Skype and Kazaa: Niklas Zennström

In the early 2000s, one of the most popular pieces of software in the world was a free peer-to-peer file-sharing network called Kazaa. It was launched by two Scandinavian entrepreneurs, Niklas Zennström and Janus Friis, with the simple idea that internet users should be able to share anything with anyone in the world. After being knee-capped by lawsuits from the music industry, Niklas and Janus applied peer-to-peer technology to a new business: Skype, a service that allowed anyone with an internet connection and a microphone to talk to anyone else in the world… for free. At its peak, Skype connected hundreds of millions of global users, and in 2011, it was purchased by Microsoft for $8.5 billion. This episode was produced by Chris Maccini with music by Ramtin Arablouei. Edited by Neva Grant, with research from Kathryn Sypher. Our engineers were Jimmy Keeley and Patrick Murray. You can follow HIBT on X https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. Sign up for Guy’s free newsletter at guyraz.com http://guyraz.com/. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:46Guy Raz?

  build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.

• 1:32Guy Raz?

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• 2:16Guy Raz?

  on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. If you travel often, you'll want to hear about this unprecedented offer. For the first time ever,

• 3:00Guy Raz?

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• 3:45Guy Raz?

  or bring a guest to the Delta Sky Club. Make every trip feel more rewarding with the car that upgrades your travel. Apply today at delta.com/cardsocial. Offer ends November 4, 2026. Minimum spending requirements and terms apply. Flights are fulfilled as flight certificates valid for Delta Comfort or Delta Maine to select domestic destinations. Book 21-plus days in advance. Up to $80 per person and taxes and fees apply. Other restrictions apply. When I pull up to a gas pump to fill my car, I'm not thinking about chemistry or engineering. I'm thinking about getting in, filling up, and getting on with my day. And it reminds me a little bit of the founders I talked to on this show, because the best

• 4:27Guy Raz?

  ones obsess over things their customers will never see. Tiny details, invisible improvements, relentless iteration. And not because anyone's watching, but because it makes the product better. That's what the mobile brand does. It engineers fuel the same way great founders engineer their products. Mobile Supreme Plus Premium Gas helps keep engines three times cleaner, which can mean better performance and improved gas mileage. It's for people who care about what's under the hood, even if they never see it. Three times cleaner compared to mobile regular gas in port fuel-injected engines. Actual results may vary. Visit mobilefuels.com for details.

• 5:17Guy Raz?

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

• 5:26Speaker 01

  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 directions, and of course, a slip. And you get this thick pile of papers with a lawsuit.

• 5:52Guy Raz?

  This is like a movie.

• 5:53Speaker 01

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

• 6:05Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:17Guy Raz?

  I'm Guy Raz, and on the show today, how a small team of Scandinavian entrepreneurs disrupted two global industries and built two iconic brands, Kazaa and Skype.

• 6:36Guy Raz?

  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 $1 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

• 7:17Guy Raz?

  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. And 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 Nicholas Zentrum and Janis Fries. The first platform they built was called Kazaa, and when it was released in the early 2000s,

• 7:59Guy Raz?

  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.

• 8:19Guy Raz?

  So Nicholas and Janis 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. In fact, just recently, Microsoft announced plans to retire it. But regardless, in their respective moments, both Skype and Kazaa rattled powerful industries

• 9:04Guy Raz?

  and helped upend the top-down hierarchy of the early internet. Nicholas 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.

• 9:27Speaker 01

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

• 9:41Guy Raz?

  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?

• 10:02Speaker 01

  Yeah, like one and a half year. And it was compulsory service. This was also, again, this was in the 80s, where we still had the end of the Cold War. And Russian submarines was routinely doing their exercise in Swedish territorial waters. So it was actually quite exciting to be in the Navy. And it's like, we tried to find Russian submarines, but we were not successful. But I was quite happy afterwards to not to continue.

• 10:30Guy Raz?

  Yeah.

• 10:30Speaker 01

  I was really keen to start studying, so I kind of moved on.

• 10:34Guy Raz?

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

• 10:48Speaker 01

  Yes.

• 10:49Guy Raz?

  And I guess when you graduate, you got a job with a big Swedish conglomerate. And I guess they were trying to start like a new service, like a new telecom service called Tele2.

• 11:01Speaker 01

  Yeah, so the main business was fixed telephony.

• 11:05Guy Raz?

  Right, just a phone line in your house.

• 11:08Speaker 01

  Yeah, but the other side business that they had was data networks, a commercial internet offering. And that was exciting because it 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 a 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 this home PC because it was subsidized and you got your dial-up internet.

• 11:52Guy Raz?

  Right. And 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, they are huge opportunities for people to launch businesses because there's these incentives. And then people, whether it's like today, buying an electric car or there's all these incentives around manufacturing, at least in the US. And it's interesting to think about what was happening in Sweden at the time.

