Why were Janus Friis and Niklas Zennström successful with Kazaa and Skype?

HD-afhandling, vejleder Bent Martinsen

Handelshøjskolen i Århus

Aarhus School of Business

2006

Abstract

Friis and Zennström have a unique cooperation. They generate ideas and turn them into big business.

They are classical entrepreneurs in Schumpeter's understanding. They create valuable networks and are well prepared to be lucky in Alchian's understanding.

They founded Kazaa and learned a lot, but did not earn much.

When they founded Skype, they chose to use viral marketing only – a demanding principle, as the distributed product must be viral in itself.

In both cases they have created their own market by letting their customers have the basic service for free and then wait for the network to grow. In both cases they could later sell the network without depriving the customers of their advantages.

With limited means they have created a business model that affect the whole world. They created an enormous profit for themselves and disrupted the music, film, and telecom industries.

1. Research Questions

Janus Friis and Niklas Zennström founded the Kazaa file sharing network and the Skype Internet telephone service.

In 2000 Friis and Zennström created the Kazaa file sharing service as an efficient platform for free exchange of files on the Internet. The users were offered free access, and Friis and Zennström had a remarkable success as the program experienced 370 million downloads.

In 2003 the two entrepreneurs offered a new service to the Internet users free of charge, this time the Skype telephone service. Within two years they experienced 160 million downloads and an enormous commercial success with Skype. In 2005 they chose to sell the firm for 2.6 billion USD. [Note 1]

Research questions: The cases of Kazaa and Skype are the basis for three questions:

1: Why were Friis and Zennström successful with Kazaa and Skype?

To answer this problem I must study the strengths and weaknesses of the entrepreneurs' project and the surrounding environment

2: Will Friis and Zennström continue to have success in business life?

Can they continue to open new markets with new products?

3: What are the requirements for other entrepreneurs to be equally successful?

By now the possible need for peer-to-peer networks in file sharing and telephone businesses has been discovered, and a swarm of copycats are waiting to pursue the business opportunities arising in these trades. How should one create a similar success in another trade? I propose a set of conditions for innovative business projects. [Note 2]

My conclusions are found in the last sections of chapters 5, 6, and 7.

1.1 Delimitations

I have chosen only to use newspaper articles printed before 31 Dec 2005.

1.2 Definitions

Success: An outcome that is favourable, desired, planned, or intended
Peer-to-Peer: See section 3.1.c.
Conscious adapting: Preparation to be lucky, see section 5.4.a.
Viral marketing: See section 4.2.f

There are lists of abbreviations in the beginning of sections 3 and 4.

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Content

Why were Janus Friis and Niklas Zennström successful with Kazaa and Skype?

1. Research Questions

1.1 Delimitations

1.2 Definitions