Skype Co-Founder Reflects on Past Success, Looks For Next Big Investment

Niklas Zennstrom helped found online chat service Skype. He also co-founded file-sharing website Kazaa in 2001. After selling Skype to eBay for $2.6 billion in 2005, Zennstrom and co-founder Janus Friis went on to form online video service, Joost.

Niklas Zennstroem of Atomico Ventures poses during a portrait session at the Digital Life Design (DLD) conference at HVB Forum on January 24, 2010 in Munich, Germany.
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Niklas Zennstroem of Atomico Ventures poses during a portrait session at the Digital Life Design (DLD) conference at HVB Forum on January 24, 2010 in Munich, Germany.

As a serial entrepreneur, Zennstrom is now focusing on making venture capital investments in the technology space through his new firm Atomico. the Skype co-founder tells about his past successes and what sort of companies he’s looking to invest in for the future.

Q. Why do you think Skype succeeded, where so many other online chat services failed?

A few reasons I think: First of all we were very focused as a team to make Skype's core product the global standard — we had the ambition to become a global player.

Previous VOIP solutions did not work well at all. We identified that there were two problems, technology and user experience.

We found out that peer-to-peer technology was the solution to the technology problem. We had the best peer-to-peer technology experience in the world from Kazaa. When we designed the user experience we tested the prototypes on sisters, wives ands even mums to make sure it was easy to use.

We had perfect timing, we launched Skype for a broadband world, so we utilized high definition audio before anyone else.

Also people all around the world want to talk and have video calls with loved ones and co-workers.

We went after a large market with a transformational business model, so there was a big opportunity.

Today as a venture capitalist at Atomico, these are some of the characteristics we look for in companies: entrepreneurs with global ambitions to become category winners, unique transformational products or business models, large markets in transition and finally the right timing.

Q. You also launched the online video service Joost in 2006. There is a growing interest in Internet video content from sites such as Hulu, for example. Why do you think it is so challenging to make these products profitable though?

Video is moving online in a big way. It's proven to be a challenging market for some companies that start out as a pure Internet company such as Joost.

It's just too expensive to get the rights to top tier content for a start-up. But look at Netflix, which started out by posting DVDs and when time was right transitioning to a streaming service — they are killing it.

Q. How big of a concern is the growing size of Netflix?

Some Internet operators are concerned that video services such as Netflix and YouTube consume lots of the bandwidth on the network. While there is some truth to this, my guess is that the operators wished they could provide the same kind of services with the same success as Netflix and YouTube.

Q. What's the biggest mistake you made as an entrepreneur and what did you learn from it?

I try not to dwell on big mistakes but to move on when I make a mistake. I make mistakes most of the times and that's part of the risk profile being an entrepreneur. I 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.

Q. What's the best investment you ever made?

That must have been taking my education seriously. I hope that my investment into Atomico will become my best financial investment to date.