• 12:33Speaker 01

  Yeah, I think it was. I really think that was part of the reason why Sweden is punching above its weight in terms of kind of unicorn companies. Part of that is because a lot of those founders, if you look at Donny Laec, of course,

• 12:48Guy Raz?

  Spotify.

• 12:49Speaker 01

  Yeah, from Spotify, Sebastian Chimkovsky. They were kids when this was happening. So they benefited of having those computers at home and with internet dial-ups, right? So for sure, it was a good thing.

• 13:00Guy Raz?

  It's really, really interesting because you're right. Sweden is this tiny country that has punched above its weight. Okay, so you are at Tele2.

• 13:08Guy Raz?

  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? Because you're a, you're a, you know, sort of a middle manager at Tele2, right? I mean, you are in this big corporation and, but meantime, you must be noticing something happening, particularly in California.

• 13:35Speaker 01

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

• 13:49Guy Raz?

  AltaVista, yeah. Lycos.

• 13:51Speaker 01

  Lycos, exactly. And, 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, why am I an employee? Of course, yes, I had stock options and I had to get a nice career. I was like getting, you know, increased salary. It's like this, you know, I was on a good career path.

• 14:19Guy Raz?

  You're in your early 30s.

• 14:21Speaker 01

  Yes, exactly.

• 14:22Guy Raz?

  Yeah.

• 14:23Speaker 01

  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, to jump ship.

• 14:31Guy Raz?

  Something very fortuitous in your life happens around, around this time. I guess this is in sort of in the mid to late 90s. You're, you're sort of the head of a division at Tele2. And I guess you hired this young guy named Janos Fries to, to run customer support. And he's like 21 at the time. And I guess what, pretty soon you noticed that he was maybe more talented than, than just being like a customer support agent.

• 15:04Speaker 01

  Yeah, and I realized pretty quickly that this guy is an outlier and is brilliant.

• 15:10Guy Raz?

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

• 15:13Speaker 01

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

• 15:21Guy Raz?

  He was a genius.

• 15:22Speaker 01

  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.

• 15:38Guy Raz?

  When did you start to think, hey, maybe this guy, Janus, Yannis, sorry, I'm not pronouncing his name right, I'm going to get a lot of hate mail from Sweden, that he, 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?

• 16:00Speaker 01

  Yeah, I think 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, you know, I don't know if I would be by myself, would I have done this?

• 16:22Guy Raz?

  Let me, let me understand. So you were, you were about 10 years older than Yannis. He's, he's in his early twenties, you're in your early thirties. You were married, I think, at that point already.

• 16:32Speaker 01

  Yeah.

• 16:32Guy Raz?

  And did you have children?

• 16:34Speaker 01

  No, no children.

• 16:35Guy Raz?

  No, no children, yeah, okay. But, you know, you're, you've had a pretty significant leadership position now at this, by this point at Tele2. And just to be clear, he, 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?

• 16:57Speaker 01

  Yeah, yeah, that was perfectly accurate. Like, I definitely needed someone to nudge me and in that direction for sure.

• 17:04Guy Raz?

  I'm just curious, Nicholas, because I don't think 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 were essentially throwing that all away. I mean, did anybody, your dad or your mom or anybody say, this is not a good idea?

• 17:42Speaker 01

  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 I 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 think I really think I'm going to quit my job and start a company. And she was the one then who actually, you know, 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

• 18:27Speaker 01

  you'll figure it out.

• 18:28Guy Raz?

  Yeah.

• 18:28Speaker 01

  But we also had such a great opportunity because she had a good job. We realized we could support ourselves on her salary.

• 18:36Guy Raz?

  Yeah.

• 18:37Speaker 01

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

• 18:41Guy Raz?

  And all right, so, so you guys, I think from what I've read, this is around Christmas 99, early 2000, you and Janus resign from Tel A2.

• 18:51Speaker 01

  Yeah.

• 18:52Guy Raz?

  He moves into your apartment in Amsterdam. It's crazy. Like, it's you and your wife and like this, this like 22 year old, 23 year old guy is moving in and, and you start to brainstorm ideas.

• 19:07Speaker 01

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

• 19:19Guy Raz?

  What were you guys doing at the kitchen table? Like, were you just talking? Were you writing?

• 19:23Speaker 01

  Yeah.

• 19:24Guy Raz?

  Did you have like a whiteboard with a bunch of ideas? Like, what? Tell me what you were doing.

• 19:30Speaker 01

  Gee, it was a long time ago. So what we created, the first, first we kind of thought of like, we're gonna have so many ideas. So we're just gonna do like a, like a studio. And we call that Fast Track. And we're gonna 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 on the price comparison, but also reviews for e-commerce.

