A Brief History of Skype

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And since it used peer-to-peer technology, calls from people in the middle of nowhere would sound fine as long as other people in the middle of nowhere used Skype, too—they didn’t have to be routed through some server in a more populated area—so a lot of people in the middle of nowhere started using Skype. People in populated areas did too because, hey, people like free calls. You could call someone in another country for zero dollars.

Skype very quickly became a verb, as in, “Skype me!” or “Yo Dawg, you Skypin’?” And when you become a verb, you know you’ve made it.

Skype also handled instant messaging, which is relatively easy compared to voice data and eventually added live videoconferencing—all of which was free between Skype users. Then it started making money by charging people for using Skype to call out to regular telephone numbers, and to accept incoming calls to Skype from outside phone numbers at rates that were pennies on the dollar compared what people were paying for standard phone service and long distance calls.

So Skype’s been one of those “disruptive” technologies we’ve all heard about. It took a business model like expensive phone service, applied a heaping helping of technology to it, and made it so affordable that people were willing to put up with having to make phone calls while sitting at their computers. And now as mobile phone technology gets faster and better, it’s starting to creep into the mobile phone space and shake things up there.

Why Microsoft?

A few years down the line, Microsoft’s $8.5 billion purchase of Skype will either seem outrageous or it’ll look like a good idea. You may recall that eBay bought Skype for $2.6 billion in 2006 and, up until this morning, that figure seemed outrageous. Now eBay’s actually looking pretty smart, which is something that hasn’t been uttered for quite some time.

But unlike eBay, Microsoft could end up putting its billions to good use, seeing that it can integrate Skype into almost any of its products. It’ll be able to handle live video chat on Windows computers and Xbox 360 consoles, help groups of people quickly collaborate on Office documents, and facilitate call-back and instant messaging features in Outlook, just to name a few of its potential uses. And don’t forget about Microsoft’s new Windows Phone 7 mobile platform. That’ll put just about every one of Skype’s features to work.

Skype also has around 700 million users, too, with whom Microsoft now has a pretty direct line of communication. Run the numbers and, all told, Microsoft paid about $12 per person for that sort of access.

More on TIME.com:

Microsoft Makes Skype Purchase Official: What You Should Know

Microsoft Reportedly Confirms $8.5 Billion Deal for Skype

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