Mr. Skype

The head of the most successful telephony service via Internet says that the new target of the “digital tsunami” is television

Tania Menai

Swedish Niklas Zennström, 40, married, an engineer specialized in business administration, doesn’t have a landline at home. Actually, he doesn’t need it. He is the co-founder and CEO of Skype, a company that allows free calls and videoconferencing among computers anywhere in the world – as long as there is a broadband connection. Created in 2003, Skype’s services are available in 28 languages for an increasing number of 171 million users globally. Skype calls represent almost 5% of the calls made worldwide, but the company is growing more than any other telecommunications company. Over the last three months last year, 35 million users were added. In October 2005, the company was purchased by eBay, the American online auction leader, for US$ 2,6 billion. Zennström has continued as CEO. Now, the new wager of Zennström and his team is being tested: Joost, a TV program transmission service via Internet. He gave this interview to VEJA on a videoconference, from his office located in London.

Veja – If you and I are talking for free at this moment, how does Skype make money?
Zennström – Using Skype is free for calls like ours now, from computer to computer. More than 171 million people worldwide are already talking for free from their computers, through our services. This is the basics. A great number of people choose services like SkypeOut – which allows calls from computers to landline phones. Many of them use SkypeIn as well, which offers the inverse operation. In other words, we offer a landline number to the user and, when someone calls this number, the user answers on his computer at home or laptop. That’s where we make money.

Veja – In Brazil, the costs of mobile and wire line telephony are still high, if compared to the US. Additionally, Brazil has almost 6 million broadband connections. This is an attractive scenario for services such as Skype, isn’t’ it?
Zennström –Brazil is one of our five largest markets in terms of users. One of the reasons is really the high cost of telephony in the country. In the US or in some European countries, where it is much cheaper to make calls, there is also a great number of people connected to broadband, but the current costs certainly make Brazil an ideal market. Brazilians who have broadband can make calls at a cost close to zero. In mid-March, we will initiate the SkypeIn and SkypeOut services in Brazil, which will be available for purchase with local credit cards. Until then, Brazilians had difficulties to use these services, as only internationals cards were accepted.

Veja – Does Skype represent a serious threat to the survival of telephony companies?
Zennström – There is no doubt that we are a hurdle to the revenue increase of telecom companies, especially when it comes to telephony. On the other hand, however, our success helps them to sell more Internet connections. Therefore, while they may lose at one side, they will benefit at the other.

Veja – In January last year, you were at the World Economic Forum in Davos, Switzerland. What was said about telecommunications there?
Zennström – I met several companies’ presidents, including Cisco (the leader in the Internet transmission infrastructure market) and Motorola (manufacturer of connection equipment and telephony). The leaders of the industry, of all sectors, are always looking at the changes brought by voice communication over the Internet. A common view amongst the participants is that, soon, not only voice, but also teleconferences, domestic videos and commercials, TV shows and Hollywood movies will reach homes through the Internet as well.

Veja – When it comes to the impact on the business world, was it what you expected?
Zennström – We know that 30% of our users are small companies. International companies dealing with imports and exports are the most benefited by these services. A famous architecture office here in London began to use Skype and did a lot of publicity about the company’s savings with telephony. However, the advantage is not only in terms of savings, since Skype makes possible that several people talk simultaneously, seeing each other by using webcams.

Veja – A new service currently under test, Joost, will offer TV via Internet and will also allow people to interact about what they are watching. Do you believe that soon Joost will be as familiar as Google, Skype, Wikipedia and YouTube are today?
Zennström –Joost has the potential to change the way we watch TV. It unites the best of television with the best of the Internet. I mean, television knows how to produce content, and the Internet is the best way to distribute it. Television continues producing new and great programs, but it does not renew its distribution way at all. Joost allows viewers to watch their favourite programs, when they want. The fact that they are connected to other people who watch the same programs also has its potential of attractiveness. It’s a different idea compared to YouTube, which offers professional and homemade clips. Joost offers complete long-term programs, produced by TV broadcasters with whom we have agreements.

Veja – In your opinion, what else is changing on television?
Zennström – There will be a formidable impact with the proliferation of high-quality and affordable digital cameras (at around 1,000 euros) on the hands of millions of people. Today, anyone can, in theory, produce quality or interesting content. On the other end, the changes are also predictable. Any new computer screen currently has enough resolution to reproduce TV images. The idea that a TV set is necessary to watch TV is obsolete.