• 19:57Guy Raz?

  Consumer products, like today you would go to Wirecutter or something.

• 20:01Speaker 01

  Yeah, something like that.

• 20:02Guy Raz?

  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. 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. When I, 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, in, in 2000, in 99, 2000. And you must have been noticing this. I mean, all of a sudden, overnight, students started to show up to university

• 20:47Guy Raz?

  with a computer and a hard drive, not their CDs anymore, because they could store everything in their computer and shirt. What, what, what did you, what did you guys, were you, were you guys on Napster?

• 20:58Speaker 01

  Yeah, so the kind of 1.0 version of the, of the web was very much still company to consumers. Even like something like Yahoo, there was not a community. It's like, and I thought that the interesting thing with internet, when the end users can be connected. And that's, that's something that you, we felt that was the right thing to do, because it's like, it was kind of bypassing the corporations and, and empowering the end users. That was what we thought was a beautiful thing with internet and, 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. That it actually was, it worked, that you can actually connect and use your own

• 21:41Speaker 01

  computer as an uploading server. That was fascinating, just 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.

• 21:56Guy Raz?

  Which was music, 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.

• 22:12Speaker 01

  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 is a 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.

• 22:43Guy Raz?

  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.

• 22:51Speaker 01

  Exactly.

• 22:52Guy Raz?

  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 Kazaa.

• 23:06Speaker 01

  Yes, exactly.

• 23:07Guy Raz?

  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 Tele2. 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?

• 23:32Speaker 01

  Yeah, they were cheaper, but the reality was, like, they were excellent. And the core three key people

• 23:40Speaker 01

  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 Kazaa.

• 23:51Guy Raz?

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

• 23:58Speaker 01

  No, so we tried to raise money. It was very hard, we failed.

• 24:03Guy Raz?

  Hard to do from Amsterdam in 2000.

• 24:05Speaker 01

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

• 24:11Guy Raz?

  Yes, everybody was freaked out.

• 24:13Speaker 01

  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.

• 24:23Guy Raz?

  Yeah.

• 24:24Speaker 01

  And as you remember, and you mentioned that Napster had started to get a lot of legal problems with the record industry.

• 24:31Guy Raz?

  Right, who would want to be involved in your idea?

• 24:33Speaker 01

  Exactly.

• 24:34Guy Raz?

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

• 24:38Speaker 01

  Completely, so those were things that worked against us, right? So, but of course, we were optimistic. So Janus, we're almost there, we're gonna raise money. And so we, I think, well, the reality was that I used my savings. I had an apartment that had sold, so I think I used some of that to fund us. Some good friends of mine where 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.

• 25:16Guy Raz?

  Yeah, how much money do you altogether, like more than $50,000? $100,000?

• 25:22Speaker 01

  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 am I going to pay the bill?

• 25:37Guy Raz?

  Yeah.

• 25:38Speaker 01

  We also hired like two people in Amsterdam.

• 25:42Speaker 01

  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? You know.

• 26:02Guy Raz?

  It's dinner time, your wife's home.

• 26:04Speaker 01

  Exactly. So that was interesting time.

• 26:07Guy Raz?

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

• 26:11Speaker 01

  Well, our business model was advertisement. So we put in ads, we had banners, you know, in in Kazaa, in the software. And it was something, and that was something that was like controversial at the time. You know, because a lot, 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,

• 26:53Speaker 01

  we just, you know, the advertisement, when it started to to grow with advertisement, just we could sustain ourselves, actually.

• 26:59Guy Raz?

  Yeah. You launched Kazaa in September of 2000. And this is like, you know, back in the Wild West days of the internet, when people would just put things out there and they would generally spread among hardcore users. You know, the 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 I read was that right off the bat, on the page, you asked users not to use it for music.

• 27:40Speaker 01

  Yes. So exactly. So again, things were quite fluid, but 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.

• 28:00Guy Raz?

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

• 28:06Speaker 01

  Yeah, exactly. So RWA were suing Napster and they had to kind of, they had to put some restrictions. So we said, hey, there's an 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 there 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, or you know.

• 28:37Guy Raz?

  Yeah, the rights holders.

• 28:38Speaker 01

  The rights holders organization, say, hey, there's an opportunity here. This 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 pay per play. You can have subscription or advertisement.

• 28:59Guy Raz?

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

• 29:02Speaker 01

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

• 29:16Guy Raz?

  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 US. You guys would fly to the US. You'd meet with all these lawyers and kind of make your case. So you flew out to what, New York or Los Angeles?

• 29:38Speaker 01

  Los Angeles.

• 29:39Guy Raz?

  Okay. So tell me about this trip. This is in, I think this is in 2001.

• 29:42Speaker 01

  Yeah.

