Part IThe Story
The motorbike came out of nowhere at speed, the way trouble in a city park is supposed to arrive. Niklas Zennström and his wife, Catherine, were walking through a London park. This was two or three years after he had quit a comfortable executive job in Stockholm with no money, no investors and, by most accounts, no particular idea. The rider forced them to one side, and Zennström braced to be robbed. By then his instincts had been trained toward the defensive. He was not robbed. The rider was a courier from the United States, and he had come to hand over a writ alleging copyright infringement. It was yet another lawsuit, and the man who received it had come to expect them.
That was roughly the bottom. Kazaa, the file-sharing program he had built with a Danish high-school dropout named Janus Friis, had been downloaded more times than almost any software in history. It had also made him, in his own later phrase, the record industry's enemy number one. He could not pay his employees. He would soon sell the company for a fraction of what it had briefly seemed to be worth. He was in his mid-thirties and believed he had missed the gold rush. A few years earlier, when the dot-com bubble burst, he had had what he later described as a panic attack: That's it, I missed my chance.
He had not missed it. Within three years of that walk in the park, the same two men, using much of the same technology and many of the same Estonian engineers, would sell a company called Skype to eBay for $2.6 billion. Six years after that they would profit from Skype a second time, when Microsoft paid $8.5 billion in cash for a business eBay had already written down as a mistake. The Swede who received the American writ would become the patron saint of European technology. The founders of Klarna, Supercell and Spotify would name him as the proof of concept, and Swedish unicorn founders would say of him, in the words one Stockholm business paper used, Kan han så kan jag: if he can, I can.
There is a detail in all this that the hagiographies tend to step around. Zennström built Europe's first great internet company in Europe partly because he had nowhere else to go. American courts were waiting for him. "I was toying with the idea [of going to California]," he told the Sunday Times in 2010, smiling, "but it was just heating up too much." The paper's correspondent added a line that has since hardened into legend: "Silicon Valley's loss is London's gain."
The man who would argue for the next two decades that great companies can come from anywhere did not start out arguing it. A courier on a motorbike delivered the lesson.
By the Numbers
The Man Who Sold Skype Twice
26European venture capitalists who declined to fund Skype's €1.5M seed round
~10,000Skype downloads on its first day, August 29, 2003
$2.6BeBay's upfront price for Skype, agreed September 12, 2005
$1.4BImpairment eBay took on Skype in October 2007
$8.5BMicrosoft's all-cash price for Skype, announced May 10, 2011
660MSkype registered users worldwide by 2010
$1.24BAtomico Fund VI, raised September 2024
A Terraced House and a Thirty-Foot Yacht
The origin story has two versions, and Zennström has told both.
In the first, he grew up comfortably but not richly. He spent his early childhood in Skälby, a residential district of Järfälla north of Stockholm, where children built dens and cycled to each other's houses. At twelve he moved with his family to a terraced house in Uppsala. His mother, Else Marie, taught in the Department of Textile Studies at Uppsala University. His father, Karl Olov, had given up a career as an artist to teach drawing and art history. "They didn't have much money," the financial journalist Birgitta Forsberg observed, "but they owned the terraced house in Uppsala, a holiday house and a 30' yacht." That combination says a good deal about middle-class Sweden in the 1970s. The holiday house stood in Södermanland, south of Stockholm, overlooking the Baltic. There the boy sailed, swam and fished. He raced sailboats. He also played basketball, and won several national youth titles with KFUM Uppsala Basket. Expressen later described him as "the basketball player who never missed a party."
In this version he wanted to be a sailing instructor, or an architect, or a boat designer. He abandoned the last ambition in secondary school when he realized, with the cool arithmetic that would later define him, that it was "a limited market." He delivered leaflets to earn money for sweets and eventually for a ten-speed bicycle. Forsberg interviewed him for her book Svenska miljardärer, a series of profiles of eleven Swedes who had built fortunes of at least a billion kronor, and came away convinced that he, like every other billionaire she studied, had "decided very early on" that he would be rich. Expressen ran its English-language profile under the headline "The man behind Skype had one goal: To become rich."
In the second version, told to a hall full of Uppsala engineering students in October 2019, the boy is barely a businessman at all. "Personally, I was never an enterprising child who had a lemonade stand and a paper round," he said. "That said, I do remember that I was innovative and tried to construct models with Lego." In 2022 he gave the Swedish business daily Dagens Industri the second version in purer form: "It's not about making money but about being able to realize yourself and influence the society around you. I will work my whole life."
You can reconcile these accounts, or you can let them sit beside each other, which is what Zennström himself seems to do. Newsweek, profiling him in 2005, recorded a third gloss: his upbringing in what the magazine called a "socialist economy" had given him "an added incentive" to keep building better mousetraps. Each account is probably true at a different hour of the day.
What is not in dispute is the education, which was unusually wide. At Uppsala he took two degrees at once: a master's in engineering physics and a business degree. He spent his final year as an exchange student at the University of Michigan in Ann Arbor. Computers came late and almost by accident. "Before then I'd never been interested in computers," he told POLITICO in 2006, describing the moment the first Apple Macintosh appeared in the mid-1980s. "That's when I took computer classes. That's when I got into IT. Before, I thought it was for geeks."
Asked decades later what use the physics had been, he was candid. "I haven't had so much use for the quantum mechanics and solid-state physics, however for basic accounting I have." He then said the thing that may be the closest he has come to a creed: "Most importantly I learnt that no problem is too big to solve if you have the right methods."
Asked by CNBC in 2011 to name the best investment he had ever made, he did not name Skype. "That must have been taking my education seriously."
The Apprentice to the Monopoly-Breaker
In 1991 the new graduate took a job as assistant to the chief executive of a freshly launched Swedish telephone operator called Tele2. By one account it had twenty-three employees. Until then Sweden's state-owned Televerket, later Telia, had held a monopoly on telephone service. Private carriers were new. The internet was newer. Tele2 belonged to the empire of Jan Stenbeck.
