Skype and Kazaa: Niklas Zennström

Summary

How I Built This with Guy Raz: Skype and Kazaa – Niklas Zennström

Release Date: March 17, 2025

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Introduction

In this compelling episode of How I Built This, host Guy Raz delves into the entrepreneurial journey of Niklas Zennström and Janus Friis, the Scandinavian duo behind two of the early 2000s' most disruptive technologies: Kazaa and Skype. Their story is a testament to innovation, resilience, and the transformative power of peer-to-peer networking, fundamentally altering the music and telecommunications industries.

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Early Life and Education

Niklas Zennström, hailing from Uppsala, Sweden, grew up in a family of educators with a passion for sailing. This formative experience instilled in him a sense of adventure and determination. After completing compulsory naval service in the Swedish navy during the 1980s—a period marked by tensions with Russian submarines—Niklas pursued engineering at Uppsala University, diverging from his childhood dream of becoming a naval architect.

Janus Friis, on the other hand, spent his summers drawing sailing boats, reflecting a similar inclination towards creativity and design. Like Niklas, Janus also served in the navy before deciding to transition into academia and eventually the corporate world.

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Corporate Beginnings and the Birth of Kazaa

Post-graduation, Niklas joined Teletoo, a major Swedish conglomerate focusing on fixed telephony and burgeoning data networks. It was here that Niklas met Janus Friis, a highly talented and unconventional young man who had recently been hired to manage customer support. Recognizing Janus's brilliance and shared passion for the internet's potential, the two began brainstorming ideas to leverage peer-to-peer (P2P) networking.

In September 2000, amidst the dot-com bubble, they launched Kazaa, a P2P file-sharing platform that allowed users to share various types of media effortlessly. Despite its rapid adoption—receiving approximately 10,000 downloads on its first day—the platform soon attracted legal challenges from the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA), who deemed Kazaa a facilitator of online piracy.

Notable Quote:

"[Niklas] realized we got nothing to lose." – Janus Friis (32:05)

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Facing Legal Turmoil and Pivoting to Skype

Kazaa's meteoric rise was overshadowed by relentless lawsuits aimed at shutting down what was perceived as rampant piracy. Faced with mounting legal pressures and financial strains, Niklas and Janus made the difficult decision to sell Kazaa to Charman Networks in January 2002 for an undisclosed amount—later revealed to be less than a million dollars. This sale did little to alleviate their legal woes, as lawsuits continued to loom over them.

Undeterred, the entrepreneurs shifted their focus to another groundbreaking idea: leveraging P2P networking for voice communication. By August 2003, they launched Skype, a platform that enabled free voice calls over the internet, eliminating exorbitant international call fees. Skype's intuitive design, requiring only an internet connection and a microphone, facilitated its widespread adoption, quickly amassing millions of downloads.

Notable Quote:

"There is no reason why there will not be other companies on the scale of Skype coming out of Europe." – Janus Friis (72:55)

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Rapid Growth and Strategic Acquisitions

Skype's viral growth caught the attention of major tech giants. By 2005, it had achieved over 100 million downloads, solidifying its position as a dominant force in online communication. Concurrently, Niklas and Janus founded Atomico, a venture capital firm aimed at fostering European startups and challenging Silicon Valley's dominance.

Amidst escalating interest from industry behemoths like Yahoo, AOL, Microsoft, Google, and eBay, Skype became a hot commodity. Utilizing the competitive bidding among these giants, Niklas and Janus successfully negotiated Skype's acquisition by eBay in 2005 for approximately $2.6 billion, followed by an additional $500 million earnout. This acquisition marked one of the largest tech deals of its time, with Skype later being sold to Microsoft in 2011 for a staggering $8.5 billion.

Notable Quote:

"We thought that this company under private ownership would have huge potential." – Janus Friis (70:23)

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Venturing Beyond Skype: Atomico and Juiced

Post-acquisition, Niklas and Janus continued to innovate. They launched Juiced, a venture aiming to disrupt online video streaming through P2P technology, akin to Hulu. Although Juiced did not achieve the same success as Kazaa and Skype, it provided valuable lessons in scaling tech startups and understanding market dynamics.

In parallel, Atomico grew into a significant venture capital firm, investing in numerous European startups and nurturing a new generation of entrepreneurs. This venture capital arm was instrumental in challenging the Silicon Valley monopoly, promoting European innovation on a global scale.

Notable Quote:

"Being at the right place at the right time is pretty critical." – Janus Friis (75:22)

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Reflections and Legacy

Reflecting on their journey, Janus Friis emphasizes the combination of perseverance and serendipity that fueled their success. Despite facing legal battles and financial constraints, their ability to pivot and innovate led to the creation of technologies that have had a lasting impact on global communication and media consumption.

Skype's legacy is not just in its technological prowess but also in its cultural influence. It paved the way for future platforms like Zoom and served as a catalyst for countless entrepreneurs, with over 900 companies emerging from Skype alumni alone.

Notable Quote:

"The Skype effect has created a belief among entrepreneurs that they can build the next Skype." – Janus Friis (74:33)

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Conclusion

Niklas Zennström and Janus Friis exemplify the entrepreneurial spirit—transforming challenges into opportunities and shaping industries through innovative thinking. Their journey from struggling with lawsuits to building billion-dollar enterprises underscores the importance of resilience, adaptability, and vision in the ever-evolving tech landscape.

Their story serves as an inspiration for aspiring entrepreneurs, particularly in Europe, demonstrating that global impact is attainable regardless of geographical constraints.

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Notable Quotes with Timestamps

• Janus Friis on Realizing Nothing to Lose:

  "[Niklas] realized we got nothing to lose." – 32:05

• Janus Friis on European Innovation:

  "There is no reason why there will not be other companies on the scale of Skype coming out of Europe." – 72:55

• Janus Friis on Skype's Potential:

  "We thought that this company under private ownership would have huge potential." – 70:23

• Janus Friis on Entrepreneurial Success:

  "Being at the right place at the right time is pretty critical." – 75:22

• Janus Friis on Skype's Legacy:

  "The Skype effect has created a belief among entrepreneurs that they can build the next Skype." – 74:33

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This episode of How I Built This intricately weaves the entrepreneurial saga of Zennström and Friis, highlighting their strategic decisions, the technological innovations that shaped their ventures, and the indelible mark they've left on the global tech ecosystem.

Transcript

[Guy Raz]

Wondery subscribers can listen to how I built this early and ad free right now. Join Wondery in the Wondery app or on Apple Podcasts. We're always talking about smart ideas here. And using NerdWallet to find the best financial products for you, like credit cards, is more than smart. It's genius because the nerds already did all the research, so it's easy to find the right card for you in minutes. I'll prove it. I want to upgrade my card, so let's use NerdWallet's Card Finder tool to together. Okay, let's see here. What's my credit score? Okay, let me tap that in. And what kind of rewards do I want?

[Niklas Zenstrom]

I probably cash back on pretty much everything. Let's see, am I planning to make a big purchase soon?

[Guy Raz]

Yes, I am. I'd like to buy a car actually, and I'll probably spend, let's see, about $2,000 monthly.

[Niklas Zenstrom]

Okay, here they are.

[Guy Raz]

Here are the results and some pretty great recommendations. And wow. This card they're suggesting has the cash back and flexibility I need. And I've even heard of it before.

[Niklas Zenstrom]

Okay, I am sold on this.

[Guy Raz]

Now it's your turn. Get matched with your card [e-mail] terms and conditions apply. Credit products subject to lender approval. See nerdwallet.com for details. This episode is sponsored by Canva. If you make decks at work, you should make the switch to Canva Presentations. Canva Presentations might be the most visually impressive presentations you'll ever use. Start with a stunning template, drag and drop images, graphics, charts and data visualizations from Canva's massive media library. Add animations plus interactive polls and quizzes to really set your slides apart. Built in AI also lets you generate slides and text in seconds from a prompt, and you can share your Canva presentations with anyone and instantly collaborate in real time. Canva is used by 95% of Fortune 500 companies. Whether you work at a small or big company, in a team of two or two thousand, Canva empowers workplaces everywhere to create captivating presentations, save time and be more productive together. You'll love the presentations you can easily design with Canva. Your audience will too love your work with canva [e-mail] it takes a lot to grow your business.

