How Niklas Zennström built Kazaa and Skype from peer-to-peer technology

Executive overview

Two Scandinavian entrepreneurs disrupted global music and telephony by removing corporate middlemen and connecting users directly. Niklas Zennström and Janus Friis built Kazaa — a peer-to-peer file-sharing platform — then pivoted to Skype after lawsuits made Kazaa untenable.

The same peer-to-peer insight that enabled free music sharing also enabled free global phone calls — and sold for $8.5 billion.

From Teletoo to the kitchen table

• Zennström left a senior role at Swedish telecom Teletoo around 2000, nudged by a younger colleague, Janus Friis
• His wife's encouragement and her steady salary gave him the runway to take the risk
• They brainstormed from Zennström's Amsterdam apartment, Friis living in the guest room
• Napster was the pivotal aha moment: users connecting directly, sharing without a corporate middleman
• They contracted Estonian developers from Blue Moon, whom Zennström knew from Teletoo

Building and losing Kazaa

• Kazaa launched September 2000, targeting general peer-to-peer media sharing beyond just music
• 10,000 downloads on day one; eventually one of the world's most downloaded software products
• Revenue model was banner advertising with user-behavior tracking — unpopular but sustainable at low cost
• They approached record labels offering a legitimate licensing platform; labels responded with cease-and-desist letters
• Kazaa was classified as public enemy number one by the RIAA; the team evaded service of papers in LA using cash hotels and last-minute flights
• Sold Kazaa in January 2002 for under $1 million, retaining the underlying Fast Track peer-to-peer technology
• Lawsuits followed them regardless — Zennström was eventually served on a London street while running from process servers

Building Skype

• The idea came from frustration with their own expensive international phone bills while working distributed
• Voice over IP existed but was too complex and poor quality; broadband and Wi-Fi made it viable in 2002
• Original vision: a killer app on PocketPC/Palm Pilot devices using Wi-Fi — launched instead as a PC app with a plugged-in microphone
• Beta released August 29, 2003; viral growth driven by the requirement that both parties download the app
• Business model: free calls between Skype users; paid "SkypeOut" credits to call any landline or mobile at local rates
• Raised $250,000 seed from Bill Draper; nearly ran out of money in summer 2003 before launch went viral
• $20 million Series B in March 2004; 100 million downloads by April 2005
• eBay acquired Skype in 2005 for $2.6 billion plus a $500 million earn-out — the largest internet acquisition post dot-com crash at the time

After the sale

• Zennström stayed on as CEO at eBay for a few years, then left in 2007
• He and Friis co-founded Atomico, a VC firm aimed at backing European tech companies
• They also built Joost (video streaming) and RDIO (music streaming) — neither succeeded; RDIO lost to Spotify partly by underinvesting in user acquisition
• In 2009, Zennström and Friis took a 14% stake in Skype when eBay sold a majority share
• Microsoft acquired Skype for $8.5 billion in 2011, 18 months later — generating a large return on that stake
• Microsoft retired Skype on May 5, 2025; Zennström credits it with spawning 900 alumni-founded companies and proving European founders could build global tech leaders