“I don’t care about Skype!” millionaire Jaan Tallinn tells me, taking off his blue sunglasses and finding a seat at a cozy open-air restaurant in the old town of Tallinn, Estonia. “The technology is 10 years old—that’s an eternity when it comes to the Internet Age. Besides, I have more important things going on now.”
Tallinn has five children, and he calls Skype his sixth. So why does he no longer care about his creation?
On August 29, 2003, Skype went live for the first time. By 2012, according to Telegeography, Skype accounted for a whopping 167 billion minutes of cross-border voice and video calling in a year—which itself was a stunning 44 percent growth over 2011. That increase in minutes was “more than twice that achieved by all international carriers in the world, combined.” That is to say, Skype today poses a serious threat to the largest telcos on the planet. It also made Jaan Tallinn and other early Skypers rich.
But something changed along the way. Skype is no longer the upstart that refused to put signs on its offices, that dodged international lawyers, and that kept a kiddie pool in the boardroom. This is the real story of how a global brand truly began, told in more detail than ever before by those who launched it.
In the year 2000…
In 2000, as dot-com fever swept America, an entertainment and news portal called Everyday.com brought together a sextet of European revolutionaries.
It began with two people from the Swedish telecom Tele2 — a Swede named Niklas Zennström and a Dane named Janus Friis. Zennström was Tele2 employee no. 23; Friis worked his way up in customer service for a Danish operator.
The Swedish owner of Tele2, Jan Stenbeck, was determined to launch the Everyday portal and launch it quickly. As the Swedes were having trouble, Stefan Öberg, the Marketing Director in Tele2’s Estonian office, proposed finding some Estonians for the job. In May 1999, Tele2 published an ad in a daily newspaper calling for competent programmers and offering the hefty sum of 5,000 Estonian kroons (about $330) a day — more than an average Estonian earned in a month at the time.
The work went to Jaan Tallinn, Ahti Heinla, and Priit Kasesalu — Estonian schoolmates and tech fans. They had been into Fidonet, a computer network which preceded the Internet, since the Soviet era. They started a small company, Bluemoon, which made computer games such as Kosmonaut. (In 1989, Kosmonaut became the first Estonian game to be sold abroad.) The game earned its creators $5,000 dollars, which at the time was a large sum for any Estonian. But by the turn of the century, the three friends were down to their last penny and Bluemoon was facing bankruptcy.
Short of money, they applied for and got the Tele2 job. The PHP programming language needed for the work was new to them, but the team learned it in a weekend and completed their test assignment much faster than Tele2 requested.
The last of the Skype sextet, Toivo Annus, was hired in Tallinn to manage the development of Everyday.com. The site would soon be complete, with Zennström and Friis working in Luxembourg and Amsterdam, and Annus and the Bluemoon trio working from Tallinn.
Tele2 was thrilled with the Estonians, but the Everyday.com portal failed commercially. Zennström and Friis left Tele2 and lived in Amsterdam for a while. The homeless Friis stayed in Zennström’s guest room, and they turned the kitchen into a temporary office.
Together, Zennström and Friis pored over new business ideas. As the U.S. was fascinated at the time with the scandal surrounding Napster, Zennström and Friis planned something similar. But where Napster infuriated the music and movie industries, Zennström and Friis hoped to cooperate with them. They didn’t have the slightest doubt about where their new product should be created — in Tallinn, obviously. Kazaa was born.
Kazaa’s P2P file-sharing program allowed files to be transferred directly from one computer to another without an intermediary server, thus solving one of Napster’s problems. Jaan Tallinn developed the program in a nine-floor, Soviet-style brick building on Sõpruse Puiestee in the Tallinn suburb of Mustamäe. The apartment was actually Jaan Tallinn’s home, and at the time, Tallinn was a work-at-home dad. (He only sold the apartment in 2012 and told me that he contemplated attaching a memorial plaque to the wall stating, “Kazaa was created here.”)
Kazaa, ready for service in September 2000, swiftly became the most downloaded program on the Internet. The service picked up users at the rate of one per second. Heinla, Tallinn, and Kasesalu were sipping fine wine in their headquarters and thinking, “So this is what it feels like to have half of the world’s Internet traffic go through your software.”
But on the business side, Zennström and Friis failed to seal a deal with US film and music companies. Kazaa was sued for enabling piracy. “Stolen” music, films, and pornography were being distributed via the application, and the Kazaa owners soon found themselves hiding from an army of ferocious U.S. lawyers.
Zennström repeatedly dodged court summons. One time, he went to see a play at a Stockholm theater and was approached by a stranger. The individual handed Zennström’s wife a bunch of flowers and held out an envelope containing a summons for Zennström. The Swede made a run for it; the summons failed to be duly delivered. He was similarly pursued in London, this time by a motorcycle, but service again failed.
When Zennström went to Tallinn for visits with his team, he did so by ferry as he was too scared to fly (by now he’s clearly gotten over this, as he owns a private jet and all). And once there, he remained nervous about visitors. “When someone came in through the door and we weren’t certain who it was, Niklas would hide under the table,” an Estonian coworker reminisced.
The Bluemoon boys began encrypting all of their correspondence and their hard drives. E-mails were not stored for longer than six months. No one wanted to know more than they absolutely needed to know. Zennström changed his phone number as often as he changed his socks.
Charges were never pressed against the coders Heinla, Tallinn, and Kasesalu, but they were involved in the Kazaa proceedings as “an important source of information.” A California court requested that the men be questioned and that business secrets concerning Kazaa be confiscated. At first the Estonian government rejected the request, but after a second appeal, the trio was interrogated in the presence of US lawyers.
For the Estonians, the Kazaa proceedings were like playing with fire—a little dangerous but still exciting—and their names began to pop up in the international press.
Afraid of being arrested, Zennström and Friis avoided flying to the US for several years, even though Kazaa had been promptly sold (at least on paper) to Australian businessmen, and its headquarters had been moved to the island nation of Vanuatu. The duo failed to make peace with the US for several years, and their ultimate redemption cost Friis and Zennström big money. The two eventually contributed to a more than $100 million payout for the music and movie industries.