skype for two simple reasons,” I wrote in May 2011. “One, as a defensive measure to keep the company and its technology out of the hands of competitors like Facebook (and perhaps Google, though there is evidence now that Google wasn’t interested). Two, Skype is a great brand, and as both companies noted during a post-announcement press conference, it’s one of the few tech brands that can be used as a verb. Good brands do matter, and they’re hard to create, as Microsoft has discovered to its dismay with such expensive duds as Zune.”

Interestingly, I raised the same question Microsoft co-founder Bill Gates would later raise when the software giant was considering purchasing Slack about 15 years later: Microsoft already had successful products in place that duplicate all of Skype’s capabilities, why even bother acquiring it?

I’m focusing on the consumer side here, but Microsoft had also developed business-oriented Internet communications services, with Lync being the then-current offering and a rebranding of the former Office Communicator product line. Windows Live Messenger and Lync were both client-server systems, meaning that clients didn’t directly connect to each other but instead required a server-based middleman. Skype, as noted, was a P2P solution–its name, literally, was a shortened form of “Sky peer to peer”–that was problematic in the bandwidth constrained days of the early Internet. But with the spread of pervasive broadband Internet at work and home and the rise of high-speed mobile networks, this problem had turned into an advantage. Skype used an architecture that mimicked the distributed nature of the Internet itself.

Also important: Microsoft had come perilously close to acquiring Yahoo! for $45 billion three years earlier, in 2008. At that time, it felt that combining the two company’s consumer-based online services businesses would result in benefits of scale, efficiency, and convergence, with an eye on then emerging use cases centered on video and mobile. But it was really about Google, a company that had come out of nowhere during Microsoft’s post-antitrust “lost decade.” And Microsoft had gotten lucky: Despite heavily overvaluing the company, Yahoo rejected the offer and Microsoft quickly withdrew. Yahoo was left to die a natural death on its own.

Compared to the Yahoo acquisition, Skype was a bargain, and it delivered nicely on the video and mobile pieces that Microsoft had promoted previously. This was also the beginning of a shift in mentality at Microsoft, which had moved from “Windows only” to “Windows first” and would then transition fully to “meeting the customers where they are” just a few years later. Skype was platform-agnostic. In addition to Windows, it supported the Mac, and it supported mobile platforms.

“We will continue to support non-Microsoft platforms, because it’s fundamental to the value proposition of communications,” Microsoft CEO Steve Ballmer said at the time of the Skype acquisition, using language that would later be attributed solely (and incorrectly) to his successor. “We’re one of the few companies actually who has a track record of doing this. You take a look at the work we’ve done over the years with Office, for example, on the Mac. If you even take a look at some of the great work we’ve done with applications, on top of Apple, other Apple devices. I think we have a track record of understanding our customers and the need to support our customers, as they want to travel in various places.”

Skype, like Outlook, was also a product and brand that could serve consumers and businesses equally well, and that was appealing to Microsoft at the time. And its plumbing-like nature would make it an easy fit with existing products.

“You can manage all of your electronic mail communications, and calendar, your work life, personal life in Outlook,” Mr. Ballmer said at the time. “In a sense, what you could say here is that Skype joins in really quite naturally. It connects both work and home. And it fits into the context of the way that people live. It enables communication across all of people’s lives, and all of their devices.”

Microsoft finalized the acquisition of Skype in October 2011, about five months after it announced the deal. And it quickly began integrating Skype technologies into its existing products, as expected. At the time of the announcement, this included “Skype for the TV, with Xbox and Kinect, for the Windows Phone, and the Windows PC,” plus Outlook, Lync, Xbox Live, and “other opportunities like Messenger and Hotmail.” Windows Phone was a big deal too–there were hints that Microsoft would bring “IP-based text chats, phone-style audio conversations, and video chat” to Windows Phone, I wrote at the time.

In August 2012, Raphael and I revealed that Skype would be included with Windows 8 and RT via what was then called a Windows Store (or Windows Runtime) app. Microsoft came clean on this change two months later, just ahead of the product’s launch, noting that it had “reimagined Skype for everyday communications” by integrating the service with Windows 8 features like notifications, Snap, and the People app.