[Janus Friis]

You've got to attract audiences, score leads.

[Guy Raz]

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[Janus Friis]

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[Niklas Zenstrom]

This thing is growing. There's a lot of excitement around it. Meantime, you do get served with papers from this previous lawsuit.

[Janis Friis]

Yeah, I was walking out with my wife, and then someone comes up and calls my name. So I start running because I didn't want to be served. Then someone else steps in front of me and then there's a motorcycle coming. So there's all these people from all different direction and of course, a slip and you get this, you know, thick pile of papers with a lawsuit.

[Niklas Zenstrom]

This is like a movie.

[Janis Friis]

Yeah. That was the moment that we wanted to avoid, but we knew it would kind of happen at some point.

[Janus Friis]

Welcome to How I Built this, a show about innovators, entrepreneurs, idealists, and the.

[Guy Raz]

Stories behind the movements that built.

[Niklas Zenstrom]

I'm Guy Raz.

[Janus Friis]

And on the show today, how a small team of Scandinavian entrepreneurs disrupted two global industries and built two iconic brands, Kazaa and Skype. The 1990s were a really different time. In those years before Spotify and Amazon and Apple music, if you wanted to listen to a specific song, you had to buy the whole CD at a record store. And if you lived in one country and wanted to talk to someone in another country, it was going to cost you a lot of money, like a dollar or more per minute. But both of those frustrations disappeared practically overnight. In the early 2000s, music became widely accessible and shareable, and audio calls from one country to another became free. Now, at first, it might seem like music and international phone calls have nothing to do with each other, but the new startups that were disrupting both the music and the telecom industries were all powered by the same provocative idea. Peer to peer networking. Basically, you remove the middleman, be it big telecom or the music industry, and you let users find each other on the Internet. This was a totally revolutionary concept. Two friends, one Swedish, the other Danish, helped pioneer the technology that enabled much of this upheaval. Their names are Niklas Zenstrom and Janice Friess. The first platform they built was called Kazaa, and when it was released in the early 2000s, it made it easy for anyone to share a media file with anyone else on the Internet. Kazaa was really cool and it was loved by many people, but it was soon crushed under the weight of several lawsuits by the recording industry. To them, what Kazaa was allowing was basically online piracy. So Nicholas Janus decided to try something else. To take the idea of peer to peer networking and apply it to telephone calls. In 2003, they launched Skype overnight. Anyone with an Internet connection and a cheap microphone could call anyone else with those things and talk for free as long as they wanted. Skype was eventually sold to ebay and then in 2011 sold again, this time to Microsoft for $8.5 billion. Since then, Skype has become less of a force and in fact, just recently, Microsoft announced plans to retire it. But regardless, in their respective moments, both Skype and Kazaa rattled powerful industries and helped upend the top down hierarchy of the early Internet. Niklas Zenstrom was and still is a serial entrepreneur who grew up in Uppsala, Sweden. It's a university town where both his parents were teachers. The family would spend their summers sailing around the islands in their small boat in the Baltic Sea.

[Janis Friis]

We spent, you know, most of the summers sailing in our little boat, you know, with my parents, my sister and the dog. And I spent a lot of hours just making drawings of sailing boats.

[Niklas Zenstrom]

So sailing as a kid, I know, was like a real passion. And you had this sort of idea of maybe one day being a naval architect, which is a very specific kind of job you did. You were in the navy. I mean, there was a time when Sweden, I don't think it still has it, but had compulsory military service. So you served what for like a year or half a year in the navy?

[Janis Friis]

Yeah, like one and a half year. And it was compulsory service. This was also, again, this was in the 80s where, you know, we still had the end of the Cold War and Russian submarines was routinely doing their exercise in Swedish territorial water. So it was actually quite exciting to be in the navy then. It's like we tried to find Russian submarines but we were not successful. But I was quite happy afterwards not to continue. I was really keen to start studying, so I kind of moved on.

[Niklas Zenstrom]

Got it.

[Janus Friis]

And I guess for college you went to Uppsala University in Sweden, which is where your parents taught. And instead of pursuing naval architecture, you would wind up studying engineering.

[Niklas Zenstrom]

And I guess when you graduate you.

[Janus Friis]

You got a job with like a big Swedish conglomerate. And I guess they were trying to start like a new service, like a new telecom service called Teletoo.

[Janis Friis]

Yeah. So the main business was, you know, fixed telephony.

[Niklas Zenstrom]

Right. Just a phone line in your house.

[Janis Friis]

Yeah. But the other side business that they had was data networks, a commercial Internet offering. And that was exciting because they kind of coincided with Mosaic browser came out and where the Company offered dial up Internet to consumers and that really, really took off. And it coincided with campaign or initiative that actually the Swedish government was doing where if you bought a computer for home through your company, it was tax deductible. So you had this boom of two things happening at the same time in Sweden during the 90s was people bought its home PC because it was subsidized and you got your dial up Internet.

[Niklas Zenstrom]

Right. By the way, this is just an interesting aside which is a lot of times very seemingly innocuous decisions by governments like hey, we'll give you a discount on computers or we'll give you tax free computers if you buy them to encourage people to use computers and we'll throw in the Internet. Those decisions oftentimes it's, they are huge opportunities for people to launch businesses because it, you know, there's these incentives and then people, you know, whether it's like today it might be buying an electric car or you know, there's, there's all these incentives around manufacturing and at least in the US and it's interesting to think about what was happening in Sweden at the time.

[Janis Friis]

Yeah, I think it was. I really think that was part of the reason why you look at why Sweden is punching above its weights in terms of kind of unicorn companies. Part of that is because a lot of those founders, if you look at Daniel Ayek, of course, Spotify from Spotify, or Sebastian Chenkowski, they were kids when this was happening, so they benefited of having those computers at home with Internet dial ups, right? So for sure it was a good thing.

[Niklas Zenstrom]

It's really, really interesting because you're right, Sweden is this tiny country that has punched up its weight. Okay? So you are at Teletoo. And meantime, I mean, I know you're paying attention to this whole dot com boom that's happening in California. And when do you remember thinking to yourself, man, this is, I gotta figure out how to get into this thing. Cause you're sort of a middle manager at Teletoo, right? I mean you are in this big corporation. But meantime, you must be noticing something happening particularly in California.

[Janis Friis]

Yeah, absolutely. And you know what was interesting because it was so exciting to try out all the new, you know, the first, you know, really Internet services like Yahoo and AltaVista was a big moment.

[Niklas Zenstrom]

Yeah, Lycos.

[Janis Friis]

Lycos, exactly. And all those kind of things was so exciting. And at the same time, actually there was a dot com boom also in Europe, in particular in Sweden, there were quite a few online companies that were set up in, at the Same time. And at some point, I realized I'm missing the gold rush. This is an opportunity of the lifetime. Why am I an employee? Of course. Yes. I had stock options, and I had a nice career. I was, like, getting, you know, increased salary. It's like this, you know, was on a good career path.

[Niklas Zenstrom]

You're in your early 30s.

[Janis Friis]

Yes, exactly.

[Niklas Zenstrom]

Yeah.

[Janis Friis]

And it's like, I'm almost getting too old, and it's happening right now. So at some point, you know, it was time to decide to jump ship.

[Niklas Zenstrom]

Something very fortuitous in your life happens around this time. I guess this is in sort of in the mid to late 90s. You're sort of the head of a division at Teletoo, and I guess you hired this young guy named Janus Fries to run customer support. And he's, like, 21 at the time, and. And I guess pretty soon you noticed that he was maybe more talented than just being, like, a customer support agent.

[Janis Friis]

Yeah. And he realized pretty quickly that this guy's an outlier and he's brilliant.