Stenbeck is the first of several men in this story whose lives rhyme with Zennström's own. He was an heir who behaved like a pirate. Through his holding company Kinnevik he went after the Swedish state's comfortable monopolies one at a time. When national broadcasting law stood in his way, he went around it, using satellites to beam television into Sweden from abroad. POLITICO's phrase for this was "the audacity to challenge" the state. He died in 2002, before Skype existed. Zennström has named him as a key influence, and the influence is visible everywhere in what followed: the instinct to find the incumbent sitting on a closed market, and the readiness to use a new technology to walk around a rule rather than through it.
Zennström spent most of the 1990s inside what Swedes called the Stenbeckssfären, the Stenbeck sphere, moving through its companies as the telecom industry splintered and reformed around him. He wore, Expressen noted, Hugo Boss suits. He helped launch the internet service provider get2net and ran everyday.com, a European web portal, in 1999, when every media and telecom company in Europe was fighting to own the page users saw first when they went online. At some point in the mid-1990s he was running Tele2's Danish operation, and he hired someone to run customer support.
That was Janus Friis, born in Copenhagen on June 26, 1976, almost exactly ten years younger than Zennström. Friis had no formal higher education. He had dropped out of high school and taken a job on the help desk at CyberCity, one of Denmark's first internet service providers. He had spent his working life listening to ordinary people describe, in non-technical language, why their connection did not work. Zennström had the engineering-physics degree and the Stenbeck training. Friis had the help desk. Both men were tall, six foot four and six foot five, and Vanity Fair would later describe them as "slope-shouldered and Scandinavian," equipped "with boyish energy and one lazy eye each." For the next fifteen years they would be referred to almost exclusively in the plural.
— Niklas Zennström, to POLITICO, November 2006Now sometimes people have the perception that these guys just want to make trouble. But, part of being successful is you make it very difficult for your competitors. If they're sitting there with very high cost structures and not taking care of customers and you come in with a completely different technology and a new approach then, of course, you're disrupting the status quo.
Christmas 1999, With Nothing in Hand
The resignation came over Christmas 1999. Expressen's reconstruction is brutally plain. He had no money, no investors and no idea, only the goal of becoming rich. Two years earlier that would have looked like a reasonable bet. By then it looked foolish. He has said that he and Friis walked out on the same day the Nasdaq peaked, which, depending on your temperament, is either very bad timing or a very good joke.
He would later call the delay his biggest mistake. "I guess one big mistake I did was not to start my own company earlier," he told CNBC. "I spent nine years working for others before starting Kazaa in 2000." In Uppsala he put it more gently: "I can be quite a slow starter."
In January 2000 Friis moved into Zennström's small apartment in Amsterdam. The two men worked there, with the household's rent and groceries covered by somebody else. "If you're married, your spouse needs to be into it," Zennström told WIRED in 2010. "My wife's salary could support us while we were founding both Kazaa and Skype." Catherine Zennström, who would later co-found the couple's philanthropic foundation and is named in nearly every subsequent honor, appears in the early record mainly as an income. That is the role she chose, and without it nothing that follows would have been possible.
What they built in Amsterdam was a protocol called FastTrack and an application called Kazaa. They had watched Napster, the American music-sharing service, run into the law with a design flaw at its center: Napster kept a central index, a server that knew where every file was, so a court could shut it down. Kazaa had no such center. It was peer-to-peer in a stricter sense. Ordinary users' computers did the indexing, and the more capable machines were promoted to "supernodes" that helped route traffic for everyone else. The network had no head to cut off.
It spread fast. By 2002 or 2003, depending on whose figures you use, Kazaa was the most downloaded software in the world.
Enemy Number One
A network with no center is hard to shut down, but you can still sue the people who wrote it, and the American record labels and film studios did. Zennström would later describe in a Swedish radio broadcast how the record company bosses declared war and named him and Friis their enemy number one. In 2002 they sold Kazaa to Sharman Networks, an entity registered far from both of them, and by Expressen's account the price was a fraction of what it had briefly been worth.
Zennström has always been blunt about what he regrets. At Le Web in Paris in December 2009 he acknowledged that he and Friis had been "ahead of the time" with Kazaa, and that they had missed opportunities, "particularly in terms of working together with record companies." The two men also founded Altnet, a peer-to-peer network that sold commercial, licensed music to Kazaa's users and became, by one account, the world's largest issuer of DRM licenses. Their response to being called pirates was to build a toll booth inside the pirate's ship. The record industry was not persuaded.
What remains is the emotional record, which Zennström rarely discusses. In 2019 a student in Uppsala asked him how to deal with adversity. He gave the usual answer about turning setbacks into motivation, and then he said something less usual:
"Sure, it's tough – especially if you are the founder of the company and can't pay your teams' salaries. Those have been some of the hardest times for me, when I have let my team down."
The lawsuits followed him for years. The last of the American actions against Kazaa was not resolved until November 2006, more than a year after he had become a billionaire. In the meantime they shaped his geography. In Paris in 2009 he explained that when Skype needed money, he and Friis had considered pitching American venture capitalists. They had stayed in Europe partly because "it wouldn't be a good idea for them to travel to the U.S. because of pending litigation from the Kazaa days."
So the man who later preached that Europe need not defer to Silicon Valley spent the most important years of his career unable to safely visit it. His Europeanism began in part as a legal necessity, though it did not stay one.
Kazaa left behind two things, and both mattered more than the money. The first was a team. The software had been written by a small group of Estonian programmers: Jaan Tallinn, Ahti Heinla and Priit Kasesalu. The second was a company called Joltid, which Zennström founded and ran as chief executive. Joltid owned the peer-to-peer technology and licensed it to others. Hardly anyone paid attention to it at the time. It would later prove worth about 14 percent of Skype.
