Microsoft Corp. is signaling the end of the line for Skype, the iconic internet calling and chat service it bought almost 14 years ago.
Once a byword for digital calls that bypassed long-distance charges, Skype was surpassed in recent years by smartphone-native communication apps and Zoom video calls. When Microsoft tried to stretch the Skype brand into the workplace, it lost out to Slack Technologies Inc.
Microsoft’s response was to start from scratch and build Teams, a chat, voice and video communication service for the workplace, which gained ground as part of its software bundle. The Redmond, Washington-based company will offer Skype users the option of migrating to Teams, which is now its strongest rival to Salesforce Inc.-owned Slack, before it shuts down in May.
“I’ve been at Microsoft for over 30 years, and there’s a lot of software that we’ve done that was incredibly valuable in its era, and then the next era came and it was the foundation,” said Jeff Teper, a Microsoft president who oversees communications and collaboration tools.
Microsoft said there were more than 300 million monthly Skype users in 2016, but its daily user count had dwindled to 36 million in 2023. Teams, by comparison, has risen to 320 million monthly users.
Founded in 2003 by Nordic entrepreneurs, Skype at one time was owned by eBay Inc. and was in the hands of a private equity-led consortium when Steve Ballmer came knocking. The then-Microsoft boss made an uncharacteristically splashy bet on the market leader in online calls, paying $8.5 billion, a 40% premium to Skype’s internal valuation. The May 2011 deal was the largest acquisition by Microsoft at the time, and Skype became a key piece of its strategy for the emerging mobile age.
It didn’t pan out as Ballmer would have hoped. Upstarts like Telegram, Snapchat, WeChat and WhatsApp solved problems that Skype didn’t. Microsoft’s center of gravity in corporate software ultimately ensnared Skype, which found itself in the Office division and under orders to build tools geared toward a workplace audience as well as a consumer one.
By the time Slack arrived on the scene, Skype users were complaining that elements of the core experience had started to break down. They cited missed or phantom calls and failures to sync information on different devices. The company worked to improve the service’s reliability, but some loyal users were put off by frequent redesigns, including a short-lived effort to fashion Skype in the mold of Snapchat.
Microsoft, which also saw its acquisition of Nokia Oyj’s mobile phone business end in failure, is far from alone in encountering rejection by a fickle consumer market. Alphabet Inc.’s Google has cycled through several iterations and brands for its online communications tools, which are today known as Chat and Meet. And this month, Amazon.com Inc. said it would be winding down Chime, the video and voice calling service it tried with little success to sell to corporate clients.
The Windows maker is shuttering Skype to focus on developing new features for Teams, including artificial intelligence tools, Teper said. The company is working to infuse AI into its product suite, while keeping a lid on spending that isn’t part of that effort. It’s reassigning staff that had worked on Skype to other areas of the business and will not lay anyone off, Teper added.
At one point, Skype played host to one of Microsoft’s biggest AI demonstrations: a real-time translator. Chief Executive Officer Satya Nadella had nudged researchers to bring the product to market as quickly as possible and heralded it as “magical” in a 2014 demonstration early on in his tenure.
Teams is “going well and this is a step to double down on it,” Teper said, adding that Microsoft wanted to keep Skype running until it was confident that the Teams version for individual users was fully ready. “It’s the most successful product in its category by far,” he said.
My Take: Thank god. ZM might stand to be a major benefactor from this. MSFT already has Teams that serves as a workplace call tool, but Skype has tried to expand into the workplace forum space (like Slack) and has failed. MSFT is citing this more as a doubling-down on Teams rather than admitting ZM has eaten their lunch here.
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