[Niklas Zenstrom]

What did you notice about him? Because he was, like, 21 or 22, right?

[Janis Friis]

Yeah, yeah. No, first, like, he had jumped school after ninth grade or something because he was bored.

[Niklas Zenstrom]

He was a genius.

[Janis Friis]

Yeah. So then he learned everything by himself, but he was also very quick to understand what was happening online, and this was just really, really good to learn from. So, yeah, he was definitely not your typical corporate person.

[Niklas Zenstrom]

When did you start to think, hey, maybe this guy. Janis. Janus. Sorry, I'm not pronouncing his name right. I'm gonna get a lot of hate mail from Sweden that maybe he was the guy that you could, like, start something with? Like, did you start to talk to him? Would you. Would the two of you have conversations and say, you know, we really should just come up with something on our own and leave this. This corporate job?

[Janis Friis]

Yeah, I think that there was. Certainly. That's what happened. You know, we had a lot of conversations, and for me, I was kind of much more into my career, and I think he was much freer. And I think it's easier to leave something that is, like, not a secure thing, but to become an entrepreneur if you do it together with someone else. So I don't know if I would be by myself would I have done this.

[Niklas Zenstrom]

Let me understand. So you were about 10 years older than Yanis. He's in his early 20s. You're in your early 30s. You were married, I think, at that point already. And did you have children?

[Janis Friis]

No children.

[Niklas Zenstrom]

No children. Yet. Okay. But you've had a pretty significant leadership position now by this point at Teletu. And just to be clear, he convinced you that the both of you should resign and step down and build something together without having a specific idea of what that would be.

[Janis Friis]

Yeah, that's perfectly accurate. Like, I definitely needed someone to nudge me in that direction, for sure.

[Niklas Zenstrom]

I'm just curious, Nicholas, because I think of you as a risk taker and we're going to talk about your career, but here it sounds like you were risk, more of a risk averse person at the time. And I'm wondering what your father, for example, thought of this because he had this stable job as an art professor, and Sweden, the culture you grew up in, probably encouraged people to get a job and then eventually, you know, stay there for 40 years, get a pension, have a nice life, get your six weeks of vacation every year. You are essentially throwing that all away. I mean, did anybody, your dad or your mom or anybody say, this is not a good idea? You.

[Janis Friis]

Yeah, to be honest, I did not consult my parents. I informed them. I think they always, like, believed in me and trusted my decisions. But I think it was an interesting conversation to have with my wife because we had just moved to Amsterdam. We were there for a year, a nice place to live, and I said, hey. I told her, you know what, I really think I'm gonna quit my job and start a company. And she was the one then who actually told me, I think you should do it, because I don't want. When we're older, I don't want you to tell me, I wish that I tried to become an entrepreneur. So she was probably more like, go out and do it, get it out of your system and then you figure it out. But we also had such a great opportunity because she had a good job. We realized we could support ourselves on her salary.

[Janus Friis]

Yeah.

[Janis Friis]

Even if I wouldn't make any money as an entrepreneur and.

[Niklas Zenstrom]

All right, so you guys, I think from what I've read, this is around Christmas 99, early 2000, you and Giannis resign from Teletu, he moves into your apartment in Amsterdam. It's crazy. It's you and your wife and like this like 22 year old, 23 year old guy is moving in and you start to brainstorm ideas.

[Janis Friis]

Yeah, exactly. So, yeah, he moved into our guest room. We took our kitchen table, became the office table, so the living room became the office. And it was awesome.

[Niklas Zenstrom]

What were you guys doing at the kitchen table? Like, were you just talking? Were you writing? Yeah, did you have like a whiteboard with a bunch of ideas? Like what? Tell me what you were doing.

[Janis Friis]

Gee, it was a long time ago. So first we kind of thought of like we're going to have so many ideas so we're just going to do like a studio and we call that Fast track. And we're going to come up with a lot of different businesses. And the first thing that we wanted to launch was more of like a consumer comparison site. Not only price comparison but also reviews.

[Niklas Zenstrom]

For E commerce consumer products. Like today you would go to Wirecutter or something.

[Janis Friis]

Yeah, something like that.

[Niklas Zenstrom]

And this is like we, I mean this is sort of pre social media. But there were, I mean it was the kind of beginnings of this peer to peer reviewing, you know, user sort of generated content. Very early days. But, but I wonder, there's also something else that was going on because I remember this. I did a story on this in the year 2000 and you can, by the way anybody listening can just go back, type my name in Napster and you'll find this. Back when I used to work for NPR as a radio reporter, I did a story on Napster. And Napster was taking the world by storm in 2099, 2000. And you must have been noticing this. I mean all of a sudden overnight students started to show up to university with a computer and a hard drive. Not their CDs anymore because they could store everything in their computer and shirt. What did you guys, were you guys on to Napster?

[Janis Friis]

Yeah. So the kind of 1.0 version of the web was very much still company to consumers. Even like something like Yahoo. There was not a community. And we thought that the interesting thing with Internet when the end users can be connected and that's something that we felt that was the right thing to do because it's like it was kind of bypassing the corporations and empowering the end users. That what we thought was a beautiful thing with Internet and it was yet to be happening. When we saw Napster of course was a huge aha moment for a few reasons. Right. One was a technical reason like that actually was it worked that you can actually connect and use your own computer as an uploading server. That was fascinating on a technical level, but more on a social level. What was fascinating is that this was again there was users communicating directly with each other and sharing their content, which was music.

[Niklas Zenstrom]

Obviously people were uploading music and then all of a sudden you could get, well free music which turned out to be a problem, but you could just, people could upload their music collection. You could download it and not have to buy it.

[Janis Friis]

Yeah, completely. We thought this is amazing. But we thought like, why stop there? You can do so much more. And this is what the Internet should be. It should be peer to peer. And we thought this huge opportunity to take this to the next level, to build basically a peer to peer network for anyone to search for any type of rich media content, whether that is digital photos, digital videos, shareware, whatever, PDFs.

[Niklas Zenstrom]

Because Napster was limited to music. And you thought, well, why don't we come up with a peer? Maybe there should be a peer to peer system where you could share everything.

[Janis Friis]

Exactly.

[Niklas Zenstrom]

All right, so this is really the moment, right? This is around, I think spring of 2000. So five or six months after you guys leave your jobs, this is the thing you decide, let's focus on this. And you're going to call it Kaza.

[Janis Friis]

Yes, exactly.

[Janus Friis]

And to build it, I guess you contracted with some programmers in Estonia who you'd worked with earlier on a project when you were at Teletoo. And just as an aside, I mean this is just a few years after the fall of the Soviet Union. And Estonia kind of became this like mini powerhouse of engineers and programmers who were, I guess, relatively cheap to hire, right?

[Janis Friis]

Yeah, they were cheaper. But the reality was like they were excellent. And the core three key people, they had a company called Blue Moon and they were just brilliant. So Blue Moon are the people that Janus and I called when we wanted to develop Kassam.

[Niklas Zenstrom]

How did you even have any money to pay them? I mean, you were not independently wealthy at the time.

[Janis Friis]

No. So we tried to raise money. It was very hard. We failed.

[Niklas Zenstrom]

Hard to do from Amsterdam in 2000.

[Janis Friis]

Yes. And there were two things that worked against us. One was something called the dot com crash.

[Guy Raz]

Yes.

[Niklas Zenstrom]

Everybody was freaked out.

[Janis Friis]

Exactly. So it got worse and worse. No one really want to invest anymore. And the other thing is that we were doing something that was similar to Napster. Yeah. And as you remember that, as you and you mentioned that Napster had a lot started to get a lot of legal problems with the record industry.

[Niklas Zenstrom]

Right. Who would want to be involved in your idea?

[Janis Friis]

Exactly.

[Niklas Zenstrom]

When Napster was getting hammered with lawsuits, which eventually would destroy it completely.