Mustamäe
The idea, as the record has it, belonged at least as much to Friis and to an Estonian engineer named Toivo Annus. They proposed using the Kazaa architecture to carry voice instead of songs, cutting the cost of phone calls toward zero. Zennström supplied the strategic logic. "When we look at the evolution of the Internet," he told the Taipei Times in January 2005, "every online communication was P2P when it first appeared." Companies had then spent heavily on servers and capacity. "But to establish a very powerful communication network, it's much more logical to distribute peer-to-peer. The more people use it, the more resources they have without having to invest in servers and other infrastructure."
That last sentence is the whole commercial insight. In a conventional phone network, every new customer is a cost: more switches, more trunk lines, more capital spending. In a peer-to-peer network, every new customer is also a small piece of infrastructure, because users' computers carry part of the load. Growth paid for itself. Zennström put it in plainer terms in Paris: he and Friis had "knowingly went after a large industry they considered needed fixing," and reasoned that if they could take just one percent of it, the margins the incumbents had been enjoying would make them rich.
The building that housed the work was, by the account of Estonian public television, a fairly anonymous Soviet-era block in the Mustamäe district of Tallinn. Most of Skype's engineering would stay in Estonia even after Microsoft bought it. As late as 2011, 44 percent of the division's employees worked in Tallinn and Tartu. Sten Tamkivi, who ran Skype Estonia from 2005 to 2013, later rejected the overnight-success story. "From the outside, it's easy to see Skype as an overnight success," he said. "But in actuality, the same team had spent four to five years building various unsuccessful companies." He also pointed out how odd the bet looked at the time. "When you bear in mind that at the time, most people had desktop computers with no headsets or built-in microphones, it seemed like a strange point in time to suggest that everyone would soon start making phone calls over the internet."
The name was a compromise with the domain-name market. The working title was "Sky peer-to-peer," shortened to "Skyper." Some of the Skyper domains were already taken, so they dropped the final r. Skype.com and Skype.net were registered in April 2003.
Then came the testing, which Zennström has described many times with what seems like real pleasure. "When we designed the user experience we tested the prototypes on sisters, wives and even mums to make sure it was easy to use," he told CNBC. Tamkivi called it "the 'granny test.' Could your granny download Skype unassisted, set it up" and make a call? Zennström added a caveat that experienced founders will recognize: "You never know with the 'mum test' if they're saying good things because they just want to be nice."
The money was harder. The figure, from WIRED in 2010, is exact: "It took a year to raise money for Skype: we went to 26 different venture capitalists, asking for 1.5 million euros and prepared to give away a third of the company. But no one wanted to invest." In a 2014 essay he added a detail that clearly still irritated him a decade later: "I'll never forget the investor who insisted that we move to Silicon Valley before he would put money into the company — advice that we declined to take."
They also could not have taken it. The writs were in America.
— Niklas Zennström, to WIRED, November 2010Often you're the only one who believes in what you're doing. Everyone around you will say, "Why not give up? Don't you see it won't work?" You then have to find out, are they right or am I right?
Every Node a Switchboard
The first public beta went out on August 29, 2003. Zennström emailed friends asking them to take a look at a new website called Skype.com, an origin moment recorded in Jason Porterfield's young-adult biography Niklas Zennström and Skype. It was downloaded about 10,000 times on the first day and reached a million accounts within two months. Nobody had paid for an ad.
The growth had a structural cause, and the Bolt co-founder Martin Villig, one of the Estonians who came up in Skype's wake, later stated it carefully. "Skype had many competitors. Just as Google wasn't the first search engine, and Facebook wasn't the first social network." Internet calling already existed before 2003. It just did not work well. Zennström diagnosed the failure in two parts: "Previous VOIP solutions did not work well at all. We identified that there were two problems, technology and user experience." Kazaa's architecture solved the first problem. It was good at punching through the firewalls and home routers that broke other services, because a supernode could relay a call for a user who could not be reached directly. The granny test solved the second. The timing came from outside: Skype arrived just as broadband reached a mass market, so it could offer high-quality audio before anyone else could. Zennström was explicit about this: "We had perfect timing, we launched Skype for a broadband world."
Two pictures from 2005 show what kind of company this was.
The first is from Newsweek. In a back alley in London's Soho, among the sex shops, comic-book stores and coffee joints, only a tiny buzzer marked the door of a converted warehouse. Inside were IKEA furniture, "a couple of limp potted plants," bike helmets strewn across the reception area, and several dozen "fleece-clad techies hunched over laptops." Sixty-one million people in 225 countries had downloaded the software. The magazine noted that the global telecom industry, which it valued at a trillion dollars, was "downright terrified."
The second is from Vanity Fair, and it is a better story. It is February in Cannes, where the mobile-telephone industry holds its annual convention. The writer describes the delegates as gray-haired men in "suits the shade of gloom," some wearing hands-free earpiece cords "bringing a bar across the face like a football helmet's." The two tall Scandinavians walk past a red Ferrari parked outside a beachfront hotel to keep an appointment their staff have code-named the "Y meeting." Y turns out to be Yahoo. When Yahoo's lead negotiator realizes a journalist is present, he shoves his conference nametag under his suit coat. "Officially, then, this meeting hasn't taken place," the writer notes. The magazine summed up the founders' ambition this way: having helped sabotage the record industry, "all they want to do is commandeer all the phones in the world."
Zennström himself, in these years, came across as something less than a buccaneer. POLITICO's correspondent described his eyes cast downward as he delivered "a robotic account" of his early years. The Sunday Times thought he looked like "a tall, slightly awkward Bill Gates." When Sveriges Radio gave him its prestigious summer program in July 2013, the critic at Aftonbladet noted that he read "straight from the script" and was "no entertainer," then gave him credit for "a black belt in entrepreneurship" and for choosing punk-rock records by cocky rebels who, like his software, had ended up beloved. He wrote the foreword to Skype for Dummies. Asked whether he was a pioneer or merely a disruptive force, he politely corrected the vocabulary. "Disruptive is a tricky word for people. Transformative is better."