“Skype is the most popular Internet communications service on earth with over 500 million users,” I wrote in the Windows 8.1 Field Guide. “And since it was purchased by Microsoft in 2011, the firm has worked to steadily integrate it with its various platforms, including Windows, Windows Phone, Office, Outlook.com and much more. Skype works hand-in-hand with the firm’s corporate-oriented Lync service and applications. It also integrates with Facebook Chat.” I noted, too, that Skype was available at that time across Windows (Windows 8.1 and Windows RT 8.1), Android handsets and tablets, iOS (iPhone, iPod touch and iPad), the web (via Outlook.com), and the classic Skype desktop applications for both Windows and the Mac.

Microsoft issued numerous Skype updates in 2013 across desktop, mobile, web, and via various integration points in its other products and services. It began integrating Skype with its business-oriented Lync product line that May, offering contact federation, audio calling, and instant messaging between the two services. And then it announced the following year that it would replace Lync with a new Skype for Business offering, triggering a bit of angst with its change-averse commercial customers. (I penned a post called “Hey, You Got Your Skype in My Lync” around this time.) Between that and the earlier retirement of Windows Live Messenger, it seemed that the Skypification of Microsoft was complete.

Until it wasn’t.

? Slack, Teams, and the inevitable

The next several years included many more Skype updates, again across all supported platforms. Windows Phone came and went. Android and iPhone dominated in mobile. Microsoft continued to struggle with consumers. It fixed Windows 8 over three subsequent point releases and then finally shipped Windows 10 in 2015 with, among other things, an integrated Skype app that, briefly, also worked in what was then called Windows 10 Mobile.

Nobody knew it at the time, but Skype’s fate was sealed in 2013 when a tiny company called Tiny Speck, created by a Flickr co-founder, launched what it called “a real-time collaboration platform” after its initially offering, a videogame, had failed. That platform was called Slack, and Tiny Speck was renamed to Slack as well.

“Slack brings all your communication together in one place,” the then-new Slack website explained at the time. “It’s real-time messaging, archiving, and search for modern teams.”

Slack was cross-platform. It was “built from the ground up” around search. It enabled easy file sharing, even with files “you store somewhere else, like Google Docs.” Most important, Slack targeted a part of the market Microsoft had largely ignored thanks to its success with the Fortune 500 and enterprises, small businesses and start-ups. The types of businesses that were then adopting cheaper, faster moving, and more modern business solutions like Google Docs and a host of integrated but non-monolithic third-party services.

Microsoft ignored Slack at first, much like a dinosaur would ignore the tiny mammals that would soon take their place. But in January 2016, Microsoft announced that it would integrate Skype with Slack, giving the small businesses that chose Slack for collaboration a way to make Skype-based audio and video calls. This was perhaps the first time I had run across Slack, personally–I referred to it as a “team-based messaging solution” in my write-up–but the cooperation between the two companies would quickly become a pain point. Among other things, Slack would announce its own audio and video calling capabilities that same year, making the Skype add-in less necessary. As Slack grew, it would inevitably face-off against Microsoft–and Skype–sometime soon.

We had learned in early 2016 that Microsoft had considered acquiring Slack for $8 billion but had only backed off when former CEO Bill Gates sold Satya Nadella that the company already had all the pieces it needed to compete with Slack. By that point, Slack was better understood, both by me and others, and was more established as a so-called chat-based collaboration solution. That is, while traditional office productivity collaboration took place using a sort of half-duplex model as via email, the real-time, chat-based collaboration used by Slack was a sort of full-duplex model. This was similar to the real-time collaboration functionality Google provided in Docs, and that Microsoft was slow to adopt with its own Office-based products.