[Janis Friis]

So those were things that worked against us. Right. But of course we were optimistic. We're almost there, we're going to raise money. And so we, I think that. Well, the reality was that I used my savings, I had an apartment that I had sold. So I think they used some of that to fund us. Some good friends of mine were kind of gave us some angel money but it was hard to get money. And then I ended up doing a little bit of consulting work also on the side just to kind of pay the bills.

[Guy Raz]

Yeah.

[Niklas Zenstrom]

How much money do you altogether? Like more than $50,000, $100,000.

[Janis Friis]

Yeah, probably something like that, that range. But it was really tight. Money was tight. And that was always the thing that was a challenge and that was the thing that caused stress a lot. Like how are we going to pay the bill? Yeah, we also hired like two people in Amsterdam. So they came to the interview to my apartment and then when they started to work they were a little bit kind of uncomfortable. It's like you know, around you know, six, seven. It's like because we were like basing on our kitchen and like should we continue to work?

[Niklas Zenstrom]

You know it's dinner time, your wife's home.

[Janis Friis]

Yeah, exactly. So that was interesting time.

[Niklas Zenstrom]

And by the way, you're building a product without any business model.

[Janis Friis]

Well, our business model was advertisement. So we put in ads, we had banners, you know, in Kasa, in the software. And it was something, and that was something that was like controversial at the time, you know because some of those things were also tracking users behavior and at the time people did not like. Of course now everything you do is being tracked all the time, so now it's okay. But at the time it was like controversial and it was a bit of an issue because when people use like a peer to peer software and then there was advertisement there, there was something that people didn't really like so much but we actually, because our costs were so low, we just, you know, the advert, when it started to, to grow with advertisement just we could sustain ourselves actually.

[Niklas Zenstrom]

Yeah, you launched Kazaa in September of 2000. And this is like you know, back in the wild west days, the Internet, when people would just put things out there and they would generally spread among hardcore users, you know, the people were really following the Napster trends and things like that. And from what I understand originally, I mean like I think you, you release it on a day in September and on day one it gets downloaded like 10,000 times. Which is really great for a first day launch in 2000. Right. But one of the things that I read was that right off the bat on the page you asked users not to use it for music.

[Janis Friis]

Yes, so exactly. So again things were quite fluid because when we started we thought like well surely we're not going to exclude music because it's a General tool. But over the time as we were developing this during the summer, Napster got into more and more trouble.

[Niklas Zenstrom]

They were getting sued by every single, everyone, every music label. Riaa.

[Janis Friis]

Yeah, yeah, exactly. So RAA were suing Napster and they had to kind of, they had to put some restrictions. So we said, hey, there's no opportunity here because for us was so obvious that you're not going to put genie back in a bottle. Music's going to be online and they just need to be the right solution. And we said that we actually could have that solution. So we went to the local kind of music rights, you know.

[Niklas Zenstrom]

Yeah, the rights holders, the rights holders.

[Janis Friis]

Organization say hey, there's opportunity here. Actually we can provide, you know, solution to what Napster is doing where you can actually provide your content online on our, on our platform. And then you can actually have different business model. You can have paper play, you can have subscription or advertisement.

[Niklas Zenstrom]

So you thought you would be sort of a legit version of Napster.

[Janis Friis]

Yeah. So what we did was like when we launched, we put up this notice on the homepage. It's like we're working on a solution with the rights hold record companies. Stay tuned. So please don't used his for music.

[Niklas Zenstrom]

And I guess you guys got a lawyer who helped arrange meetings with representatives from the RIAA and the Motion Picture association of America in the U.S. you guys would fly to the U.S. you'd meet with all these lawyers and kind of make your case. So you flew out to what, New York or Los Angeles?

[Janis Friis]

Los Angeles.

[Niklas Zenstrom]

Okay, so tell me about this trip. I think this is in 2001 and by this point, by the way, Kazaa has exploded, right?

[Janis Friis]

Exploding, exactly, exactly.

[Niklas Zenstrom]

Millions of people are using it and at this point mainly using it to do what? To download illegal music.

[Janis Friis]

Music, yes. So as Napster got more and more crippled because of the restrictions, eventually kind of pretty much closed down. Those users were looking for alternatives and it happened to be Kaza was the best alternative. So we got more and more users, you know, basically got all the Napster users and then more I guess, which was great because of course if you're providing consumer service, who doesn't love users, right? So that's. Yes, that's great. But we're also realizing it's like they didn't really do what we asked them to do. Yeah, they were sharing music.

[Niklas Zenstrom]

All right, so let's get back to your trip. You come out in June of 2001. The background is Kazara's the biggest, basically taken over for where Napster left off, you guys are coming to the US thinking, okay, we're going to meet with these industry folks and make our case and see if we can collaborate.

[Janis Friis]

Exactly. And they were like interested to come up with solutions because I think they understood that the Internet is not going to go away, that you need to work on solutions. But the follow up from them also was then from the cease and desist letters basically from the lawyers.

[Niklas Zenstrom]

You were getting cease and desist letters from lawyers at this point?

[Janis Friis]

Yes. So you had a business meeting. Really, really nice. And then a bit later you're getting kind of cease and desist letter from the legal department of the same organization or from riaa, so the Record Industry association of America.

[Janus Friis]

And meanwhile, while you're in la, somehow you get a hold of, of a document from the riaa, essentially like letting you know that a lawsuit is coming.

[Janis Friis]

Yes, someone mailed us, I think it was somehow we got this email with an internal memo from riaa, you know, outlying that, you know, I think the title was, you know, Public Enemy Number One. So we didn't just like, we, of course we speak to our lawyers who then advised us. Yeah, they're very likely going to try to serve you in the meeting.

[Niklas Zenstrom]

Oh, they were going to use the meeting to serve you the papers.

[Janis Friis]

Yeah, that's what we thought they would do. Right. Or the lawyer thought it's like it's possible for us it was interesting because we were like, wow, this is like a Grisham book. Kind of not as dangerous, but the thrill was there for sure. So we didn't show up ourselves to the meeting. So our lawyer, he says, I can produce you my client, but you know, we need to sign something first that you are not going to be serving them. But we were around and we were like, you know, basically driving around or sitting around, you know, next door trying to not be visible. So we, we kept a really low profile. Yeah, so for us was all about not being served while we were there.

[Niklas Zenstrom]

So you were just kind of evading them and trying to presumably get out, go back to Europe.

[Janis Friis]

Exactly. So we, it's like the Sudan. Let's not use credit cards, let's use pay cash. So what we did was like first like paid cash hotels and then what hotels in Los Angeles take cash? They're not the nicest hotels, put it that way. But that was fine. We did a few nights and then we went to LAX and we bought tickets like as late as possible for takeoff. Right. So that there was no chance that they would have a chance to pick it up. So yeah, so that's. So we were happy to get out of us. And that was like the last time I was in the US until 2006, I think.

[Guy Raz]

Wow.

[Niklas Zenstrom]

All right, so you guys basically head back and now you are finding yourself in a position that Napster had found itself in with. You are just saddled with lawsuits. They eventually also are going to file suits against you in Europe. Meantime, you're getting millions of downloads per week. It becomes one of the world's most popular pieces of software. But from what I understand, you had no revenue. I mean, very. It's some advertising, but really you had no money coming in. I mean, weren't you scared about being saddled with multimillion dollar lawsuits when you had no real money coming in?

[Janis Friis]

It was extremely stressful. But what we realized were a few things. One was like, well, I don't have a lot of assets. The only thing we had was our company.

[Niklas Zenstrom]

And your company was worth nothing at that point, right?

[Janis Friis]

Exactly. So we realized we got nothing to lose. That's a pretty interesting thing when you're in a battle with someone. That's kind of liberating when you realize that.

[Niklas Zenstrom]

Yeah.

[Janis Friis]

And the other thing was like, we realized that these guys are big, but they're also really slow. One thing that I learned from the company I worked with in my first job, one of the kind of the phrases was used internally was that it's not the big that beats the small, it's the fast the beats the slow. That's kind of what I took on. It's like we're just going to be faster than them and we have nothing to lose. They have a lot to lose. We have nothing to lose.