He was also willing to say plainly what Skype was doing. In a 2007 essay for the BBC he wrote that the kind of disruptive technology he cared about was the kind whose underlying innovation "strips away social hierarchies or monopolies and helps to make the world a smaller place." Stenbeck had used satellites to get around a state monopoly. Zennström was using other people's computers to get around a whole industry.
The Price of a Conversation
On September 12, 2005, eBay agreed to acquire Skype Technologies S.A., a company domiciled in Luxembourg, for about $2.6 billion in cash and stock. The deal included performance payments that, depending on which outlet's arithmetic you trust, could have pushed the total toward $4 billion. Zennström was 39. Friis was 29. It was described at the time as the largest European venture exit to date. The Swedish press would later report that no Swede had ever earned so much money in so short a time.
The strategic logic was eBay's, and it did not hold up. eBay hoped that buyers and sellers on its auction site would phone each other through Skype and do more business. They did not. By October 2007 eBay had taken a $1.4 billion impairment on the purchase, an admission that it had overpaid.
The earn-out, which was where the founders' remaining upside lay, went the same way. Revenues for the quarter were around $90 million. MySpace, which News Corp had bought around the same time for about $580 million, was on course to bring in a billion dollars a year. The founders settled for $530 million against a possible $1.7 billion. Friis wrote the closing announcement on his blog, in a tone somewhere between relief and spin. "Earn-outs are inherently difficult creatures, but we are happy with the result of this one. We are approximately half way into the earn-out period and the settlement amounts to one-third of the total possible earn-out amount." He added: "Looking at the future, the excitement does outweigh the nostalgia."
Zennström stepped down as chief executive that autumn and stayed on as non-executive chairman. Skype's own historians describe the years around the sale as a period of "tumultuous ownership relations," marked by a succession of presidents (Zennström, Rajiv Dutta, Alex Kazim, Zennström again, Henry Gomez), slowing product development and missed targets. A new chief executive, Josh Silverman, arrived in February 2008 and was "widely viewed as bringing in stability." Under Silverman, Skype added roughly 380,000 users a day. Oprah Winfrey used it on air. Network news stations used it instead of satellite trucks. In January 2010, TechCrunch's Crunchies named Silverman runner-up for best CEO, behind only Mark Pincus of Zynga. The company was clearly capable of being run well. It was not clear that the founders were the ones to run it.
One episode from the founder years reads differently with hindsight. Skype entered China through a joint venture with a local portal, TOM Online. In April 2006 the Financial Times reported that the venture filtered text messages to comply with Chinese censorship. Zennström's response was the answer of a Stenbeck-trained operator:
"TOM Online had implemented a text filter, which is what everyone else in that market is doing. Those are the regulations. I may like or not like the laws and regulations to operate businesses in the UK or Germany or the US, but if I do business there I choose to comply with those laws and regulations. I can try to lobby to change them, but I need to comply with them. China in that way is not different."
In 2008 researchers found that TOM-Skype was sending the content of messages, along with encryption keys, to monitoring servers. Zennström later sat on Human Rights Watch's committee in Sweden. Over the decade the man moved on this question, which is not the same as saying the earlier statement was wrong. A founder who once told the press "Those are the regulations" later wrote, in a 2019 essay, that technology companies faced a coming "step change in demand for accountability and transparency." Both statements were made in good faith. Twelve years separate them.
Selling It Twice
The mistake that made Zennström and Friis rich a second time was eBay's, and it was buried in the deal terms. When eBay bought Skype, it did not buy the peer-to-peer engine at its core. It licensed that technology from Joltid, the founders' company. Contemporary coverage called this "equally as serious" a misstep as the failed auction strategy, and it gave the founders enormous leverage once eBay decided it wanted out.
In April 2009 eBay announced a plan to spin Skype off in a public offering, citing "poor fit." Its 2008 annual report had already disclosed a dispute with Joltid over the "Global Index" technology. Joltid's position, made in filings, was that it could terminate the license. If it succeeded, Skype as it existed would have to shut down. Newspapers on both sides of the Atlantic ran headlines warning that the service was in danger.
On September 1, 2009, eBay agreed to sell 65 percent of Skype for $1.9 billion to a consortium led by Silver Lake that included Andreessen Horowitz, the Canada Pension Plan Investment Board and Index Ventures. The deal valued the company at $2.75 billion. The founders had reportedly tried to put together a buyback of their own with private-equity firms. They now went to court. Joltid sued eBay and the consortium on September 17. A day later a second complaint targeted Index Ventures and one of its partners, Michelangelo Volpi.
Volpi is the second rhyme. He had been a star executive at Cisco, once seen as a possible chief executive there, and he had joined Skype's board. In June 2007 the founders recruited him to run their new web-television venture, Joost. Joost had launched in full in October 2007 with a target of three million users by year-end. It brought major television shows online years before that was normal, but it could not secure the programming deals it needed to make money. Volpi stepped down as chief executive in June 2009 and was removed as chairman shortly afterward. The founders' complaint said he had taken confidential knowledge of Skype with him to Index and used it to make his new firm's bid credible. "Volpi has maliciously and willfully breached his fiduciary duties," it alleged. It also made a harsher claim: "Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the confidential information." Volpi did not comment. Index declined to comment.
The case settled in November 2009, and the settlement was decisive. Skype acquired all of Joltid's technology in exchange for equity. Silver Lake's stake was reduced to 56 percent, eBay kept 30 percent, and Joltid, meaning the founders, received 14 percent. Two men whom eBay had paid billions to buy out were owners again, on the strength of a license the buyer had never bothered to acquire.
