Microsoft to retire Skype, the service that revolutionized calling
It’s hard to believe now, but about twenty years ago, the idea of cheap, face-to-face video calling seemed like science fiction. Early attempts at a “video phone” were clunky and they never caught on. Large companies had video conferencing setups in dedicated rooms. These worked well—but only if the other party had the same expensive equipment.
At the same time, long-distance or international calling was expensive. Cell phone plans routinely came with minutes limits. Land-line packages often charged by the minute for long-distance calls. International calls cost a fortune: a typical landline call from the U.S. to Europe cost about fifty cents per minute.
Two entrepreneurs thought they could do better. Niklas Zennström from Sweden and Janus Friis from Denmark teamed up to release a service they called “sky peer to peer.” They wanted to create a service that would let two people communicate across long distances, so they called the service “sky peer to peer.” They shortened it to ‘Skyper,’ but since Skyper.com was already taken, they settled on Skype. Skype got a bright blue logo with a cloud shape.
The two founders worked with an engineering team in Estonia. Together, they leveraged an existing technology called “voice over IP” or “VOIP.” Existing services were clunky and difficult to use. With some services like Vonage, users needed to buy a special type of phone. With other services, both parties had to be online at the same time.
Still others made consumers customize their routers. And even if they did all that, call quality was poor. There were problems with latency—that’s the delay between when you speak and when the other person hears you—and there were echoes and other issues.
Skype’s innovation was to take this voice-over-IP technology, make it more reliable, and also make it customer friendly. They integrated familiar features like user-friendly IDs, voicemail, and chat-style messaging.
The aim was to democratize communication. Calls between Skype users were free. And Skype users could dial out to international numbers for a fraction of the cost that phone companies charged—usually just a few cents per minute, or less. That meant that calls from India to Canada, from the U.S. to Mexico, or from Hong Kong to London became affordable overnight.
After its initial success, Skype took a strange business turn. Just two years after its founding, big technology companies were salivating at its success. In 2005, eBay, the online auction marketplace, bought Skype for $2.6 billion. This—and I remember thinking this at the time—this was a strange partnership.
The idea was that eBay users could use Skype to negotiate prices via chat or voice calls. But eBay never really integrated Skype into its platform; the service had a strong stand-alone business that didn’t really make sense in eBay’s larger business. So in 2011, eBay sold Skype to Microsoft.
That made more sense. And through the years, Microsoft was a good steward of Skype. The standalone calling business remained, but Microsoft started to bundle Skype into its business software offerings. Many companies used Skype’s business platform for internal messaging and for cheap online calling.
But in the mid-2010s, Skype and Microsoft missed a huge opportunity. Consumers had not adopted Skype in large numbers because it was another app, another login, another thing to keep track of—just for cheap calling. It was great for cheap international calls. But let’s be honest—not everyone needed that. For most people, Skype just wasn’t worth it.
Other entrepreneurs spotted the problem. In most of the world, SMS text messaging was cheaper than calls, but still expensive. Soon, stand-alone messaging services emerged to give texters a better experience than SMS. WhatsApp, Facebook Messenger, Apple’s FaceTime, and WeChat started with messaging and branched out into voice and video calls—and Skype was left behind.
On the business side, Zoom and Google grabbed videoconferencing market share. Skype was left as an add-on to Microsoft’s other tools. Skype should have been well-positioned to advance in the pandemic. But Skype didn’t offer the simplicity of one-click meeting links. When COVID hit, Zoom was better prepared to serve business users. Zoom became a verb; Skype became an afterthought.
Microsoft was also moving on. The company used Skype technology to develop the voice and video chatting features that you now see in Teams. But Teams has much more than Skype ever did, things like scheduling, file sharing, and collaboration features; it’s also deeply integrated into other Microsoft tools in a way that Skype never was. Skype didn’t get much investment in recent years and felt like a “legacy” product.
So that is the end of the Skype story. In early 2025, Microsoft announced it would sunset Skype on May 5, 2025.
Jeff’s take
Twenty-two years. In that time, Skype was a scrappy upstart, revolutionized long-distance audio and video calling, became part of the mainstream, then faded into irrelevance, and then was retired. A lot can happen in less than a quarter of a century!
I wasn’t a big Skype user. I had a Skype ID and I absolutely used it when I needed to call internationally. It was great for that; you had to pay in some circumstances, but calling was always way cheaper than it was a landline or a cell phone. And it was free to call someone else with Skype.
The problem was, not a lot of people in my orbit used Skype, so its usefulness was limited to me as a consumer. But then my previous employer adopted Skype for Business as our instant messaging and calling platform. So I got to use it for several more years.
But now Microsoft has moved on; calling and messaging is now part of its Teams app, and so there’s just no need for Skype anymore.
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