[Janus Friis]

When we come back in just a moment. Nicholas and Janice have so little to lose that they decide to start a whole other company. One that will grow much, much bigger than Kazaa.

[Niklas Zenstrom]

Stay with us.

[Janus Friis]

I'm Guy Raz and you're listening to.

[Niklas Zenstrom]

How I Built this.

[Guy Raz]

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[Niklas Zenstrom]

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[Janus Friis]

Hey, welcome back to How I Built this.

[Niklas Zenstrom]

I'm Guy raz.

[Janus Friis]

So it's 2002 and the recording industry is suing Kazaa for enabling Internet piracy. And Nicholas and his partners decide that fighting those lawsuits is fruitless.

[Janis Friis]

The record companies, they needed to make an example of us. But at some point we realized like, you know, we don't want to become martyrs and we don't want to kind of prove a point. Useful to proving a point. And we realized that we had such conviction in peer to peer. So at some point we decided, you know what, let's just move to the next chapter with peer to peer.

[Niklas Zenstrom]

Let's sell this thing.

[Janis Friis]

That's Exactly.

[Niklas Zenstrom]

So this is, I think In January of 2002, you do sell it. It's acquired by a company called Charman Networks. Undisclosed price, but it was not a lot of money. Did not get a lot of money out of this.

[Janis Friis]

No, no, no, nothing really. I mean, you know, less than a million. But we did retain the technology.

[Guy Raz]

Right.

[Niklas Zenstrom]

So basically you sell kaza, but the technology, the peer to peer technology, which is called fast track, right?

[Janis Friis]

Yes, exactly.

[Niklas Zenstrom]

You keep that as your own property.

[Janis Friis]

Yes.

[Niklas Zenstrom]

But it amazing. You had at one point, I think, the third most popular piece of downloaded software in the world and it sells for less than a million dollars. Now the idea I'm imagining, also the idea behind selling it was you thought, well, maybe these lawsuits will go away.

[Janis Friis]

Yeah. So this of course become a problem because of the other side. Riaa, mpa, they said, well, these guys now they're trying to do a maneuver to get away from this.

[Niklas Zenstrom]

Yeah. Essentially did not get you out of the lawsuit. It didn't matter that you sold it. You were still being sued left and right. And I'll come back to that because that features later. But you guys sell this thing, right? For very little. But it seems like you already, you and Janice, I keep saying Jannis and Janis and I'm sorry, Janice, if you're.

[Janis Friis]

Listening, I think ITER works.

[Niklas Zenstrom]

Yeah, but you guys already are saying, okay, we did this, we still have this peer to peer technology. Let's think about the next thing that we want to build. Yeah, I mean, I guess at this point you're still in Amsterdam.

[Janis Friis]

I think at that point I actually moved to Stockholm. Jenna was back in Copenhagen, where he was from, and our developers were in Estonia and we had one person in Amsterdam.

[Niklas Zenstrom]

Okay, so you were distributed and I guess you're calling each other all the time because you've got to communicate over the phone and that sparks an idea. Tell me about how it sparks an idea.

[Janis Friis]

Yeah, so you have to remember, fully distributed, really cash poor, saving money was an important thing because we were calling each other. And back when I was at Teletoo, one project that we were doing back In, I guess 99 was trialing voice.

[Niklas Zenstrom]

Over IP, VoIP, voice over Internet protocol. I remember there were all these phone companies that were starting in the early 2000s, you could get VOIP and it sucked.

[Janis Friis]

It really, really sucked. So the conclusion back in 99 was, it's not that great. But then I thought, like, now we're in 2002, surely things moved on. And the other thing was happening now was also another Kind of enabling technology trend was broadband. You know, we started to have broadband at home through your cable TV or whatever. So thought, surely we can use voice over ip. So I asked one of our engineers, hey, why don't we set up voice over IP so we can use that between ourselves?

[Niklas Zenstrom]

So you asked one of your engineers, hey, can you set this up so you don't have to pay telephone bills completely?

[Janis Friis]

And it turned out that it was really complicated. So if you were like skilled engineer, you could do it. Right. But then the other result when we started using it, that pretty crappy voice quality. So it wasn't very successful. But the other thing we did was traveling as, you know, like the great thing in Europe is that it's easy to travel between different countries. So you take your mobile phone, travel to another country and still use it, which was amazing. The problem is that the roaming fee was like, very, very expensive. So the mobile operators really took advantage of roaming because essentially the cost to produce a phone call whether you're roaming or not, is kind of the same.

[Niklas Zenstrom]

Right.

[Janis Friis]

But it was an opportunity for the phone companies to charge, like, extra money. And that was something that we was like thinking about as an issue. And then we had another kind of mega trend that was happening was WI fi. Yeah, right. You started to have WI fi everywhere. And then you also started to have this, PDAs, personal digital assistants. You know, remember the Compaq, iPad, Palm Pilots and Palm Pilot, Exactly. And this was actually, ironically, Microsoft was ahead of the curve. They had Windows, you know, Pocket PC. So at some point we started to figure out, hey, there's an opportunity here to build, you know, you take your Pocket PC, the killer app for this would be voice, so that you could use. You access this WI fi, global WI FI signal everywhere, and then you connect and make voice calls over the Internet and provide free Internet telephony.

[Niklas Zenstrom]

Just to be clear, the idea was, hey, let's piggyback on these existing personal devices people are carrying, and particularly this Microsoft one, where it already is kind of like has, you know, it's a handheld device. It just doesn't have phone. But we can basically create an application where users could use it as a free telephone completely. What I'm curious about, I mean, this is now 2002. You're digging into a very complex question because it's not yet. But what it would become, which of course was Skype, was not yet. It wasn't fully formed how it would be used. Initially, you're thinking, it's going to be on these PDAs, these personal devices, and so on. And that's not what happened, as we know. But just as an aside, I mean, by. I know around September of that year of 2002, you got a little bit of seed funding. $250,000 sounds like a lot, but it's for. What you were going to do is nothing, almost nothing. And from what I've read, it was quite hard for you to find anybody willing to finance this.

[Janis Friis]

Yes. So we thought, like, we had this amazing business, what we called Skyper, because it was peer to peer in the sky. Right. On the WI fi.

[Niklas Zenstrom]

Peer to peer in the sky. Sky per.

[Janis Friis]

Peer to peer. Exactly. That was it. And. But it needed all these different stages, and we got Bill Draper to invest.

[Niklas Zenstrom]

Bill Draper, kind of a legendary investor.

[Janis Friis]

Yeah. So Bill Draper is like, he's one of the, I guess, first generation of Silicon Valley venture capitalists. And he had someone working for him, Howard Hartenbaum out of Luxembourg, to basically do, like, early stage investments. And Howard was, like, looking around and he got hold of me, and I was very suspicious because so you have to remember, this was still. We were trying to avoid being served, so we were, like, hyper.

[Janus Friis]

Oh, like this is lawyers again playing dirty tricks. Like, still trying to pin you down for the Kazala suits.

[Niklas Zenstrom]

Yeah.

[Janis Friis]

So it's like, this is like, maybe this is a way to try to serve us through this potential investor. So we were like, extremely. Normally, if you're an entrepreneur looking for money, you would be like, yes, please.

[Niklas Zenstrom]

Jumping at it.

[Janis Friis]

Yeah. You would, like, set up the meeting with the VC who wants to have a meeting with you. But we were extremely difficult to get hold of for that reason. But it turned out to be completely legit. And Bill Draper, he said, I know nothing about the technology. I know that the telecom industry is huge and they're dinosaurs. I also know that you guys had success with Caza. You created something that became really big. You did not make money from it. So you must be extremely hungry for success.

[Niklas Zenstrom]

Yeah. All right, so you've got a little bit of cash to start building this thing, and this is going to take longer than building the technology for Kaza. It's interesting because Kazaa sounds very complicated. I mean, sharing files. But actually, it turns out that trying to transfer voice in real time over the Internet is quite challenging. This is not an easy thing to do. And just out of curiosity, I mean, was $250,000 enough money to develop this thing?

