Skype’s Decline: What Went Wrong?

Introduction

In August 2003, Skype was co-founded by Niklas Zennström and Janus Friis. It was an unprecedented, innovative service, allowing users to make international phone and video calls for free. Its existence completely changed the digital communications market, as businesses had previously charged high fees for the same service.

On May 5th, 2025, Skype will be shut down. Acquired by Microsoft in 2011 for $8.5bn, Skype was once one of the biggest digital communication services on the market. At the height of its popularity, it serviced over 300 million monthly active users. In less than a couple of months, it will, for all intents and purposes, cease to exist.

Its remaining user base has been pushed towards the free version of Teams: in May, their Skype contacts and chat history will automatically transfer to Teams, unless they choose to export their data. In a Microsoft blog post, Jeff Tepper, President of Microsoft 365 Collaborative Apps and Platforms, stated: ‘we will be retiring Skype…to focus on Microsoft Teams (free), our modern communications and collaboration hub.’

Skype’s Challenges

COVID-19 created a huge opportunity for digital communication services. Businesses and individuals alike were in need of easily accessible video conferencing as the pandemic popularised remote working. It was a need that services like Zoom, WhatsApp, Teams and others capitalised on. Skype is notably absent from that list. It faltered amidst increasing competition. Why?

Skype’s ability to provide free video calling was its unique selling point. Once other services started providing this feature and more, Skype faltered. For example, during the pandemic, Zoom promoted several useful, user-friendly features, which included: break out rooms, whiteboards and streaming. It promoted video conferencing for sizeable groups, and became seen as a more professional and accessible alternative to Skype. The Business Chronicler stated that, between 2020 and 2021, Skype suffered a 25.8% loss of market share, from 32.4% to 6.6%. In contrast, Zoom achieved great success, with its market share increasing from 26.4% to 48.7%.

It is possible that Microsoft intentionally stopped developing Skype’s features to focus on Teams. In September 2016, Microsoft announced that it would be shutting down Skype’s London office, making over 400 employees redundant. Per the Financial Times, an anonymous, former employee stated: ‘I know it’s natural to integrate, but Skype is a shell of the company it once was.’ It is clear that Microsoft’s acquisition of Skype fundamentally impacted Skype’s capacity for innovation and growth. On acquiring Skype, it acquired Skype’s substantial active user base, employees, and technology. Microsoft were naturally able to use these resources to further its own business agenda.

Microsoft’s decision to launch Teams in 2017 signified a definitive de-prioritisation of Skype. Many M&A deals are motivated by a buying company that wants the company’s assets (such as intellectual property or employees) rather than the entire company or brand itself. Microsoft’s decisions seem to reflect this practice. Microsoft heavily invested in Teams, updating it with several features that were key to Skype’s brand, such as: messaging, one-on-one calls, group calls, and file sharing. Finally, in June 2021, Microsoft decided to integrate Teams into Windows 11, its newest operating system, solidifying Skype’s position on its outskirts.

Where will Skype’s Existing Users Go?

According to the Financial Times, Skype had 36 million users in 2023. Since then, Skype has not updated information regarding its user figures. It remains to be seen whether former Skype users will remain with Microsoft and utilise Teams or gravitate towards alternatives. Teams may struggle to retains its market position as there have been recent crackdowns on big tech bundling services on the basis that it could be perceived as anticompetitive.

On July 27th, 2023, the European Commission announced that it would be issuing antitrust proceedings against Microsoft. Margrethe Vestager, the EU’s Executive Vice-President (in charge of competition policy) stated: ‘…we are investigating whether Microsoft’s tying of its productivity suites with Teams may be in breach of EU competition rules.’ In response, Microsoft stopped selling Teams as a bundle with Microsoft 365 and Office 365 in April 2024. Nevertheless, in June 2024, the European Commission’s preliminary findings asserted that this change was ‘insufficient’, and Microsoft needed to do more to ‘restore competition’. This scrutiny of regulatory authorities may challenge Team’s dominance as Microsoft’s public image is at risk. As more public attention is drawn to these allegations and investigations, its user base may be drawn to alternatives.

What is Next for Hybrid Working?

In some companies, hybrid working is being threatened, thereby challenging the prominence of video conferencing services in its entirety. For example, technology-giant Amazon reversed its hybrid work policy for January 2025, requiring its workers to be in the office every day. Previously, workers could work from home twice a week. Amazon has argued that in-person working promotes better communication, and, thus, more effective decision-making and innovation. Nevertheless, Amazon’s decision has faced petitions and protests by some of its employees, signifying their dissatisfaction with an end to hybrid working.

In addition, although other industry leaders, such as Microsoft, Apple, Meta and Zoom, have pushed for returning to in-person work, they have not implemented such a rigid return-to-work policy. Evidently, hybrid communication could continue to be a prominent feature of the working world. Indeed, per the UK’s Office of National Statistics, between 8 January to 2 February 2025, working arrangements among UK workers were as follows: 26% travelled to work and worked from home (hybrid), and 14% only worked from home (fully remote).

Conclusion

Skype’s decline may be attributed to Microsoft’s lack of investment, which fed into a lack of understanding of its user-base’s needs. Where other video conferencing services have succeeded, Skype faltered. Nevertheless, hybrid working remains a prominent aspect of business life in 2025, and it will be interesting to see how other services continue adapting to a growing, technology-focused user-base. Recent investigations into Microsoft’s antitrust behaviour may threaten its market dominance, leading to growth for alternative providers.

Bibliography

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