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Microsoft is shuttering its Skype video-calling service 14 years after buying the company for $8.5bn, hanging up on a pioneer of internet communications that upended the telecoms industry and paved the way for WhatsApp and Zoom.

Seattle-based Microsoft said on Friday that it would retire the service in May and will start moving customers to the free version of its equivalent Teams application.

“Skype has been an integral part of shaping modern communications and supporting countless meaningful moments.” said Jeff Teper, president of Microsoft 365 collaborative Apps and platforms.

Teper added that the company understood that the move would be challenging for some customers.

Skype was a pioneer in making phone and video calls over the internet to anywhere in the world, an innovation that blew up the telecoms industry’s lucrative business model of charging high fees by the minute for international calls.

“Skype was a revolutionary product of its time and I will always be proud and grateful for the early team members and investors who took a chance on us,” said its co-founder Niklas Zennström, who went on to launch European tech investor Atomico.

“Now other firms are innovating in this space to offer new services for a whole new generation, many of whom will have no idea of how expensive it used to be to call Australia.”

Microsoft’s decision to close Skype comes seven years after it released its Teams chat and group video calling application, which offered many of the same features as Skype.

The business has struggled to compete against upstarts including WhatsApp, Telegram and WeChat, while it fell to the wayside during the Covid-19 pandemic when the likes of Zoom were able to capitalise on a boom in demand for videoconferencing services.

Skype was founded in Luxembourg in 2003 by Zennström and Janus Friis, who led a diverse group of European developers. Its technology emerged from the chaotic world of peer-to-peer file sharing, which was blamed for facilitating rampant piracy of music and movies in the early 2000s.

Riding the wave of early broadband adoption, the start-up quickly attracted tens of millions of users — as well as competition from larger internet companies including Google.

Skype was acquired by ecommerce platform eBay for $2.6bn in 2005 in a deal that reignited Silicon Valley’s blockbuster dealmaking for consumer internet companies following a long hangover after the dotcom bust.

Two years later, however, eBay took a $1.4bn writedown on the investment on the basis that the acquisition had not performed as expected.

In 2009, a consortium of investors including Andreessen Horowitz and Silver Lake bought into the company. Then Microsoft acquired Skype in 2011 — the same year that Zoom was founded — in a bid to regain momentum in the consumer internet business at a time when it faced fierce competition from Google.

Microsoft’s former chief executive Steve Ballmer described the 2011 deal as an “enormous opportunity” for the company in offering services spanning voice and video calls. “Microsoft and Skype together will define this future and what it really, really looks like,” he said.

“Skype took advantage of broadband going mainstream and unlocked a massive demand for free voice calls that had never existed before,” said Benedict Evans, a tech analyst and consultant.

“It was also a European story,” he added, in part because there was greater demand for cross-border calling there than in America. But today, internet calling is integrated into dozens of apps. “It became a generic technology,” Evans said.

Microsoft has progressively cut back Skype’s services since the launch of Teams and discontinued Skype for business in 2017.

Late last year, Microsoft said it would stop customers being able to add credits to their accounts, instead pushing them to use monthly subscriptions.

Skype had more than 36mn users in 2023, when it last reported these figures, having fallen from a peak of 300mn in 2016. It acquired the business when it had 30mn customers.

Microsoft said it would migrate Skype customers to Teams enabling them to use their current credentials to sign into the service. They will also be able to export data including chats, contacts, and call history if they do not want to use the service.

Skype’s paid subscription users will be able to use any credits until the end of their next renewal period.