• 29:43Guy Raz?

  And by this point, by the way, Kazaa has exploded, right?

• 29:46Speaker 01

  Exploding, exactly, exactly.

• 29:47Guy Raz?

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

• 29:53Speaker 01

  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 because I was the best alternative. So we got more and more users, you know, basically we got all the Napster users and then more, I guess. Which was great because of course, if you're providing a consumer service, who doesn't love users, right? So that's, that's great. But we're also realizing this like they didn't really do what we asked them to do.

• 30:27Guy Raz?

  Yeah.

• 30:27Speaker 01

  They were sharing music.

• 30:29Guy Raz?

  All right, so let's get back to your trip. You come out in June of 2001. The background is Kazaa is the biggest, it's basically taken over for where Napster left off.

• 30:39Speaker 01

  Yeah.

• 30:40Guy Raz?

  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.

• 30:47Speaker 01

  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.

• 31:00Guy Raz?

  Yeah.

• 31:01Speaker 01

  But the follow up from them also was then from the cease and desist letters, right? Basically from the lawyers.

• 31:07Guy Raz?

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

• 31:10Speaker 01

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

• 31:27Guy Raz?

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

• 31:41Speaker 01

  Yes, someone mailed us, I think it was. Somehow we got this email with an internal memo from RIAA, you know, outlining that, you know, I think the title was, you know, Public Enemy Number One. So we didn't, 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.

• 32:03Guy Raz?

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

• 32:05Speaker 01

  Yeah, that's what we thought they would do, right? Or the lawyer thought it's like, it's possible. For us, this was interesting because we were like, wow, this is like a Gresham book, kind of.

• 32:14Guy Raz?

  Yeah.

• 32:15Speaker 01

  Not as dangerous, but the thrill was there for sure.

• 32:20Speaker 01

  So we didn't show up ourselves to the meeting. So our lawyer, he says, I can produce 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.

• 32:41Guy Raz?

  Yeah.

• 32:41Speaker 01

  So for us, it was all about not being served while we were there.

• 32:45Guy Raz?

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

• 32:51Speaker 01

  Exactly. So we, it's like, so then 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 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.

• 33:35Guy Raz?

  Wow. All right. So you guys basically head back and now you are finding yourself in a position that Napster had found itself and you are just saddled with lawsuits. They eventually also are going to file suits against you in Europe.

• 33:53Guy Raz?

  And meantime, you've getting millions of downloads per week. It becomes like one of the world's most popular pieces of software, but from what I understand, you had no revenue, you had no money. 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, when you had no real money coming in?

• 34:19Speaker 01

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

• 34:30Guy Raz?

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

• 34:33Speaker 01

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

• 34:42Guy Raz?

  Yeah.

• 34:43Speaker 01

  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 that 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.

• 35:15Guy Raz?

  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. Stay with us. I'm Guy Raz and you're listening to How I Built This.

• 35:38Guy Raz?

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• 36:22Guy Raz?

  and people bring taste, judgment and control. Learn how you can get more out of your site from a Framer specialist or get started building for free today at framer.com/built for 30% off a Framer Pro annual plan. That's framer.com/built. Rules and restrictions may apply. AI isn't just opening new business opportunities, it's changing the way businesses get work done. The questions they ask, the decisions they make, the routine tasks they can hand off. That's the idea behind NetSuite Next, the next generation of NetSuite with AI woven into the tools your business already relies on. NetSuite Next surfaces insights

• 37:07Guy Raz?

  exactly when you need them, puts agents to work on routine tasks and problems, and lets you ask complex questions in plain language, like talking to a knowledgeable colleague. But technology is only part of the story. AI is also reshaping how people and teams work together, and that shift is already underway. That's why NetSuite wants to put a new expert-created business guide in your hands today. It's called Aligning for the Agentic Era: How AI is Changing Everyday Work. And right now, it's yours, absolutely free. Inside, you'll discover how AI could reshape work across your entire organization, and how to position your business to prosper from it.

• 37:50Guy Raz?

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• 38:09Speaker 02

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• 39:16Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. 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.

• 39:31Speaker 01

  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, just proving a point. And, and we realized that we have such conviction in peer-to-peer. So at some point, we decided, you know what? Let's just, you know, move to the next chapter with peer-to-peer.

• 39:53Guy Raz?

  Let's sell this thing.

• 39:55Speaker 01

  That's exactly it.

• 39:56Guy Raz?

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

• 40:10Speaker 01

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

• 40:19Guy Raz?

  Right. So you got, so basically you sell Kazaa, but, but the technology, the peer-to-peer technology, which is called Fast Track, right?

• 40:26Speaker 01

  Yes, exactly.

• 40:27Guy Raz?

  You keep that as your own property.

• 40:30Speaker 01

  Yes.