Eighteen months later, on May 10, 2011, Microsoft announced it would pay $8.5 billion in cash for Skype. That was about 32 times its operating profit, and the Financial Times worried aloud about a new tech bubble. By one estimate it was a 300 percent increase in value in the three-and-a-half years since eBay's write-down. Reports at the time put the founders' combined take from the Microsoft sale at around a billion dollars. Dagens Industri estimated that Zennström personally made about ten billion kronor from Skype across both sales. The Wall Street Journal ran the headline that has stuck to him ever since: "Niklas Zennström, the Man Who Sold Skype — Twice."
The later ventures went less well. Joost's assets were sold to Adconion Media Group in November 2009. Zennström's verdict was unsentimental: "It's just too expensive to get the rights to top tier content for a start-up." He pointed to Netflix, which had started by mailing DVDs and moved to streaming only "when time was right," and said, "they are killing it." Rdio, the music service he and Friis launched in 2010, filed for bankruptcy in November 2015 and sold its assets to Pandora for $75 million. For the second time, the pair had built a music product and the record labels had outlasted them.
The partnership itself ended without public explanation. In July 2012 a Business Insider headline announced a split in "one of tech's most successful partnerships." Friis went on to co-found the encrypted messaging company Wire and, with Ahti Heinla, one of the original Kazaa and Skype engineers, Starship Technologies, which builds small self-driving delivery robots that began trial runs on San Francisco sidewalks in September 2016. Zennström went into investing.
The Man Who Couldn't Go to California
Atomico was founded in 2006, while he was still running Skype. Its first proper fund, $165 million raised in 2010 from an office in Mayfair, was modest by Silicon Valley standards. In 2014, writing for an American audience, he set out a thesis he would keep repeating: "When we were building Skype 10 years ago, most of our role models were great American entrepreneurs. The Valley was home to almost all the industry's success stories, and many believed the idea of building a global Internet company anywhere else was simply impossible."
The essay was about a Finn. Ilkka Paananen had founded Supercell in Helsinki in 2010, while Nokia was declining and Finnish engineering talent was looking for somewhere to go. Supercell had started developing tablet games only in 2011. A year after launch, its two hits topped the highest-grossing charts in more than a hundred countries. In the autumn of 2013 SoftBank took a strategic stake that valued the company at more than $3 billion. Atomico had invested earlier that year, and Dagens Industri later reported that the firm tripled its money in six months. Zennström had shared a stage with Paananen at Slush in Helsinki, in front of more than 5,000 entrepreneurs, and described the mood as one in which "concern over the fallout from Nokia's difficulties had been replaced by a new optimism and confidence." Paananen's position then, a Nordic founder building a global company on top of a collapsing national champion, closely resembled Zennström's own a decade earlier.
— Niklas Zennström, Re/code, February 2014These role models are proof that where you start out is no barrier to whether or not you can achieve global success. They show that it's possible to go beyond providing some "local" competition to a global giant: You can become the giant.
The portfolio grew around that idea: Supercell, Rovio, Klarna, Truecaller, Last.fm, Lilium, Pipedrive, and later DeepL and the body-scanning company Neko Health. Zennström pushes back on calling any of it a "klipp," a quick killing. He described the Klarna investment as a partnership "we went into ten years ago." In 2015 he and Sebastian Siemiatkowski shared a stage with Prince Daniel at Uppsala University on the institution's 538th birthday, leading roundtables with students. In 2016 he said he was building a fund approaching a billion dollars, and by 2017 Atomico had raised $765 million. In October 2023, with the venture market in retreat, the firm raised $1.1 billion under a Financial Times headline quoting him: "Let's break the Silicon Valley monopoly." In September 2024 it closed $1.24 billion across two funds, Fund VI, for European companies from Series A onward.
The argument has stayed the same while the cast has changed. In Dublin in 2012 he told the Web Summit audience: "You can choose to be a big company in Sweden but you'll only be a big company in Sweden." The crowd laughed when he recounted the panic attack of 2000, because the man telling it had just sold to Microsoft for $8.5 billion. He offered Skype's domicile as an example: "We made sure from day one that Skype was an international business — we were incorporated in Luxembourg, we had software developers in Estonia, we moved to London. The internet has no country boundaries."
The story of the American investor who wanted Skype to move to Palo Alto is told as an act of defiance, and it was one. It was also, in part, a matter of legal necessity, a fact he concedes freely. What he did with that constraint is the substance of his second career. He took a path forced on him by lawsuits and spent two decades and several billion dollars of other people's money arguing that everyone should take it on purpose.
His explanation for why it now works is about what founders do after they succeed. "Approximately half of successful founders become angel investors," he told Dagens Industri. "They provide capital, but more importantly mentorship and experience. And employees leave and start their own." The Estonian public broadcaster, reporting on Skype's closure, named Wise and Bolt as its heirs. The Mustamäe office turned out to be a seedbed for later Estonian companies.
Little Wind and Algae
Microsoft retired Skype on May 5, 2025. The website now redirects to Microsoft Teams. For years the product had been losing users to Zoom and to Microsoft's own enterprise tools. In February 2023 it still had 36 million daily users, a modest figure for a service that had once had 50 million people online at the same moment. Microsoft had long since replaced the original architecture: the supernodes moved into its data centers in 2012, and in 2017 the service became a centralized, cloud-based system. In its last years Skype no longer ran on its users' computers at all. A few remnants survive. Users with paid credit can still dial landlines from a web page called the Skype Dial Pad. Microsoft extended the deadline for exporting old chat histories, first to January 2026 and then to June 2026.
Zennström had long since moved on, mostly to the water. His racing yachts, all named Rán after the Norse sea goddess, won the Rolex Fastnet Race in 2009 and 2011 and took world championships in the TP52 class. He has applied the same idea of team-building to sailing and to companies, and he expresses it as a deliberately modest boast. "It's about always bringing in people who are better than me," he told Dagens Industri. "If I'm the worst sailor on the boat, we're in good shape. If I'm the least smart in the company, we have a good company."