[Janis Friis]

No, but I think we raised a bit more, but it wasn't it was still in the hundreds of thousands, I think, but during the time, again, this was created so much stress for me when I could not pay our developers.

[Niklas Zenstrom]

I saw that development actually came to a halt at a certain point in the summer of 2003. It just stopped because you couldn't pay the Estonian developers. How did you. I mean, as you sort of started to run out of money in the summer of 2003, what did you do? Were you just dialing anybody you could to see if you could get money?

[Janis Friis]

Yeah. So we went around in Europe, we went to kind of all the VCs and we tried to raise money and were unsuccessful. And we thought that these VCs there, they don't get it. And the model for European VCs at the time was to invest in a copycat of a US Internet company and use the language barrier as a moat. So you kind of was really smart to invest in say, a German copycat of ebay, because ebay would probably buy them. Or a Nordic version of Amazon. That was the model, pretty much. And we had this plan. We're going to change global telephony using peer to peer technology, which no one else had done. But of course, the other thing that made them also not wanting to invest, that we had this pending litigation of billions of dollars. So you can understand that not like a VC would not want to invest. Yeah, every month was about scraping money, but it also made us super lean. Right. We did not grow the organizations. We realized we could just get things done with very few people.

[Niklas Zenstrom]

So, okay, so it took basically a little more than a year and a half of developing the technology and it launches. You release a beta version on August 29, 2003. By this point, when you release a beta version, the original idea was, let's put this on like these personal devices, these like Palm Pilot type devices. But by the time you released it, that was out the window.

[Janis Friis]

Yeah, well, so what we realized was that, okay, that vision was great, but how do we get there? It's just not going to happen from day one. So we needed to do things in different stages. The first stage was to develop Skype for PC.

[Niklas Zenstrom]

They'd have to plug in a microphone, they'd have to buy a microphone and.

[Janis Friis]

They had to plug in a microphone. And this was the thing that the big unknown for us because most computers did not have a microphone. Why would you. Yeah, so when we launched, it was always the challenge. Would people really be able to use it even if they wanted to? Maybe they download the software. Cannot Make a call. And another thing we did not know, will people really want to sit in front of the computer to have a phone call? Because otherwise people probably had a cordless telephone for the fixed telephony or they had a mobile phone. Now they have to be in front of the computer. Even you didn't have video right when we started, but you're sitting in front of your computer, computer to make a phone call. It turned out that people had absolutely no problem to do that and people had absolutely no problem to figure out a way to connect a microphone. And why was that? Because the desire for people to connect with their loved ones, with their friends, relatives, or for business across the world for free was a pretty big desire. So people had no problem kind of to sit in front of the computer and to make those calls.

[Niklas Zenstrom]

And what made this so kind of perfect in a lot of ways was the built in virality. Right. Which is like you had to download Skype and then if you wanted to talk to your friend around the world.

[Guy Raz]

They also had to download it.

[Niklas Zenstrom]

Once both of you downloaded it for.

[Janis Friis]

Free, you could just talk 100%. That built in virality was like, like a really fundamental growth driver because you probably have like five to 10 people that you speak to regularly, whether you know, friends or family. And that's really how it spread.

[Niklas Zenstrom]

And just to kind of clarify, I mean, this was free. I mean this is the second business you create where the product is, there's, you have to pay for it, which is great in terms of getting a lot of users, but could also create a long term problem which is you don't have any money coming in.

[Janis Friis]

Yeah. So one thing we figure out, we're not the only one figured that one out. If you want to have like a viral consumer online service, you should take away all frictions for people to use it. Right. Make it free.

[Niklas Zenstrom]

Yeah.

[Janis Friis]

Now to your point, where do you have your revenue? Because having very low cost and you can have very small overhead. Because we're a small, scrappy, bootstrapped organization, we did not need to make a lot of money to cover overhead. But the business model was always going to be the paid service.

[Niklas Zenstrom]

A premium offer eventually.

[Janis Friis]

Exactly. And that we thought we launched that later on. But first we need to get the free service out. But we were pretty confident that we would be able to have a premium service because there will be a lot of phone calls that you want to make that are not on Skype. So the idea that we had that we launched was Skype out, meaning that you called from Skype to a public.

[Niklas Zenstrom]

Telephone number that was not a Skype number.

[Janis Friis]

Exactly. So I could call you from Skype to any phone number in the world. But the pitch to consumer was that you make a global long distance phone call or international phone call, but you're paying a local rate. So, you know, think about that. If you say that you're like you're in San Francisco and you have relatives in Australia, that's a pretty expensive phone call. But for your Australian relative to make a phone call to their neighbor in Sydney is a pretty cheap phone call because it's local rate. So what we did, we used the Internet to transport this call from wherever from you in San Francisco, and then have a local agreement with a local telecom operator in Australia to connect locally so we could sell local phone calls globally. Yeah, we thought that was a pretty disruptive offering in the world of telecommunication.

[Niklas Zenstrom]

All right, so you launch it in August of 2003. Soft launch really launches in like September of 2003. By April 2005, you got 100 million downloads of this thing. So this is no joke. I mean, I remember and I know a lot of people listening can remember using it. I mean, I lived, I was a foreign correspondent at the time. It was like a lifesaver because I could go in an Internet cafe in, you know, the Balkans or in the Middle east somewhere and use it. My mom, who traveled around the world with a backpack at the time, that's how she communicated with people. So it was really an amazing product. But I still have to think that even then, even as you get 100 million downloads in April 2005, you're not a profitable business.

[Janis Friis]

We raised money. So this time no one wanted to invest when we launched in September 2003. And it really takes off virally immediately. Right. And then now we got phone calls, now we get emails.

[Niklas Zenstrom]

Now people are saying, oh, investors, now I want to talk.

[Janis Friis]

Yeah, so you get, you know, several US VCs contacting us, flying over, offering us nice dinners. So we managed to raise money, I.

[Niklas Zenstrom]

Think almost $20 million in March of 2004.

[Janis Friis]

Yeah, that's the B round. So we did an A round of like, I think, I don't know, it was like 3 million or something dollars. Then we did a B round already, like six months later.

[Niklas Zenstrom]

So you didn't have to worry about profitability essentially.

[Janis Friis]

But what was interesting though is that we launched the paid service, I think, I don't know, 15th of May or something in 2004. And the beautiful thing with this was that it was prepaid. So you. When buying those Skype out Credits, you uploaded $10, $20, whatever you wanted, and you had your credits that you could use to make calls.

[Niklas Zenstrom]

So it's like a traveler's check or a gift card, essentially. People are prepaying for something that they're not going to use right away.

[Janis Friis]

No, exactly. And a lot of people picked up on this. I think kind of 5, 6% or something of users. It was actually very, very popular. So we started collecting a lot of cash, so we didn't really have to touch that money. The 20 million that we raised in a Series B, we didn't really have to touch it that much, actually.

[Niklas Zenstrom]

All right, so you have. You've got. This thing is growing. There's a lot of excitement around it. Meantime, you do get served with papers from this previous lawsuit, the Kaza lawsuit. Like, somebody finds you. I guess you were in London, and you step outside and there's a bunch of servers waiting to serve you papers.

[Janis Friis]

Yeah. So we moved to London because we thought launching a global online company, Internet company from Europe, London is the best place. So we moved there. And I was walking out with my wife. I think it was a Monday in the morning, stepping out the door, talking to each other, as you usually do. And then someone comes up and calls my name. And I kind of figure out in a split second, okay, this is the moment. So I start running because I didn't want to be served, and I started running. I wasn't very fit at the time because I was like an entrepreneur working very hard and not exercising.

[Niklas Zenstrom]

Eating pizza.

[Janis Friis]

Yeah, exactly. And definitely not going to the gym. But then someone else steps in in front of me, and then there's a motorcycle coming. So there's all these people from all different.