• 40:30Guy Raz?

  But it's amazing. I mean, it's just, it's, you know, 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. So it was a, and, and now the idea, I'm imagining, also the idea behind selling it was you thought, well, maybe these lawsuits will go away.

• 40:51Speaker 01

  Yeah. So, so this, of course, become a problem, you know, because of the other side, RWA, MPA. They said, well, these guys now they're trying to do a maneuver to get away from this.

• 41:03Guy Raz?

  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 we'll get, I'll come back to that because that, that, that features later. But you guys sell this thing, right, for very little. And, but, but it seems like you already, you and, you and Janus, I keep saying Yanus and Janus, and I'm sorry, Janus, if you're listening.

• 41:27Speaker 01

  I think it either works, yeah.

• 41:29Guy Raz?

  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?

• 41:39Speaker 01

  Yeah.

• 41:40Guy Raz?

  I mean, I guess at this point, you were in, you're still in Amsterdam.

• 41:44Speaker 01

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

• 41:55Guy Raz?

  Okay, so you were distributed, and I guess you're calling each other all the time.

• 42:01Speaker 01

  Yeah.

• 42:01Guy Raz?

  Because you've got to communicate over the phone, and that, that sparks an idea. Tell me, tell me about, about how it sparks an idea.

• 42:11Speaker 01

  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 Tele2, one project that we were doing back in, I guess, 99, was trialing voice over IP.

• 42:33Guy Raz?

  VOIP, Voice Over Internet Protocol, these, I remember, there were all these phone companies that are starting in the early 2000s.

• 42:39Speaker 01

  Yes.

• 42:39Guy Raz?

  You could get VOIP.

• 42:40Speaker 01

  Yeah.

• 42:41Guy Raz?

  And it sucked.

• 42:42Speaker 01

  It's really, really sucked. So the conclusion back in, like 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, the other kind of enabling technology trend was broadband. You know, we started to have broadband at home through your cable TV or whatever. So surely, we can use voice over IP now. So I asked one of our engineers, hey, why don't we set up voice over IP so we can use that between ourselves?

• 43:17Guy Raz?

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

• 43:21Speaker 01

  Completely, 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 when whether you're roaming or not is kind of the same.

• 44:06Guy Raz?

  Right.

• 44:07Speaker 01

  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.

• 44:20Guy Raz?

  Yeah.

• 44:20Speaker 01

  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?

• 44:29Guy Raz?

  Palm Pilots and?

• 44:31Speaker 01

  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, you know, free internet telephony.

• 45:03Guy Raz?

  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 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.

• 45:23Speaker 01

  Completely.

• 45:24Guy Raz?

  What I'm curious about, I mean, this, this is now 2002. You're digging into a very complex question because it's not yet. What it would become, which of course was Skype, was not yet. It wasn't fully formed how it would be used. Like 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 I, from what I've read, it was quite hard for you to find anybody. Willing to finance this.

• 46:06Speaker 01

  Yes. So we, we were, we thought like we, we had this amazing business, what we called Skype, because it was peer to peer in the sky, right? On the wifi.

• 46:17Guy Raz?

  Peer to peer in the sky. Skype.

• 46:19Speaker 01

  Yeah, exactly. That was it. And, and, but it needed all these different stages. And we got Bill Draper to invest.

• 46:28Guy Raz?

  Bill Draper, kind of a legendary investor.

• 46:31Speaker 01

  Yeah. So, so Bill Draper is like, you know, he's one of the, I guess, first generation of Silicon Valley venture capitalists.

• 46:38Guy Raz?

  Yeah.

• 46:39Speaker 01

  And he had someone working for him, Howard Hartenbaum, out of Luxembourg, to basically do like early stage investments. And Howard was like, um, 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.

• 47:05Guy Raz?

  Oh, like this is lawyers again, playing dirty tricks. So like, still trying to pin you down for the, the Kazaa lawsuits.

• 47:11Speaker 01

  Yeah. 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.

• 47:23Guy Raz?

  Jumping at it.

• 47:24Speaker 01

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

• 48:01Guy Raz?

  Yeah. All right. So you've got, so you start, you got a little bit of cash to start building this thing.

• 48:07Speaker 01

  Yeah.

• 48:07Guy Raz?

  And. This is going to take longer than than building the the technology for CASA. It's more it was it's interesting because CASA sounds very complicated. I mean, sharing files, but actually, it turns out that trying to to transfer voice in real time over the Internet is quite challenging. This is not an easy thing to do. And and just out of curiosity, I mean, was $250,000 enough money to develop this thing?

• 48:35Speaker 01

  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.

• 48:51Guy Raz?

  I I saw that development actually came to a halt at a certain point in the summer of 2003.

• 48:56Speaker 01

  Yes.