Al Gore, speaking in Davos, set off his turn toward environmental philanthropy. In 2007 he and Catherine founded Zennström Philanthropies, which works on climate and human rights. Its gifts to Uppsala University show his loyalties: a ten-year visiting professorship in climate leadership, first held by Doreen Stabinsky from February 1, 2015, and donations to Textile Studies, the department where his mother taught. In 2013, standing in front of the King of Sweden to receive a medal, he was a long way from the courier in the London park.
The race that changed his mind was the 2013 Gotland Runt, the classic regatta around the island of Gotland in the Baltic. He has described the conditions in five words: little wind and algae, all the way around. When they came ashore, he said, he and Catherine agreed that winning the race to save the Baltic mattered more, "because this has gone too far." They founded Race for the Baltic, which now employs six people and works mainly on phosphorus, the nutrient that feeds the blooms. He hopes, cautiously, that by around 2030 enough will have been removed for the system to begin recovering.
It is the same sea he grew up beside: the summer house in Södermanland, the family's thirty-foot boat, the child who wanted to teach sailing and design yachts until he worked out that the market was too small. The water off that house is now thick with algae, and the fish he used to catch are scarce. He spends his summers on his own island in the Stockholm archipelago and races a quiet, electric boat. Thirteen years after the courier arrived in the park with a summons, he and Catherine stood at a Baltic dock and heard another one, this time from the sea itself: little wind, and algae all the way around.
Part IIThe Playbook
The principles that follow are drawn from the record above: the companies that worked, the ones that failed, the lawsuits and the license agreements. Zennström is often presented as a disruptor, but most of his advantage was structural, not rhetorical. He chose architectures in which the customer paid the cost of growth. He signed contracts that kept leverage with the founders. He picked locations that compounded into talent. Several of these principles are more useful as warnings than as recipes.
The principles
- 1.Make the customer the infrastructure.
- 2.Hunt the rent, not the gap.
- 3.Treat the failed company as R&D for the next one.
- 4.Never sell the engine with the car.
- 5.Choose your domicile like a product decision.
- 6.Run the mum test, then discount it.
- 7.Take one percent of something enormous.
- 8.Turn exile into positioning.
- 9.Know which moats software cannot cross.
- 10.Settle the earn-out, keep the option.
- 11.Be the worst sailor on the boat.
- 12.Recycle the win into the ecosystem.
Z
The Ventures, Scored
Five bets against five incumbents, and what each one returned.
| Venture | Incumbent challenged | Outcome | Verdict |
|---|---|---|---|
| Kazaa (2000) | Record labels, film studios | World's most downloaded software; sold to Sharman Networks in 2002 under litigation | Risk |
| Skype (2003) | The global telephone carriers | $2.6B to eBay (2005); founders re-enter via Joltid; $8.5B to Microsoft (2011) | Scale |
| Joost (2006–07) | Broadcast and cable television | Could not secure premium content; assets sold to Adconion, November 2009 | Try |
| Rdio (2010) | Music distribution, again | Chapter 11 in November 2015; assets to Pandora for $75M | Risk |
| Atomico (2006) | Silicon Valley venture capital | Supercell, Klarna, Rovio, DeepL; $1.24B Fund VI in 2024 | Scale |
Principle 1
Make the customer the infrastructure
The most important sentence Zennström ever said about Skype was technical: "The more people use it, the more resources they have without having to invest in servers and other infrastructure." A telephone carrier pays to add each new subscriber. In Skype's peer-to-peer design, each new subscriber contributed a little computing power and bandwidth. Supernodes, which were ordinary users' machines, relayed calls for people stuck behind firewalls. Users bore the cost of growth without noticing.
That is why Skype could give away its core product and still earn money. Free calls between Skype users cost the company almost nothing to provide, and the revenue came from the edges: SkypeOut calls to landlines, SkypeIn numbers, voicemail. By 2009 the company was adding 380,000 users a day without a matching increase in capital spending. Its 2009 revenue was around $740 million.
It is easy to miss that this was not a business-model innovation stacked on top of a technology. The architecture was the business model. Zennström had seen it work for Kazaa, where it made the network resistant to being shut down. At Skype, the same design made the company cheap to run.
Tactic: Before you price a product, work out whether your marginal user costs you money or adds capacity, and if it costs you money, look for an architecture that reverses that.
Principle 2
Hunt the rent, not the gap
Zennström trained under Jan Stenbeck, who built a career attacking Swedish state monopolies, and he absorbed one particular way of seeing markets. The opportunity is not an unmet need. It is an incumbent "sitting there with very high cost structures and not taking care of customers." International calls were priced by the minute at rates that had little to do with what it actually cost to carry voice over the internet. Kazaa had gone after the same target, the record labels' control of distribution.
The distinction matters because rent-hunting points you toward different markets than gap-hunting does. A gap-hunter asks what nobody offers. A rent-hunter asks where customers are paying far more than the service costs to provide, and what is keeping that price up. Stenbeck kept it up with satellites. Zennström did it with peer-to-peer routing. In both cases the incumbent's margin was the size of the prize, which is why Zennström could say that one percent of the telephone industry would be enough.
The cost is that rent-holders fight back, as the Kazaa lawsuits and the TOM-Skype compromises show. An industry whose margins you are taking will respond with lawyers and regulators, not just with competing products.
Tactic: Find the market where customers' price and the provider's true cost are furthest apart, then identify who enforces that difference before you decide how to attack it.
Principle 3
Treat the failed company as R&D for the next one
Sten Tamkivi's correction is the key to the whole Skype story: "the same team had spent four to five years building various unsuccessful companies." Kazaa was a commercial and legal disaster. It also produced a proven peer-to-peer engine, a small Estonian team that had shipped software to tens of millions of users, and two founders who had learned exactly how the incumbents would retaliate.