Veja – The dorms at US universities represent very well these trends. Research shows that the number of computers surpasses the number of TVs...
Zennström – Certainly, TV shows will be more and more watched on computers, just as we are already using computers as telephones. People who don’t have a lot of money can spend it very well, buying a quality laptop. Somehow it has replaced the stereo, TV and telephone. Of course, as long as there is a broadband connection.

Veja – Many people begin to see more disadvantages than advantages in this concentration of functions in a single device, don’t they?
Zennström – There are several pitfalls. The most common is convergence, when you have everything in a single device. The classic example is a very tiny handset with digital camera, which you can also use for listening to music. On the other hand, you have very clean devices such as iPod, which is made only for listening to music or watching videos. I think most devices trying to offer several functions end up compromising the quality of each one of them. I think it’s best to have a device for each function.

Veja – A person who uses Skype from a mobile phone browser with Internet capability is making a phone call or “skyping”?
Zennström – This situation you are referring to is already possible. It shows that telephone may soon loose its main purpose. We have already launched partnerships in Europe with mobile telephony companies, in which we offer Skype installed in handsets. Many people already use the "skypephones", which allow them to make calls from any environment with public or private wireless network. I believe that more and more people will use Skype on "skypephones" and mobile phones, and less on their computers.

Veja – Europeans have always been late when it comes to the innovation created by the Internet. Is this changing?
Zennström – Companies and entrepreneurs are less and less concerned about nationalities, but more focused in doing business with interesting countries. Europe is very focused on innovation and there are things coming from European brains. The Americans, however, have an obvious advantage: they are "the" consumer market of products and also the most avid buyers of companies. Today, I try to see the world as a market – it’s fundamental to keep your eyes open to those growing fast. Brazil is one of these markets. We have to observe countries such as India and China, instead of just keeping our eyes on Europe and the United States.

Veja – Only a few Western companies are successful in Asia. What is Skype’s strategy?
Zennström – One of the keys to be successful in that region is to understand each country separately. Japan is different from China, which is different from South Korea. It’s very important to have local partners who understand well the reality of each of the markets.

Veja – How is it to do business in China, where the government still tries to ban the access to Internet websites and control the press?
Zennström – Our mission is to allow conversations which would never happen in other circumstances. But as a company, we don’t look at China in a different way – we operate there just as we do in any other country. And we have been quite successful, without any problems with the local government.

Veja – How has the success of Skype affected traditional telephony companies?
Zennström – Many of these companies started to offer much more interesting packages for consumers, increasing the choices available. In the end, consumers are benefited by a richer and more competitive market.

Veja – Everyday, some visionary or even a daily’s owner – like Arthur Ochs Sulzberger Jr., from The New York Times – predicts the end of print press. What’s your opinion on this?
Zennström – I receive information from several sources, including dailies, blogger communities, news websites, magazines... This is essential if I want to have a wide perspective about what’s going on in the market and the world. I need to have an extensive vision of what consumers are thinking, saying, doing... The more choices I have, the better... That’s how I see it.

Veja –Skype has 150 programmers, and most of them are less than 28 years-old. Do you think that the success in the digital world is a privilege of youth?
Zennström – Youth has a special enthusiasm, indeed. But the biggest advantage is to let people do what they like doing. Those who work at Skype use the service and like it. We use our own product to work. They are proud of creating a product which affects the lives of millions of people – and they feel rewarded by that. Retaining human resources like this, focusing on work execution and giving them freedom, works much better for us than traditional hierarchies.

Veja – What does it mean to you the fact that you have founded a company whose name has already become a verb – at least in English –,"to skype"?
Zennström – A year ago, the verb has also been included in a dictionary in Austria. This is something to be proud of. It’s brilliant. At first, we created the name "skyper", with an "r" – but then we took the "r" out because the word is clearer with it, and it sounds better. This name doesn’t mean anything. It is just a short name and it works very well in several languages.

Veja –Jetsons was a cartoon about the life in the future. The family used videoconferencing to communicate. Did your inspiration come from that?
Zennström – I didn’t watch a lot of TV when I was a child, I was more into the Rolling Stones, the Ramones and even Mozart. Music has been a great source of inspiration for me.

Veja – How many landlines do you have at home?
Zennström – None. I use Skype on computer and mobile phones. And that’s all.

Veja – Just out of curiosity, why can’t Skype users call emergency numbers?
Zennström – There is a series of reasons, but the main reason is because, on Skype, the user is identified only by his/her name, and not by the address where he/she is located. This would not work for fireman or the police, who need to know where you are.

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