• 48:57Guy Raz?

  It just stopped because you couldn't pay the Estonian developers. How did you I mean, as you 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 to to see if you could get money?

• 49:12Speaker 01

  Yeah, so we 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, they're 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 as a mode. So you kind of was really smart to invest in, say, a German copycat of eBay, because eBay would probably buy them.

• 49:51Guy Raz?

  Right.

• 49:52Speaker 01

  Or or Nordic version of of Amazon. That was the model, pretty much. And we had this like 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, you know, pending litigations of billions of dollars. So you can understand that not like a VC would not want to invest.

• 50:18Guy Raz?

  Yeah.

• 50:19Speaker 01

  Every month was about scraping money, but it's also made us super lean, right? We did not grow the organizations. We realized we could just get things done with very few people.

• 50:31Guy Raz?

  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 29th, 2003. By this point, when you, when you release a beta version, the original idea was let's put this on like these, these personal devices, these like Palm Pilot type devices. But by, by the time you released it, that, that was out the window.

• 50:58Speaker 01

  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.

• 51:14Guy Raz?

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

• 51:16Speaker 01

  And 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?

• 51:25Guy Raz?

  Yeah.

• 51:26Speaker 01

  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, it cannot make a call. And another thing we didn't know, will people really want to sit in front of the computer to have a phone call? Because, you know, otherwise, you know, people probably had a cordless telephone for their 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 they started, but you're sitting in front of your 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,

• 52:11Speaker 01

  you know, 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.

• 52:23Guy Raz?

  And what made this so kind of perfect in a lot of ways was the, 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, they also had to download it. Once both of you downloaded it for free, you could just talk.

• 52:40Speaker 01

  100%. That, 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.

• 52:58Guy Raz?

  And just to kind of clarify, I mean, this was free. I mean, this is the second business you create where the product is, 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.

• 53:20Speaker 01

  Yeah, so, you know, one thing we figure out, we're not the only one to figure that one out, if you want to have like a viral consumer online service, you should make, take away all frictions for people to use it, right? Make it free.

• 53:32Guy Raz?

  Yeah.

• 53:33Speaker 01

  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.

• 53:52Guy Raz?

  A premium offer eventually.

• 53:54Speaker 01

  Exactly. And that we thought, we launched that later on, but first we need to get a 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 telephone number.

• 54:20Guy Raz?

  That was not a Skype number.

• 54:22Speaker 01

  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 in San Francisco and you have relatives in Australia.

• 54:44Guy Raz?

  Yep.

• 54:44Speaker 01

  That's a pretty expensive phone call. But for your Australian relative to make a phone call to their neighbor in Sydney is a, you know, pretty cheap phone call, because it's local rate.

• 54:56Guy Raz?

  Yeah.

• 54:57Speaker 01

  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.

• 55:13Guy Raz?

  Yeah.

• 55:14Speaker 01

  We thought that was a pretty disruptive offering in the world of telecommunications.

• 55:19Guy Raz?

  All right, so you launch it in August of 2003, soft launch, really launches in like September of 2003. By April 2005, you've got 100 million downloads of this thing. So this is, 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 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.

• 55:58Guy Raz?

  But I still have to think that even then, even as you got 100 million downloads in April 2005, you're not a profitable business.

• 56:09Speaker 01

  We raised money. So this time, you know, so 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.

• 56:26Guy Raz?

  Now people are saying, oh, okay, yes, now I want to talk. Yeah.

• 56:29Speaker 01

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

• 56:40Guy Raz?

  I think almost $20 million in March of 2004.

• 56:43Speaker 01

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

• 56:53Guy Raz?

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

• 56:56Speaker 01

  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.

• 57:06Guy Raz?

  Yeah.

• 57:06Speaker 01

  And the beautiful thing with this was that it was prepaid. So you, when you're buying those Skype out credits, you uploaded $10, $20, whatever you wanted. And you had your credits that you could use to make calls.

• 57:21Guy Raz?

  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.

• 57:28Speaker 01

  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 twenty million that we raised in a series B, we didn't really have to touch it that much, actually.

• 57:48Guy Raz?

  All right, so you have, you've got, this thing is, is growing, there's a lot of excitement around it. Meantime, you do get served with papers from this previous lawsuit, the Kazaa lawsuit, like somebody finds you, I guess you were in London.

• 58:04Speaker 01

  Yeah.

• 58:05Guy Raz?

  And, and, and like you step outside and there's like a bunch of like servers waiting to serve you papers.

• 58:14Speaker 01

  Yeah, so that was, so we moved to London because we thought launching a global online company, internet company from, 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, you know, stepping out the door, you know, talking to each other as you usually do. And then someone comes up and calls my name and I kind of like figure out, you know, 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 trying, you know, working

• 58:59Speaker 01

  very hard and not exercising.

