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Vanity Fair

Two Wild and Crazy Moguls

Niklas Zennström and Janus Friis are the twin geek stars of “disruptive technology.” First their file-sharing program, Kazaa, soared from Napster’s ashes. For their second act, the Scandinavian team has plans to rewire the planet—wirelessly—with their Internet phone service, Skype. And it's free. No wonder Yahoo, Google, and the other heavy guns want their number. Traveling from an industry conference in Cannes to Skype's tech headquarters in Tallinn, Estonia, meet the elusive entrepreneurs who are transforming the way the world communicates.

SOME PEOPLE DON’T like change. Change doesn’t much care.

But when you’re the guys doing the changing, manners still count. Let them down easy. Speak in code, as if a kid were in the room. Refer to the pivotal event as the “Y meeting,” and make sure no one is listening in. Have a quick look around the café, where the dark-goggled figures are staring blanks into the light.

It’s full sun in Cannes, February, with the sea at dignified ripple and the crêpe dealers yawning flecks of spit into the chocolate. Meantime, the boutique streets are floating in color-coded nametags. Gray-haired conventioneers roam in suits the shade of gloom, taking stock of the future all around them. It comes fast, and how odd it can look. A few of the old industrialists wear the hands-free cords of their cell phones plugged into one ear and looped over the other, bringing a bar across the face like a football helmet’s. Sometimes it’s better to exit the game.

You can be old for only so long. And when you’re sucking wind off the squeaky-kneed $300 billion telephone industry, then old may as well be dead. A great change is already on its way.

The figures plotting the shift, in this Cannes café, are slope-shouldered and Scandinavian, one six feet four, the other six-five. Niklas Zennström and Janus Friis have traveled to France as part of their continuing effort to hijack the way the world communicates. In 2000, these Internet radicals created Kazaa, the file-sharing company that helped sabotage the record industry. With their new program, Skype, all they want to do is commandeer all the phones in the world. Equipped with boyish energy and one lazy eye each, the partners divide their days among London, Luxembourg, and subzero Estonia, where Skype rolls out—with very little overhead and without that Silicon Valley chatter. Zennström and Friis believe they have cracked the code that will rewire the planet, wirelessly.

The time for their Y meeting has arrived, and the two delegates march past the red Ferrari, parked flagrantly outside the door, and into the beach-street hotel. The bar here hangs sweaty with the sex reek of money rubbing together, the high clatter of capital bouncing off the four walls. Strangers approach. “I’ll be watching for you,” says one teeth-showing suntan. A man in tasseled loafers proclaims “this whole thing” to be “massive.” The principals slip the clutches, keeping it all ice cold, until at last there is Y, taking the form of three men rather like the others.

A fresh coat of gleam covers the gums as the introductions go round, the bows going semi-deep. But when it comes to the last man, a great panic shakes through the Y group. This person is an outsider, a member of the press. Like a rich girl in the wrong neighborhood, the lead agent from Yahoo clutches the rope around his neck. He shoves his trade-show nametag under cover of his suit coat. Officially, then, this meeting hasn’t taken place, and, officially, no one in this room of touch-tone power needs to worry over that big sleep coming on.

It’s the first night of this once-a-year paddock session for the international mobile-communications cartel, and already it’s clear who wears the pretty dress. Skype is the word, and those who don’t sweat it or want a piece of it appear to constitute a dwindling minority. Simply, Skype is a virtually bug-free computer program that allows you to make telephone calls over the Internet anywhere in the world. Skype is not the only company of its type, nor was it the first. But people who know about these things believe that nearly all phone calls will soon run over the Internet, even cellular calls, and that little, 140-employee Skype will force the world’s telephone giants to accept the new religion or be soundly routed—and probably both. Skype calls transmit as clearly as regular calls, and, you see, they are free.

Voice over Internet Protocol, or VoIP, separates your voice into small pieces, transmits it like an e-mail, then reconstitutes it for the person on the receiving end. All the big companies have already jumped into VoIP, avoiding the F.C.C. tolls and fees that help make regular phone service as expensive as it is. Some say it may be too late to stop Skype from becoming the broadband Ma Bell.

NIGHT IS GETTING on when three Korean girls in negligée cocktail dresses slip through the crowd, carrying electric violins on their way to the aft stage. The yacht yaws to port as the group saws into a number that no one can understand. This isn’t the only song in town. The boat sits on yacht row, made up here for the 3GSM World Congress. Stately seagoing tubs rented to BlackBerry, LG, Philips, Cisco Systems, Siemens, Toshiba, and other firms of varying size and ambition bob in one another’s faint wakes. Flaky hors d’oeuvres issue all down the line.