Zennström's own explanation of Skype's success says this directly: "We had the best peer-to-peer technology experience in the world from Kazaa." What got carried forward was not the product, which was legally toxic, but the people and the technical capabilities. His advice to WIRED matched: when something fails, "think, 'What did I learn from that experience, I can do better next time.' Then kill that project and move on to the next."
The discipline is to be selective. Founders tend either to cling to the failed product or to abandon everything associated with it. Zennström kept the team and the technology and dropped the business.
Tactic: When a venture fails, list separately its assets (people, code, distribution knowledge) and its liabilities (brand, legal exposure, business model), and carry only the first list into what you do next.
Principle 4
Never sell the engine with the car
The most consequential decision in Skype's history was a clause in the eBay deal. The peer-to-peer technology at Skype's core stayed with Joltid, the founders' separate company, and Skype licensed it. Newspapers later called eBay's failure to buy that technology "equally as serious" as its failed auction strategy. Four years after the sale, Joltid's threat to end the license put Skype's planned IPO at risk and gave the founders a 14 percent stake in the company they had already sold.
J
The Joltid Leverage, Step by Step
How a license agreement turned into a second payday.
2005
eBay buys Skype for $2.6B but licenses, rather than acquires, the Global Index P2P technology from Joltid.
2007
eBay writes down $1.4B. The founders settle the earn-out at $530M, against a possible $1.7B.
2009
April: eBay announces an IPO plan. Joltid moves to terminate the license. September 1: the Silver Lake consortium agrees to buy 65%.
2009
September 17–18: Joltid sues eBay and the consortium; the founders sue Index Ventures and Michelangelo Volpi.
2009
November: settlement. Silver Lake 56%, eBay 30%, Joltid 14%.
2011
Microsoft buys Skype for $8.5B in cash.
Whether the structure was a deliberate plan or a lucky accident of corporate housekeeping, the lesson is the same. Whoever owns the critical underlying asset keeps a claim on the business long after the operating company changes hands. Buyers should read that as a warning. Founders should read it as an option.
Tactic: In any sale, list every asset the product cannot run without and decide deliberately which ones transfer and which are licensed, because the licensed ones keep you involved in what happens next.
Principle 5
Choose your domicile like a product decision
Skype was incorporated in Luxembourg, engineered in Tallinn and Tartu, and run from a converted warehouse in Soho. That was not chance. "We made sure from day one that Skype was an international business," Zennström said. For him, deciding where to locate each function was part of the strategy, chosen to keep costs low and to avoid being anchored to any one national market.
The Estonian choice paid off over a long period. By 2011, 44 percent of Skype's employees were in Estonia. Skype Estonia became a training ground, and its alumni and imitators went on to build Wise and Bolt. A company that had been global from the start helped turn a small, peripheral country into a source of talent.
Zennström gave the same advice to the 2012 Web Summit audience: "You can choose to be a big company in Sweden but you'll only be a big company in Sweden." Building for one home market first means accepting the limits of that market.
Tactic: Decide where you are incorporated, where you build and where you lead the company as three separate choices, each optimized for its own job, before habit decides them for you.
Principle 6
Run the mum test, then discount it
Skype's prototypes were tested on "sisters, wives and even mums." Its Estonian team used the "granny test": could someone's grandmother install it unassisted? This was the design principle that separated Skype from the internet-calling services that had failed before it. Zennström had identified "technology and user experience" as the two causes of their failure, and he treated the second as just as serious as the first.
He also added the caveat most founders forget: "You never know with the 'mum test' if they're saying good things because they just want to be nice." A relative's praise is weak evidence. A relative's struggle is strong evidence. The test is useful mainly for finding where people get stuck, not for confirming that they like the product.
Tactic: Watch a non-technical relative try your product without help, write down every place they hesitate, and ignore anything they say about liking it.
Principle 7
Take one percent of something enormous
At Le Web in 2009, Zennström explained that he and Friis "figured if they could just take one percent they'd be successful, mainly because of the high margins in that industry." The target was a telephone industry that Vanity Fair put at $300 billion and Newsweek at a trillion dollars. Each figure was a guess. Either way, one percent of it was a large company.
The logic is more modest than it sounds. It does not require winning the market or even being clearly better than the incumbent everywhere. It requires a cost structure so far below the incumbent's that a small share of its customers is very profitable. That was the reason for building the peer-to-peer architecture in the first place.
When he moved into venture capital, he applied the same filter to others. Atomico, he told CNBC, looks for "large markets in transition." He also said: "As an investor, what we're not looking for is 'oh this is a cool app,' it's 'is this something that can become a big business?'"
Tactic: Size your opportunity by asking what one percent of the incumbent's revenue would be worth at your cost structure, and if the answer is small, find a larger incumbent.
Principle 8
Turn exile into positioning
Zennström could not safely build Skype in America, because the Kazaa litigation was waiting for him there. He could not raise money from 26 European venture capitalists. One investor told him to move to Silicon Valley, and he refused. Several of the constraints that shaped his career were forced on him.
What distinguishes him is what he did with them. "When we built Skype from Europe," he told Dagens Industri, "I realized there was an opportunity to create a strong technology sector here." The constraint became an argument, and the argument became Atomico. Its pitch is that he is the founder who proved a global company could be built outside the Valley, which no investor based in the Valley could claim. Two decades later, the FT's 2023 headline, "Let's break the Silicon Valley monopoly," reads like a statement of purpose, not an apology.
E
Conventional Wisdom vs. the Zennström Approach
Where his playbook diverged from the Valley default.
| Conventional wisdom | Zennström's approach |
|---|---|
| Move to Silicon Valley to raise and scale. | Stay in Europe and make distance from the Valley the identity. |
| Prove the home market, then expand. | Incorporate in Luxembourg, engineer in Estonia, lead from London from day one. |
| Buy capacity as you grow. | Let users' machines supply the capacity. |
| Sell the whole company cleanly. | License the core technology and keep the leverage. |
| Hire experienced operators. | "Smart people who really believe" over "really experienced people who may not share your dream." |
Tactic: Write down the constraint you most resent about your situation and work out how a competitor without that constraint would be unable to tell your story.