• 59:01Guy Raz?

  Eating pizza.

• 59:02Speaker 01

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

• 59:13Guy Raz?

  Wow, this is like a movie.

• 59:14Speaker 01

  Yes, so I tried to kind of, you know, I tried to change direction and of course I slipped. 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, 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.

• 59:54Guy Raz?

  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. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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• 1:00:55Guy Raz?

  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. 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, were you getting nervous at all?

• 1:01:36Speaker 01

  Yeah, so we, you know, if you remember in the time, 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.

• 1:01:51Guy Raz?

  All text messaging.

• 1:01:52Speaker 01

  All text messaging.

• 1:01:53Guy Raz?

  Yeah.

• 1:01:54Speaker 01

  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 said, okay, what are you doing? Maybe we can do something together.

• 1:02:17Guy Raz?

  Yeah.

• 1:02:17Speaker 01

  Um. 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.

• 1:02:31Speaker 01

  So we said, 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.

• 1:02:48Guy Raz?

  Ah, so you're a white label. You will do like a white label for you.

• 1:02:51Speaker 01

  A white label, yes.

• 1:02:52Guy Raz?

  Smart, okay.

• 1:02:53Speaker 01

  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 like 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, i.e. to acquire us.

• 1:03:30Guy Raz?

  Buying you.

• 1:03:31Speaker 01

  Yes. Now, we started this company not to be acquired because with Casar, 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 want to do.

• 1:03:54Guy Raz?

  So you've basically all of these suitors coming in. I mean, what an amazing position to be in, right? Because the more people want to talk to you, the higher the price goes. And then in addition to AOL and Microsoft and Google.

• 1:04:10Guy Raz?

  You get contacted by eBay as well. So I mean, a lot of heavy hitters interested in you at this point.

• 1:04:17Speaker 01

  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 growth 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 earn out.

• 1:04:58Guy Raz?

  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 for, for, from eBay's perspective, but they're going to pay a lot. I mean, it was going to be up, I mean, with all the incentives, they're paying over $3 billion for this thing that you just launched two years before.

• 1:05:20Speaker 01

  Yeah, it's, it's, it was unreal, you know, be clear, it was unreal. And you have to put this in a context of 2005, right? It's like, there was a few years post dot com crash. The largest internet M and A before us was PayPal to eBay, right? 1.5 billion.

• 1:05:41Guy Raz?

  Right.

• 1:05:42Speaker 01

  And so this was like 2X.

• 1:05:44Guy Raz?

  It's amazing.

• 1:05:45Speaker 01

  And then you had.

• 1:05:46Guy Raz?

  It's amazing.

• 1:05:47Speaker 01

  YouTube, YouTube was also 1.6 billion or something like that, also the same year with Google. So this was the largest.

• 1:05:56Guy Raz?

  Acquisition.

• 1:05:57Speaker 01

  Acquisition, online acquisition post.com of an internet company globally.

• 1:06:03Guy Raz?

  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.

• 1:06:20Speaker 01

  Yeah, no, no, it was certainly a life-changing event, not only for us, but also for a lot of our team, right, who had options.

• 1:06:29Guy Raz?

  A bunch of these Estonian programmers had options.

• 1:06:33Speaker 01

  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.

• 1:06:50Guy Raz?

  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 Kazaa, 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?

• 1:07:22Speaker 01

  Yeah. So in parallel, when we were negotiating with eBay, we worked with another set of lawyers trying to settle with suitors with MPA and RIA 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, but 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 a hard thing to do, because to get that problem to walk away was pretty nice.

• 1:08:00Guy Raz?

  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 gonna be, I guess, the best parallel is to today is it was gonna be like Hulu, what Hulu became, which was a, you know, video platform for, well, for watching content.

• 1:08:36Speaker 01

  Yeah, I think we had this vision that you could use this peer-to-peer for so many different things.

• 1:08:43Guy Raz?

  Right.

• 1:08:43Speaker 01

  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 you're a 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.

• 1:09:12Guy Raz?

  Yeah. That company Juiced eventually would not, it wouldn't work out.

• 1:09:18Speaker 01

  No.

• 1:09:19Guy Raz?

  And it makes sense now because your whole, the whole concept begins with this peer-to-peer platform. It makes sense that you're gonna try and come up with all these different ways to use it, right? You start with Kazaa, then you go to Skype, then you go to Juiced. Now, in 2008, concurrently when Juiced was being built, you and Janice create a company called RDIO, Ardio.

• 1:09:43Speaker 01

  Ardio.

• 1:09:44Guy Raz?

  Which, which essentially is the first version of what Spotify would become. This was gonna be a streaming music service.

• 1:09:52Speaker 01

  Yeah.

• 1:09:53Guy Raz?