This was a problem for the software giant. Its Office 365 offerings, once seen as future-leaning and ambitious, were now old-school and almost quaint when compared to these smaller competitors. It first reacted in small ways, by integrating the social media feed capabilities of Yammer into SharePoint, for example, and by offering Slack customers a sort of upgrade path to Office 365 and its Skype for Business capabilities. But at Gates’ insistence, Microsoft began putting the pieces it had together into a new generation of Skype for Business that would more explicitly tackle the Slack problem.

It was called Skype Teams.

Skype Teams was an evolution of Skype for Business, a separate app that would add chat-based real-time collaboration capabilities and Bots, whatever that meant. It would be included in Office 365, of course–the classic bundling strategy that would get Microsoft in trouble with regulators again and again–and was built on Azure, Nadella’s core focus.

It would also be renamed before its public unveiling. It announced Microsoft Teams at an Office event in November 2016, describing it as a “a new chat-based workspace in Office 365.” There were four core promises for this new app:

Chat. Teams would provide “persistent, threaded chat” where team conversations were visible to the entire team by default, with available private chat capabilities too.

Teamwork hub. Microsoft began the implicit move away from Outlook as the center of employee’s work days. With Teams, people could launch voice and video meetings, work with Office documents, access the intelligence of the Microsoft Graph, and collaborate, all from a single location.

Customizable. Team members could create channels to organize conversations by topic. They could further customize channels with Tabs to access relevant documents and notes. It provided Exchange-like connectors for third party extensibility. And it supported the Microsoft Bot Framework for integrating with third-party services.

Security. Teams would offer the same “global scale and advanced security and compliance capabilities” as the rest of the Office 365 family of products and services.

Missing from this announcement, rather obviously and ominously, was any mention of the terms “Skype” or “Skype for Business.” Which was especially odd given that Microsoft couldn’t have created Teams, or offered it to customers, without Skype for Business.

I had previously advocated for Microsoft buying Slack, but by early 2017, I could see the wisdom of Microsoft’s go-to-market strategy for Teams. And the key to my turnaround was the same advantage that I suspect attracted Microsoft’s commercial user base to the product. Yes, Teams was a new (to that audience) way to collaborate. But it wasn’t a replacement for traditional collaboration solutions like the email round-robin that still occurs via Exchange/Outlook-based email. The key to Microsoft’s success with Teams was integration. Under the covers, all the team-based functionality in Teams happened in SharePoint, and Teams was just one front-end to that. Old-school users could simply continue working as they had before. This was an “and” solution, not an “or” solution like Slack.

“This, intriguingly, is a hybrid solution that Slack and others cannot match, because these mobile app-based services don’t have the history or underlying productivity richness that Microsoft has with Office 365, ” I wrote. “That Teams is just a small piece of Office 365, a perk, makes this all the more amazing. You just get it for being in Office 365.”

That, um, integration would eventually catch the attention of antitrust regulators, thanks to complaints from Slack, which went on to be acquired by Salesforce after the Microsoft probes went silent. But bundling concerns notwithstanding, making Teams a piece of a big Office 365 puzzle did make sense–still does–and one might argue–as I have–that it didn’t really undermine Slack’s business. Smaller businesses that might prefer solutions like Slack would still ignore the bigger, heavier, and costlier Office 365.

There were questions about Skype, of course. But in September 2017, Microsoft revealed the inevitable. It would replace Skype for Business with Teams, unwinding its Skypification after just four years. In subsequent years, Teams would explode with new functionality, with its user base following a similarly explosive trajectory. But this shift didn’t impact Skype, the consumer service. At least not at first.

? End game

When the COVID-19 pandemic arrived in March 2020, everything changed. Messaging and communications solutions became free to ease up the isolation issues and, their makers hoped, drive usage growth that could continue after the disaster concluded. Looking back on this now, two key themes emerge related to Skype. One, It’s now clear that Microsoft always planned to discontinue Skype and replace it with a consumer version of Teams. And two, the timing of the pandemic couldn’t have been worse for those who still championed Skype: With all of Microsoft’s efforts focused on Teams in 2020, it did little to promote Skype at a time when it was a natural solution to the problems of that year.

