Sunday, 29 April 2012
“Skype - The Poster Child of Estonia’s Free Market Economy”
Mention the names Ahti Heinla, Jaan Tallinn and Priit Kasesalu and people probably won’t recognise them but say the word “Skype”, the product they developed in Tallinn in 2003, and you will discover it’s a household name. Skype is undoubtedly Estonia’s greatest contribution to the global telecommunication industry; it is just as significant as Facebook, Google and the Internet itself. Skype has in excess of 663 million registered users; this amounts to approximately 8% of the world’s entire population and the number of users continues to grow every day.
Aside from gaining its independence, Skype is one of Estonia’s greatest achievements. It enables one user based, for example, in the very far north of Finland to have a video conference with someone in the south of New Zealand for free. This was unthinkable a mere ten years ago and the technology for peer to peer communication is improving constantly. In March 2012 Skype announced its latest feature – the new talk and record Skype Recorder which enables users to record every single call, instant message or video conference and store it on the Skype database – for life. This means precious memories and important conversations can be stored, retrieved and cherished forever.
These three Estonian developers had previously created the successful Kazaa product which was backed by Danish and Swedish investors Niklas Zennström and Janus Friis. In 2003 these same investors backed the Estonian developers once again to create the new product which would later become Skype. This would harness VoIP technology and allow any internet user to call another and have a voice conversation in real time. VoIP is a technology which converts a person’s voice into data packages which are then sent over the internet and converted back into voice at the other end – all at extraordinary speed. This enabled any two Skype users to talk to each other, irrespective of where in the world they happened to be. The only requirements were that both parties each had Skype accounts, PCs, sets of headphones and a microphone. Within one month of launch Skype software had been downloaded one million times and now, 9 years later, more than 663 million people have Skype accounts with around 17 million users being online at any given time.
The genius of these men was able to flourish because of the economic and political freedom that has existed in the Republic of Estonia since restoring independence in 1991. The political system and lightning reforms implemented by former Prime Minister Mart Laar and his team have enabled those with ideas, drive and ambition to pursue their dreams and benefit both themselves and potentially millions of others. The VoIP technology had existed long before Skype entered the market and its possibilities would have undoubtedly been harnessed by someone sooner or later. However, the very hard won political and economic freedom that Estonia now enjoys meant that this wonderful development could occur there. Skype is Estonia’s best known business success story but there are other smaller and lesser known ones. Skype’s story and others like it have allowed many thousands of jobs to be created in Estonia and the effect is an enormous increase in the country’s living standard during the past 20 years.
Estonia has emerged as one of the world’s most dynamic and modern free market economies. Its flat tax system and tax exemption rules for undistributed company profits have attracted vast amounts of foreign investment capital. The requirement to balance the country’s annual budget is written into the constitution which means that the national debt is a mere 6% of GDP.
Estonia has outperformed all of the other 14 former Soviet republics by a very wide margin. Other former Soviet countries such as Turkmenistan, Belarus and Tajikistan continue to languish with very stagnant, state run economies and have failed to embrace the opportunity of starting over with a clean slate like Estonia did after the fall of communism. Twenty years ago if you were to ask someone where Estonia was, they would probably struggle to find it on the map. This is beginning to change and many free-marketing loving Western economists regard Estonia as an economic model to follow. Estonia may have had a dark and traumatising past but the country is now a rising star. In 2011 Estonia achieved more economic growth (8%) than any other country in the EU, coming out ahead of economic giants Germany, France and the UK.
Estonia has earned itself the reputation of being a “Baltic Tiger” or “E-stonia” due to its rapid economic advancement. The country has become tech savvy, innovative and highly ”connected” as a result of the extensive wireless network that exists through the country, which is free in most public places. Two thirds of Estonia’s population now do their banking and political voting online and it’s increasingly done through the use of a smart phone rather than a PC. Estonia has one of the highest rates of mobile phone ownership per capita in the world; this makes paying bills and other transactions much easier than ever before.
There are a few instances where names of websites have entered our everyday vernacular as verbs. We might “Google” a subject or a person on the Internet or “Facebook” someone and now “Skype” has become part of our vernacular too. The term “Skype me” has replaced “call me” or “page me” in many situations and has added new words to our language. Few companies can boast this level of branding achievement but Skype has that right. Skype has not only revolutionised the communication industry but it has also altered the way in which we speak. Skype has made a profound impact on the world and it all started in Estonia.
In 2011 American software giant Microsoft acquired Skype for the massive sum of $8.5 billion. Despite Skype’s metamorphosis over the past 9 years, 44% of its entire staff are still based in Estonia and the engineering teams in Tallinn and Tartu continue to create most of the product’s innovations. It is a testament to the talent of these people that the world’s most powerful IT company has seen it fit to keep the operation in Estonia.
Written by Tania Lestal - March 2012
Posted by Tania Lestal