Principle 9
Know which moats software cannot cross
Skype worked because the cost it eliminated was a technical one: the cost of carrying voice. Joost and Rdio failed because the costs they faced were contractual, and no architecture could remove them. "It's just too expensive to get the rights to top tier content for a start-up," Zennström said of Joost. Rdio ended in Chapter 11. Kazaa had already shown how the music industry responds to people building on top of its catalog without permission.
His own diagnosis credited Netflix with understanding this. It started by mailing DVDs, built a base of customers and revenue, and moved to streaming "when time was right," when it had the scale to negotiate. The lesson is not to avoid media. It is that peer-to-peer distribution was never the hard part of video or music. Licensing was.
Separating cost barriers from permission barriers is the most practical lesson in his record, partly because he paid the most to learn it.
Tactic: Before betting that technology will remove an incumbent's advantage, check whether that advantage rests on cost, which engineering can attack, or on rights and licenses, which only capital and negotiating leverage can.
Principle 10
Settle the earn-out, keep the option
In 2007 the founders accepted $530 million against a possible $1.7 billion earn-out, and Friis described it as a good result. It was a sensible concession. Skype was missing its targets, and an earn-out would have tied both men to a buyer whose strategy was failing. Settling released them to start Joost and Atomico.
They did not, however, give up every claim on Skype. Zennström stayed on as non-executive chairman. Joltid kept the technology. When eBay tried to exit, the founders still had the license, the lawsuits, and the knowledge of where the value lay. They were outside the operating company but still had a hand in its future.
The broader principle is about which parts of a deal to give up. Earn-outs pay for effort under someone else's control. Equity and licenses pay for owning something. Zennström gave up the first and kept the second.
Tactic: When an acquirer's strategy is failing, trade your contingent payments for freedom but hold on to every claim tied to an asset rather than to performance.
Principle 11
Be the worst sailor on the boat
Zennström's team-building rule came from yacht racing and he applies it to companies without changing a word: "If I'm the worst sailor on the boat, we're in good shape. If I'm the least smart in the company, we have a good company." His crews won the Fastnet twice and the TP52 world championship. Skype's engineering was done by Estonians he did not try to outdo.
He was specific about what to look for. "It's more important to have smart people who really believe in what you're doing than really experienced people who may not share your dream." Kazaa and Skype were built by people who had never run a telephone company, which is part of why they did not build one the way a telephone company would.
There is a counterpoint in the record. Joost's hire of Michelangelo Volpi, an executive with a strong résumé recruited for his experience, ended in a lawsuit accusing him of breaching his fiduciary duties. That is one case, not proof. But it fits the stated rule closely enough to take seriously.
Tactic: For every senior hire, ask whether this person would make you the weakest member of the team in their area and whether they believe in what you are building, and do not accept a strong résumé in place of either.
Principle 12
Recycle the win into the ecosystem
Zennström did not retire after Skype. "I will work my whole life," he told Dagens Industri. The way he chose to keep working is deliberate. Atomico invests in companies that look like the Skype he could not get funded. He has written about Supercell and Klarna, spoken alongside Ilkka Paananen and Sebastian Siemiatkowski, and led student roundtables with Prince Daniel. He explains why this compounds: "Approximately half of successful founders become angel investors. They provide capital, but more importantly mentorship and experience."
Skype's own effect bears him out. Estonian public television described Wise and Bolt as Skype's heirs. Swedish founders cite him by name. In a 2019 essay he described venture capital in the language of natural selection: "If founders are building the future, then venture capital is the selective agent of change; it is the future's lifeblood."
The philanthropy follows the same pattern on a smaller, more personal scale. The climate professorship at the university he attended, the donations to the department where his mother taught, and Race for the Baltic in the waters where he learned to sail all put money back into the places that produced him.
Tactic: After a liquidity event, pick the specific community that made your success possible and commit capital, mentorship and visible presence there, rather than spreading money thinly across unconnected causes.
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Part IIIQuotes and Maxims
In their words
— Niklas Zennström, Foreign Affairs, January/February 2015Courage—because as an entrepreneur, you're trying to do something that no one has done before, and a lot of people will try to discourage you. You need to have a lot of courage to take the first step and stay your path through all the challenges.
— Niklas Zennström, Dublin Web Summit, October 2012You can choose to be a big company in Sweden but you'll only be a big company in Sweden.
— Niklas Zennström, BBC News, June 2007I am incredibly attracted to disruptive technology as a whole, where the innovation behind it strips away social hierarchies or monopolies and helps to make the world a smaller place.
— Niklas Zennström, to CNBC, May 2011I guess one big mistake I did was not to start my own company earlier. I spent nine years working for others before starting Kazaa in 2000.
— Niklas Zennström, to The Sunday Times, June 2010Disruptive is a tricky word for people. Transformative is better.
Maxims
- Let the users carry the load. The cheapest network to scale is one where every new customer also adds capacity.
- Margin shows you where to attack. The incumbent with the fattest margin and the worst service is the best target, as long as you know who enforces its pricing.
- Keep the team, kill the company. A failed venture's real value is usually its people and code, not its product or brand.
- License the engine. Ownership of the critical underlying technology keeps a claim on the business after the operating company is sold.
- Go global before going local. Choose where to incorporate, build and lead as if no single country will be big enough, because none will.
- Watch where people get stuck, not what they say. The mum test finds friction; it does not confirm that people like the product.
- One percent can be enough. In a large enough, high-margin market, a small share at a much lower cost structure makes a large company.
- Rights cost more than code. Technology can remove costs; it cannot remove the need for a license.
- Make your constraint your argument. Being shut out of the obvious path can become a positioning no competitor can copy.
- Hire people better than you. If you are the weakest member of the team, the team is probably strong enough.
