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Last Updated: Friday, 17 June, 2005, 15:44 GMT 16:44 UK
How Skype and Kazaa changed the net
Niklas Zennström, the internet entrepreneur behind both Kazaa and Skype, spoke to BBC Click Online about how his two inventions came about, and how broadband and wireless devices are shaping his vision for the future.

Niklas Zennström
Zennström has helped provoke an explosion in file swapping
There are few people in the world who can claim to have invented something that captured the imagination of hundreds of millions of people.

But Niklas Zennström has done it twice.

It all started while he was working for the European low cost telco Tele 2 in the mid-1990s, where he met his friend and colleague Janus Friis.

By March 2001, the two of them had created Kazaa and were cashing in on the file-swapping boom kicked off by Napster.

What made Kazaa important was that it avoided having centralised lists of what people were swapping.

This arm's length approach kept it, and other file-sharing services like it, out of trouble.

The result was an explosion of music swapping, and movies soon followed with the widespread take-up of broadband.

Humble beginnings

Kazaa is estimated to have been downloaded onto more than 140 million machines.

But while Zennström thought it had great potential from the start, he did not know exactly what people would use it for - be it shareware for software, video or anything else.

"So we made it as open as possible and then we thought we'd see what people used it for", he says.

"Then people started using it more and more and it became the most downloaded software on the internet."

Ultimately these are great things
Niklas Zennström
As Napster was already such a dominant player, he and Friis thought there was no chance of Kazaa competing in the music arena.

He says: "It was more a technical proof of concept that it was possible to transfer files between two end users rather than going through servers."

But something about Kazaa caught the public's imagination to set it above all the other file-sharing programs available.

Zennström says there were two reasons why Kazaa struck gold.

"One was that we had a very new type of technology that took care of all the problems, so that everything worked.

"We also packaged this in a user interface that was very easily used, so that the user could use the software, search for something, download it and it just worked."

Online hurdles

Despite the instances of illegal file-sharing that have resulted from the popularity of such networks, Zennström does not admit to a guilty conscience.

"Ultimately these are great things", he asserts.

He also compares the problems faced by the new medium to similar issues of the past.

"When radio stations started playing music the record companies started suing radio stations. They thought now that people could listen to music for free, who would want to buy a record in a record shop? But I think we all agree that radio stations are good stuff.

Kazaa website screen grab
Kazaa was not originally intended for the music market
"And the VCR did the same thing: the movie industry thought nobody would ever watch movies any more.

"But that technology enabled the movie industry to make much more revenue. The single largest revenue source for the movie industry is videos."

Kazaa has also been criticised for including malware and spyware as a way of getting some money back.

Zennström agrees the amount of adware in programs like Kazaa, and some of the other file-sharing networks, is "way too much".

"It destroys the user experience", he says.

Kazaa initially had a very limited number of advertisements, which he says "wasn't that bad in the beginning", but they grew over time.

"That's something that me and Janus learnt as an experience, and with Skype we did not have any type of advertisements whatsoever."

Zennström's latest venture, Skype, was launched in 2003 and, just like Kazaa, it exploits a new and emerging technology.

Called VoIP (Voice over Internet Protocol), it lets people use the internet to make free or very cheap phone calls around the world.

'Ultimately beneficial'

It is a free download, and the service is free too, so it is no big surprise that Skype now has the largest number of users in the VoIP arena and has topped 100 million downloads, all with minimal amounts of advertising.

This is a disruptive technology that shifts the industry
Niklas Zennström
Zennström says Skype is not at all like Kazaa.

"It's a different situation. This technology enables people to communicate directly.

"And obviously it undercuts a lot of revenues of the big phone companies, who have been using outdated technology.

"Again, it's something that will prevail because it's ultimately very beneficial for end users - consumers and businesses."

But it is not completely free, says Zennström, "in that you need to have a computer and an internet connection, preferably broadband".

Careful pricing model

Skype makes money because a small fraction of users is buying additional services, such as the capability to call from Skype to the telephone network or vice versa.

Not having to make money from every user is not a new idea, Zennström emphasises.

"It is very similar to companies like Google and other internet companies. When you go and search on Google you don't pay for that. But sometimes you click on an advert and Google makes money on that.

"It's the same thing with Skype. Some users are paying for services, but not everyone."

Zennström believes the losers out of this new structure will be the telcos who do not understand that there is a change going on.

"This is a disruptive technology that shifts the industry", he says.

He believes Skype will take away revenue from phone calls, which is the bulk of the revenue for phone companies.

"That will go away in the future - all phone calls will be free. That's obviously an issue for them.

"On the other hand, Skype, just like Kazaa and other software, are encouraging people to buy broadband connections.

"Today, less than half of the population has broadband. This enables the phone companies to sell broadband to the other half."

As for the future, Zennström says Skype is a long-term project.

"We have just started, and if you compare the number of people using Skype to the number using a telephone network around the world, we're still just starting.

"And now we're also very much focussing on moving away from the computer into mobile devices, so you can use Skype for free wirelessly."

Click Online is broadcast on BBC News 24: Saturday at 2030, Sunday at 0430 and 1630, and on Monday at 0030. A short version is also shown on BBC Two: Saturday at 0645 and BBC One: Sunday at 0730 . Also BBC World.

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