[Niklas Zenstrom]

Wow, this is like a movie.

[Janis Friis]

Yes. So I tried to kind of, you know, I tried to change direction. And of course, a slip. And then, of course, you're being served, as you see in the movies, like, slapping the papers on. On you. And. And you get this, you know, thick pile of papers with a lawsuit. And my wife was really angry with them. It's like trying to defend me. And. And. But it's. Then it's done. It's happened very quickly. But that's one of those moments. It's like, it's. You get a lot of adrenaline, and then it's like, you know, you're. You're scared, and it's like, what's happening? Because that was the moment that we wanted to avoid, but we knew it would Kind of happen at some point.

[Janus Friis]

When we come back in just a moment. Nicholas is pursued not just by lawyers, but by executives from some of the biggest tech companies in the world who are looking to acquire Skype.

[Niklas Zenstrom]

Stay with us.

[Janus Friis]

I'm Guy Raz and you're listening to how I built this.

[Unknown]

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[Janus Friis]

Hey, welcome back to How I Built this. I'm Guy raz. So it's 2005, and depending on the moment you ask, Nicholas is having either a very good or a very bad year. On the one hand, he's still facing onerous lawsuits from his time at Kazaa. But at the same time, Skype is exploding in popularity and giant tech companies are starting to take notice.

[Niklas Zenstrom]

I mean, you knew that the big tech companies, Yahoo, aol, Microsoft, Google, they were looking at what you were doing and they could easily build something to replicate it and potentially crush you. Were you getting nervous at all?

[Janis Friis]

Yeah. So we, you know, if you remember back in the time, Yahoo had Yahoo messenger, which was awesome. A lot of people used it. You had AOL with AOL Instant messenger and you had Microsoft with Microsoft MSN Messenger.

[Niklas Zenstrom]

All text messaging.

[Janis Friis]

All text messaging.

[Niklas Zenstrom]

Yeah.

[Janis Friis]

But they had like pretty much everyone online in the Western world at the time. So we were always nervous, like, when are they going to wake up? And Compete, because if they're going to crush us or not. And then we got this message that Yahoo is building something. Okay, so let's talk with them. And we kind of say, okay, what are you doing? Maybe we can do something together. And then we find out that it's not only Yahoo, it's also AOL and Microsoft and even Google are kind of looking at building their versions of Skype. So we say, okay, that's not great. So we speak to all of those companies and ask them, hey, why don't we do a partnership? We provide a version of Skype that is integrated into their messenger.

[Niklas Zenstrom]

So you white label. We'll do like a white label for you.

[Janis Friis]

A white label, yes.

[Niklas Zenstrom]

Smart. Okay.

[Janis Friis]

And then we charge you for that. But also if you invest into our company, we have a stronger relationship. So we thought that could be good because then we can get a big sibling to protect us from the others. We can get more distribution, we can get capital, and we take out one potential competitor. But the interesting thing is that the answer from all of those companies was, no, we're not interested in that. We were already building it. But we would be very interested to have a conversation about a much closer relationship that is to acquire us buying you. Yes. Now, we started this company not to be acquired because with casa, we had to get out of it. So we said, this time we're building something that's going to last and there should be a company online that is like dominating online telephony or communication or real time communication. And that's something that we wanted to do.

[Janus Friis]

So you've basically all of these suitors coming in. What an amazing position to be in. Right. Because the more people who want to.

[Niklas Zenstrom]

Talk to you, the higher the price goes.

[Janus Friis]

And then in addition to AOL and Microsoft and Google, you get contacted by ebay as well. So, I mean, a lot of heavy hitters interested in you at this point.

[Janis Friis]

100%. Yeah. So we use this competitive situation to try to negotiate and see who's going to be willing to pay more. At the same time, we were not committed to selling because we said, well, we're not really for sale because we're raising money. We want to be independent. But you know, and there's a few others who are interested. We decided to run a process, but we also run a process to raise gross capital to stay independent. So, you know, there's going to have to be a really high premium. And through this process, you know, we ended up with ebay coming up with like a really attractive offer. 2.6 billion and a 500 million earnout.

[Niklas Zenstrom]

It's. And just as an aside, I mean, ebay is thinking, okay, this could be a great way for people to use our platform. You know, they could communicate through. I mean, not a, not a bad idea from ebay's perspective, but they're going.

[Guy Raz]

To pay a lot.

[Niklas Zenstrom]

I mean, it was going to be up. I mean, with, with all the incentives. They're paying over $3 billion for this thing that you just launched two years before.

[Janis Friis]

Yeah. It was unreal. Be clear. It was unreal. And you have to put this in the context of 2005. Right. It's like there was a few years post.com crash, the largest Internet M and A before us was PayPal to eBay. Right. 1.5 billion.

[Niklas Zenstrom]

Right.

[Janis Friis]

And so this was like 2X.

[Niklas Zenstrom]

It's amazing.

[Janis Friis]

And then you had amazing YouTube. YouTube was also 1.6 billion or something like that also the same year with Google. So this was the largest acquisition. Acquisition, online acquisition, post.com for an Internet company globally.

[Niklas Zenstrom]

So I mean, you would be foolish to reject that. And you didn't. Of course they bought it. And overnight, I mean, you had gone from just a few months earlier freaking out about whether you could make payroll to now being a multimillionaire.

[Janis Friis]

Yeah, no, no. It was certainly life changing event, not only for us, but also for a lot of our team. Right. Who had options.

[Niklas Zenstrom]

A bunch of these Estonian programmers had options.

[Janis Friis]

Yeah, totally. So there was a lot of people who benefited, but we wanted to continue to build, so we were happy to stay on. I stayed on as a CEO for a few years because we had all these ideas and the vision how to scale it.

[Niklas Zenstrom]

Yeah. Meantime, let's just go back to the lawsuits. There's this lawsuit that's still hanging over you and I guess that year, so 2005, you guys sold to ebay. You're working at eBay in 2006. And I think in 2006, you and the new owner of Kuzaf, you agree to settle with all of the various companies filing lawsuits against you. In part because now you had a bunch of money. I mean, you had to actually pay some money. Right. To settle this lawsuit.

[Janis Friis]

Yeah. So in parallel, when we were negotiating with ebay, we worked another set of lawyers trying to settle with suitors with MPA and RIAA before the transaction was announced. Because we knew of course, that when the transaction is going to be announced, we're going to have to pay them something. Right. And then we didn't manage to do that. It's like time was running out. So we had to pay them to settle. But that wasn't the hard thing to do because, you know, to get that problem to walk away was, was, was pretty nice.

[Niklas Zenstrom]

All right, so that goes away, but you do have to put some money into it. One interesting thing, and I don't want to get into this too deeply because of, just because there's so much you've done. But while you are at ebay running Skype, you and Janice start two things. You start up a venture capital firm, Atomico together. And you also begin working on another business called Juiced, which is going to be, I guess the best parallel is to today is it was going to be like Hulu, what Hulu became, which was a video platform for watching content.

[Janis Friis]

Yeah, I think we had this vision that you could use this peer to peer for so many different things. And we built a team for that. And again, I was like CEO for Skype. I was, you know, full time there. So we hired people, you know, management team, really, really good people, by the way, to run this. But I think that it's hard, as is your founder and you start a company, but you don't have time to run it. You have other people running it. I think it's just you don't have that connectivity. I think it's harder to be successful. You can be successful, but it's harder.

[Niklas Zenstrom]

Yeah. That company Juiced eventually would not. It wouldn't work out. And it makes sense now because the whole concept begins with this peer to peer platform. It makes sense that you're going to try and come up with all these different ways to use it.

[Janus Friis]

Right.

[Niklas Zenstrom]

You start with Kazaa, then you go to Skype, then you go to Joost. Now, in 2008, concurrently, when Joost was being built, you and Janice create a company called rdio rdo, which, which essentially is the first version of what Spotify would become. This was going to be a streaming music service.

[Janis Friis]

Yeah.

[Guy Raz]

Tell me why.

