Why Were Janus Friis and Niklas Zennström Successful with Kazaa and Skype?

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Why Were Janus Friis and Niklas Zennström Successful with Kazaa and Skype? HD-afhandling Forfatter: Ebbe Munk EM66645 Vejleder: Bent Martinsen Why were Janus Friis and Niklas Zennström successful with Kazaa and Skype? 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. kazaa_skype_ebbe_munk.doc 1 29-04-06 Table of Contents 1 . Research Questions .................................................................................................................. 5 1 .1 Delimitations ........................................................................................................................... 5 1 .2 Definitions ............................................................................................................................... 5 2 . Design of the Examination ..................................................................................................... 6 2 .1 Selection of the Case Study Method ...................................................................................... 6 2 .2 Considerations of Validity (1) ................................................................................................ 6 3 . The Case of Kazaa ..................................................................................................................... 7 3 .1 Napster 1999 ........................................................................................................................... 7 3 .1.a Information want to be free ......................................................................................... 8 3 .1.b The Entrepreneurs at Tele2 ........................................................................................ 8 3 .1.c The Principles of Peer-To-Peer networks .................................................................. 1 0 3 .2 Kazaa 2000 ............................................................................................................................ 1 0 3 .2.a A Self-organizing Network with Supernodes ........................................................... 1 1 3 .2.b No Spending on Marketing ........................................................................................ 1 1 3 .3 Kazaa 2001 ............................................................................................................................ 1 2 3 .3.a Copyright Problems and Legal Claims ..................................................................... 1 2 3 .4 Kazaa 2002 ............................................................................................................................ 1 3 3 .4.a Kazaa Escapes the Legal Claims .............................................................................. 1 3 3 .4.b Friis and Zennström Moves to a Taxpayer's Haven ................................................ 1 4 3 .4.c Guilty – Not Guilty ..................................................................................................... 1 5 3 .5 Kazaa 2003-2005 ................................................................................................................... 1 5 3 .5.a The Fall of Kazaa ....................................................................................................... 1 6 3 .6 Developments in Kazaa's Environment ............................................................................... 1 7 3 .6.a There's No Such Thing as a Free Lunch ................................................................... 1 7 3 .6.b Bullguard Anti-Virus ................................................................................................. 1 7 3 .6.c Programs without Advertisements ............................................................................ 1 7 3 .6.d Altnet – a Spin-off with Licensed Content ............................................................... 1 8 3 .6.e Using Peer-to-Peer Services to find Local Hits ........................................................ 1 8 4 . The Case of Skype ................................................................................................................... 1 9 4 .1 Skype 2002 ............................................................................................................................ 1 9 4 .1.a A Project Named Skyper ............................................................................................ 1 9 4 .1.b Venture Partners ....................................................................................................... 2 0 4 .2 Skype 2003 ............................................................................................................................ 2 1 4 .2.a The IP Telephony Market .......................................................................................... 2 1 4 .2.b Arrival of the Star Power ........................................................................................... 2 1 4 .2.c News.com September 2003: Nine Reasons for Success ............................................ 2 2 4 .2.d Venture Partners (2) .................................................................................................. 2 4 4 .2.e News.com December 2003: The Force of Viral Products .......................................... 2 4 4 .2.f The Properties of Viral Marketing ............................................................................. 2 6 4 .3 Skype 2004 ............................................................................................................................ 2 7 4 .3.a Fortune February 2004: Heading for Six Billion Users ........................................... 2 7 4 .3.b Venture Partners (3) .................................................................................................. 2 8 4 .3.c News.com September 2004: Skype being the real deal ............................................ 2 9 4 .3.d Skype's Competitive Advantage ................................................................................ 3 1 4 .4 Skype 2005 ............................................................................................................................ 3 1 4 .4.a Skype Services Banned in Norway and China ......................................................... 3 2 4 .4.b Skype's Customer Profile ........................................................................................... 3 3 4 .4.c Internet Telephone Mergers and Bids for Skype ...................................................... 3 3 4 .4.d "eBay to Acquire Skype" ............................................................................................ 3 4 4 .4.e Uneasy Conditions ..................................................................................................... 3 6 4 .4.f "Most Acquisitions Fail" ............................................................................................ 3 6 4 .4.g Venture Partners (4) .................................................................................................. 3 7 kazaa_skype_ebbe_munk.doc 2 29-04-06 4 .4.h Press Coverage of Friis and Zennström ................................................................... 3 8 4 .4.i Being on the Edge of Craziness? ................................................................................ 3 9 4 .4.j Friis and Zennström's Co-operation .......................................................................... 4 0 4 .5 Developments in Skype's Environment ............................................................................... 4 2 4 .5.a PGPfone, the First Peer-to-Peer Telephone? ............................................................ 4 2 4 .5.b Nimcat Peer-To-Peer Phone for Small Business ...................................................... 4 2 4 .5.c Development in Mobile IP Telephony ....................................................................... 4 3 4 .5.d Voice Spam to Be Expected ....................................................................................... 4 3 4 .5.e The Estonian Connections ......................................................................................... 4 4 4 .5.f Klaus Riskær Pedersen and Cybercity ...................................................................... 4 4 5 . Why were Friis and Zennström successful with Kazaa and Skype? ........................... 4 6 5 .1 Cause and Effect ................................................................................................................... 4 6 5 .1.a Success is Profit and Survival ................................................................................... 4 6 5 .1.b Correlations of Cause and Effect ............................................................................... 4 7 5 .1.c Considerations of Cause and Effect for
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