  Tell me why, I mean, look, again, you've had massive success and you've had a huge impact on, on our culture globally, but why do you think Ardio didn't work? Because it came out before Spotify started.

• 1:10:07Speaker 01

  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 Kazaa and Skype that we didn't want to pay for user acquisition and like that should just be viral. There was not, there was really little virality in it. So that was one of the issues. So I think Spotify, you know, they paid for users.

• 1:10:47Guy Raz?

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

• 1:10:51Speaker 01

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

• 1:11:21Guy Raz?

  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, you know, they, they kind of wrote it down because they, it was not a successful product for them. Skype was not, and they decided to sell it for, I guess they, they sold it for, 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, but I think, I think you guys got a 14% stake in this new, in Skype.

• 1:12:04Guy Raz?

  I guess you essentially were able to get equity in Skype that you had already sold for, you know, essentially a fraction of the cost.

• 1:12:14Speaker 01

  Yeah.

• 1:12:14Guy Raz?

  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.

• 1:12:27Speaker 01

  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, to just hire a lot of people, becoming too much of a corporate culture. So we thought this company under private ownership and you've refocused it has a huge potential.

• 1:12:50Guy Raz?

  Yeah.

• 1:12:50Speaker 01

  So that's what we kind of got back into it.

• 1:12:54Guy Raz?

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

• 1:13:03Speaker 01

  Yeah, so Microsoft came along and makes an offer that, you know, the investors took on for eight and a half billion.

• 1:13:13Guy Raz?

  For 8.5 billion. So not only does eBay do great, but all the investors, I mean, 18 months later.

• 1:13:21Speaker 01

  Yeah.

• 1:13:22Guy Raz?

  Have a massive return. Your 14% stake was probably comparable to the original sale that you had when it was 3 billion.

• 1:13:31Speaker 01

  Yeah, completely.

• 1:13:33Guy Raz?

  It's amazing. So now you are out of the business. You know, you really, I think, after that period of time, were focused primarily on being a VC.

• 1:13:48Guy Raz?

  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 focus on being investors?

• 1:14:01Speaker 01

  Yeah, so I think for me, there was a need for better investors in Europe.

• 1:14:09Guy Raz?

  Yeah.

• 1:14:10Speaker 01

  You know, back then, you're talking about 2002 to 2007, whatever, that time period.

• 1:14:18Speaker 01

  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.

• 1:14:25Guy Raz?

  Yeah.

• 1:14:25Speaker 01

  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 Atomica was built with a mission to disrupt the monopoly of Silicon Valley.

• 1:14:59Guy Raz?

  Hmm. 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, how they, how they're, what they've done with this thing that you built?

• 1:15:27Speaker 01

  The first time, when we sold Skype, I was so emotionally attached to it. You know, to the extent that was part of buying it back, right? When Microsoft acquired it, I did not have that emotional attachment because I've moved on.

• 1:15:42Guy Raz?

  Yeah.

• 1:15:43Speaker 01

  You know, 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. You know, they, they, they kind of, I think they missed an opportunity to, to make it really, really big. But I'm not, 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 alumnis? And it turned out there's been 900 companies started by

• 1:16:22Guy Raz?

  Wow.

• 1:16:23Speaker 01

  Skype alumnis, but also the second generation. So, so that effect is like, that's just the direct effect.

• 1:16:28Guy Raz?

  It's amazing.

• 1:16:29Speaker 01

  So, 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.

• 1:16:38Guy Raz?

  Yeah. When you think about all of these things that happened, right? I mean, you left Tele2 on the prompting of Janus. You could have, you know, today, you could have been almost 60 and you could have been close to retirement and you'd get your party at Tele2 and you'd, you know, you're whatever, 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?

• 1:17:22Guy Raz?

  And how much do you think had to do with just luck and chance?

• 1:17:25Speaker 01

  You know, that's a very good question, right? The reality is that being at the right pace at the right time is pretty critical. And, you know, 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 to others, you know, we burnt a lot of money, but that's still-

• 1:17:52Guy Raz?

  Pretty good record.

• 1:17:53Speaker 01

  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.

• 1:18:15Guy Raz?

  That's Niklas Zentrum, 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 5th, 2025.

• 1:18:37Guy Raz?

  Hey, thanks so much for listening to the show this week. 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 newsletter at guyraz.com or on Substack. This episode was produced by Chris Messina with music composed by Ramtin Arablouei. It was edited by Neva Grant with research help from Catherine Seifer. Our engineers were Patrick Murray and Jimmy Keely. Our production staff also includes Alex Chung, J.C. Howard, Casey Herman, Iman Maani, Sam Paulson, Kerry Thompson, John Isabella, and Elaine Coats. I'm Guy Raz, and you've been listening to How I Built This.