On the eve of the pandemic, March 12, 2020, Microsoft revealed the first step towards the end of Skype when it revealed that it would allow Microsoft Teams users to communicate with Skype users from within Microsoft Teams. It began giving away Teams features for free, a policy that would continue into 2021 and later lead to an ill-conceived extra-cost option called Teams Premium. And then it announced consumer features for Teams, a seemingly anachronistic choice for an enterprise tool.

Responding to a concerned user base, Microsoft in May 2020 said that it would continue investing in Skype. But it did so while confirming that it was moving inexorably to a consumer version of Teams that would one day replace Skype.

“As Teams lands with consumers and does more things, I think people will pick Teams,” Microsoft’s Jeff Teper said at the time. “But we’re not going to be heavy-handed about this. People love Skype. And so we’re not going to get ahead of ourselves here.” My take-away: Skype was no longer the priority. Microsoft’s focus going forward was clearly on Teams.

With Skype nowhere to be found–Microsoft belatedly added a Skype-based “Meet Now” feature to Windows 10 in late 2020, but was otherwise quiet–Zoom fill in the gap, and usage soared during the pandemic. There were several updates to Skype in 2021, including a Teams-like Together mode and noise cancellation capabilities, but the Windows 11 announcement that June sealed the deal. It would include an integrated consumer Teams client, not Skype. And that Meet Now feature from Windows 10? It would likewise be replaced with a Teams-based integration.

I tried to help stave off the inevitable, arguing in 2022 that Skype was the better brand and product for consumers. But the damage had been done: By focusing so intently on Teams during the pandemic, during which it drove the Teams users base up into the hundreds of millions, and ignoring Skype, Microsoft’s strategy had the intended effect. Skype’s revenues fell by about 75 percent over the previous decade, and some of its one-time key advantages, like Skype credits for making phone calls, were no longer necessary in a world in which inexpensive worldwide mobile communication was common. The Skype user base fell from over 300 million a decade earlier to less than 100 million in 2020.

Microsoft finally stopped selling Skype credits in late 2024. And then this past week, it lowered the boom. It would kill Skype as a brand, product, and service. And it would do so quickly, with the door closing on this long-lived brand on May 5. That this was telegraphed years earlier and was obvious and inevitable didn’t seem to help. And as is always the case when any company kills any product, no matter how little-used, its supporters and fans, previously silent, immediately came out of the woodwork to complain.

The day the news hit, I was walking to lunch with my wife and mentioned that Microsoft had just killed Skype. She seemed confused.

“Skype is still a thing?” she asked.

This is the sort of response I see all the time by the cynical on social media when such things happen, but this is my wife, a non-technical person who doesn’t live and breathe personal technology like we do. I reminded her that Skype was a fixture of a Netflix-based travel/food series we watch called Somebody Feed Phil. At the end of every episode, the goofy host calls his aging parents on Skype, and the Skype logo is prominently displayed onscreen during these calls. It was a weird form of product placement given Skype’s destiny during the entire run of the show to date.

“I never even noticed that,” she told me. “I don’t notice things like that, like you do.”

Right. That was the problem, I guess. Or at least part of it. Here was this asset, this rare Microsoft brand that was both good and well recognized, and even its owner didn’t think enough about it to keep it going. Microsoft rebrands products and services all the time. It emphasizes its own corporate brand over sub-brands like Surface. It makes decisions both good and bad. But Skype was a rarity, the anti-Zune, if you will. Like NT, it meant something and it had positive connotations. And like NT, Microsoft killed it regardless, like an unthinking accountant looking just at numbers but not at what really matters.

So here’s to you, Skype. You will be missed, even though you didn’t always treat your users right. And even though consumer Teams, which started out as a shitshow, is objectively pretty great now. Like some of you–and unlike most of you, I guess–it’s time for me to move on. And so in my final act of resignation on this topic, I will unpin Skype from my Windows 11 Taskbar and replace it with the new Teams client. I don’t have to like it, and I don’t have to agree with it. But the inevitable has arrived.

Goodbye, Skype.