[Niklas Zenstrom]

I mean, look again, you've had massive success and you've had a huge impact.

[Guy Raz]

On our culture globally.

[Niklas Zenstrom]

But why do you think audio didn't work? Because it came out before Spotify started.

[Janis Friis]

Well, it's kind of the same time and I thought RD was really, really good user experience. And we launched in the US like a year before Spotify. So we had that market, we could have taken it. Why did not take off? You know, I don't really know exactly the answer, but I think one reason was that I think we learned through both Kasao and Skype that we didn't want to pay for user acquisition. And like that should just be viral. There was really little virality in it. So that was one of the issues. So I think Spotify the paid for.

[Niklas Zenstrom]

Users, they were more aggressive about user acquisition and spending money on marketing.

[Janis Friis]

Exactly. Both that and brilliant in terms of building relationships with some of the big online companies like Facebook and others. So Spotify created an amazing kind of aura around them because it wasn't available in the US first, was only available in Sweden and become very, very popular. Filling the void after Kazar and after kind of Pirate Bay. And then people just waited for that to take off.

[Niklas Zenstrom]

You were out of by 2007, out of eBay and done with Skype and that was it, you were finished. But remarkably, you would return to Skype in 2009. EBay, apparently they kind of wrote it down because it was not a successful product for them. Skype was not. And they decided to sell it. I guess they sold a majority share of it for about $2 billion to some investors. And you and Janice tried to buy it back when you heard that ebay wanted to sell it. And so I think you guys got a 14% stake in this new in Skype, I guess essentially were able to get equity in Skype that you had already sold for essentially a fraction of the cost. And it was risky because you had to show that it was. I mean, ebay could not successfully make it work. But I mean, you guys must have had confidence that you could help turn this around.

[Janis Friis]

Yeah, I mean, Skype was doing well, right? What had happened during the years at ebay? You know, the company got too big. As typically happens in really large corporations, they just hire a lot of people, becoming too much of a corporate culture. So we thought this company under private ownership and you refocus, it has huge potential. So that's why we kind of got back into it.

[Niklas Zenstrom]

It's amazing, and I mean, I'm sort of fast forwarding here, but then it gets acquired by Microsoft in 2011, 18 months later.

[Janis Friis]

Yeah. So Microsoft came along and makes an offer that the investors took on for eight and a half billion.

[Niklas Zenstrom]

For 8.5 billion. So not only does ebay do great, but all the investors, I mean, 18 months later have a massive return. Your 14% stake was probably comparable to the original sale that you had when it was 3 billion.

[Janis Friis]

Yeah, completely.

[Niklas Zenstrom]

It's amazing. So now you are out of the the business. You know, you really, I think after that period of time, were focused primarily on being a vc. But after the end of rdo, was there any talk of, okay, well, let's start another company? Or at that point were both of you sort of thinking, okay, we can, we can focus on being investors?

[Janis Friis]

Yeah. So I think for me, there was a need for better investors in Europe back then. You're talking about 2002 to 2007, whatever that time period. There was one place in the world that you had to be if you were serious about building a tech company, which is where you are. San Francisco. Silicon Valley. That was the only place in the world. Right. And what we did, we proved that it was possible to build a global tech leader from Europe. And we were not just like super special. We were not just like the exception that proved the rule. You know, we were just normal people. My conviction was there's no reason why there will not be other companies on the scale of Skype or even bigger coming out of Europe. So Atomico was built with a mission to disrupt the monopoly of Silicon Valley.

[Niklas Zenstrom]

I'm curious just to get your thoughts on Skype today, because Microsoft clearly has leaned into teams, which is its competitor to Zoom. And there was a lot of talk during the pandemic about how it was a moment for Skype and Zoom kind of overshadowed it. But what's your sense? I mean, do you feel like, do you care? I mean, does it have any emotional resonance with you or any thoughts about their. What they've done with this thing that you built?

[Janis Friis]

The first time when we sold Skype, I was so emotionally attached to it, to the extent that was part of buying it back when Microsoft acquired it, I did not have that emotional attachment because I moved on. They obviously paid a lot of money for it. And of course they could have done, if you ask me, they could have done so much more with it. I think they missed an opportunity to make it really, really big. But I'm not so sad about. I mean, it's like we had a reunion, 20 year reunion since we launched. And it was just great to see people and I'm so proud of what we achieved. One thing, what we did was that we looked at what is the Skype effect, and we looked at how many companies have been started from Skype alumni. And it turned out there's been 900 companies started by Skype alumni, but also the second generation. So that effect is like, that's just direct effect.

[Niklas Zenstrom]

It's amazing.

[Janis Friis]

And the other effect that Skype have had on Europe is that it created this belief among a lot of entrepreneurs that they can build the next Skype?

[Janus Friis]

Yeah.

[Niklas Zenstrom]

When you think about all of these things that happened, right, I mean, you left Teletu on the prompting of Janice, and today you could have been almost 60 and you could have been close to retirement and you get your party at Teletu and whatever, a Swedish telecom, and you'd have your boat and you'd enjoy. You'd have a good life. You probably have a very nice life. And that was one path you could have taken. But you took this path and obviously had massive impact with the things that you helped to found and build. How much of that journey do you attribute to the work, the grind? And how much do you think had to do with just luck and chance?

[Janis Friis]

That's a very good question. Right. The reality is that being at the right pace at the right time is pretty critical. And the reality with starting companies is that there's very, very few companies that are successful. And, you know, the companies I've been part of starting, one became really successful, but no money. One became a big home run and two others, you know, we burnt a lot of money, but that's still pretty good record. That track record is like, amazing, right? It's like, it's not basketball when you have like a, you know, 40% field goal. It's more like soccer, right? It's like you have to take a lot of shots on goal and most of them you're going to miss, but you have to keep shooting. And that's just kind of the statistics of being an entrepreneur.

[Janus Friis]

That's Niklas Zenstrom, co founder of Kazaa and Skype, by the way. Shortly after I interviewed Niklas, Microsoft announced that it would permanently retire Skype and shift its remaining users over to Microsoft Teams. Skype will ring for the last time on May 5, 2025. Hey, thanks so much for listening to.

[Niklas Zenstrom]

The show this week.

[Janus Friis]

Please make sure to click the Follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas and lessons from some of the world's greatest entrepreneurs, please sign up for my [e-mail] or on substack. This episode was produced by Chris Masini, with music composed by Ramtin Arablouei. It was edited edited by Neva Grant, with research help from Kathryn Seifer. Our engineers were Patrick Murray and Jimmy Keeley. Our production staff also includes Alex Chung, J.C. howard, Casey Herman, Iman Ma'ani, Sam Paulson, Kerry Thompson, John Isabella, and Elaine Coates. I'm Guy Raz and you've been listening.

[Niklas Zenstrom]

To How I Built this. If you like How I Built this.

[Guy Raz]

You can listen early and ad free right now by joining Wondery plus in the Wondery app or on Apple Podcasts. Prime members can listen ad free on Amazon Music. Before you go, tell us about yourself by filling out a short [e-mail] survey.

[Unknown]

Scammers are best known for living the high life until they're forced to trade it all in for handcuffs and an orange jumpsuit once they're finally caught. I'm Sachi Kol. And I'm Sarah Hagie and we're the host of Scamfluencers, a weekly podcast from Wondery that takes you along the twists and turns of some of the most infamous scams of all time, the impact on victims, and what's left once a facade falls away. We've covered stories like a Shark Tank certified entrepreneur who left the show with an investment but soon faced mounting bills, an active lawsuit filed by Larry King, and no real product to push. He then began to prey on vulnerable women instead, selling the idea of a future together while stealing from them behind their backs. To the infamous scams of Real Housewives stars like Teresa Giudice, what should have proven to be a major downfall only seemed to solidify her place in the Real Housewives hall of Fame. Follow Scamflancers on the Wondry app or wherever you get your podcasts. You can listen to Scamfluencers early and ad free right now on Wondry Plus.