If you were to scan the group on this yacht (rented by the P.D.A./mobile-phone producer I-Mate, which, like Motorola, has signed a deal to pre-package its models with Skype) and then guess who is responsible for all the noise in Cannes, you would be forgiven for choosing the violinists. Over in the corner, a linguistic tiff continues.

“Danish is bastardized Swedish,” says Zennström, who is from Sweden.

“Yes, well, Swedish is a derivative of Danish,” says Friis, from Denmark.

The two code talkers sit on a creamy leather couch, looking very much like just about anybody, rather than the grenade-tossing principals of a revolution. Yet that is how they have been regarded since 2000—as revolutionaries by some, rubbish-bin raccoons by others—the year all technophiles caught their scent.

That was a different uprising. We all remember Napster, the free music-swapping Internet program that ultimately received a hiding from the record industry. Once Napster fell, Kazaa raised the flag, quickly going on to become the most downloaded software on the brief time line of the Internet: 390 million total downloads, with three billion files traded per month.

Having what amounts to roughly every citizen of America on board, plus another 95 million, would seem to cue the party. But Zennström, 39 (married, no kids), and Friis, 29 (single), couldn’t enjoy the moment. In October 2001, the member companies of the Motion Picture Association of America and the Recording Industry Association of America filed suit against Kazaa, claiming the company was party to the straight theft of copyrighted material. Zennström and Friis played it coy, claiming that they merely wanted to allow consenting adults to share their collections with one another, and that they were already pursuing licensing agreements. To be safe, they haven’t touched down in America since 2002, preferring to limit any argument for jurisdiction. Even so, in the fall of 2003, a guy on a motorbike chased Zennström and his wife through London’s Branham Gardens clutching a subpoena in his hand.

PROGRESSIVELY MORE CAMERA-SHY and out of sight, Zennström and Friis decided to hide away in the former Soviet bloc and work on a new bomb with a team of programmers. They eventually left Kazaa in the hands of an Australian company, selling the site for $1 million. The Australian firm is actually incorporated in Vanuatu, a Pacific-island state situated in the same renegade orbit as Fletcher Christian’s Pitcairn.

With Kazaa their lodestone and millstone, the Scandinavians carry the mantle of what is known as disruptive technology, a polarizing term that can turn hero or villain depending on how you twist it in the light, or how much money you have. Friis and Zennström w ere defendants personally named in the case that led to June’s landmark Supreme Court decision in which the purveyors of file-sharing technology were considered potentially liable for violating the copyright of entertainment companies. (As individuals, the pair are challenging whether a U.S. court has jurisdiction to bring them into a lawsuit related to a business that they sold more than two years ago.) Eventually, the judgment may put to rest questions surrounding the legal viability of sharing music and movies over the Internet. Techies want the freedom to invent new programs without having to bear the burden of protecting copyrights; the record and film companies don’t want to be forced to alter the way they earn income; and Zennström and Friis would prefer they weren’t mentioned in this context at all.

SINCE THE LITIGATION has reached America’s highest court, removing the uncertainty of what the record labels and movie studios may try next, Zennström and Friis have become more relaxed in public. But they still remain rather difficult to contact, preferring to stay under the conventional radar that tracks media-age entrepreneurs.

“Sometimes people think that a disrupter is somebody who is an anarchist,” Zennström says. “Someone who is destroying values just for the sake of destroying, because things should be free, because the anarchists are probably Communists.”

“Well, Sweden is a socialist state,” says Friis. Today he wears something approaching his usual: a paisley cowboy shirt of pink and purple, along with a belt buckle in the shape of a cougar’s head. Zennström, meanwhile, adheres to embassy reception dress and protocol. Together they total something less than Nick and Nora Charles, but you will find that for a couple of pure geeks they are not impossible to be around.

“It’s not a socialist state,” Zennström says. “It’s social democrat. Anyway, the point is that many times disruptive technology is what brings evolution forward. The personal computer was a very disruptive technology. So was the railroad. And the airplane. Mr. Ford was a disrupter. eBay and Amazon are disruptive companies.” Zennström can run for miles on this one, though today in Cannes he is juiced on only proper pulp. There’s no ounce of Elmer Gantry in him.

ZENNSTRÖM GREW UP paper-route obedient, both Mom and Dad teachers. Things may have changed during that exchange program that sent him to the University of Michigan, where he studied business and engineering, and watched a lot of football, between all the beers.

Friis fits the disrupter profile more closely, having left his Copenhagen high school for good at 16. Soon after he made it back from running around Bombay, he answered a want ad for a job at a Swedish long-distance company, which Zennström had placed. Over the next several years, Zennström carried Friis along to different projects in Amsterdam and Luxembourg City. Together they turned their backs on wages in 1999 and started kicking around the concept that became Kazaa, which they named after a restaurant.

THE NAME SKYPE has no antecedent. Originally, the two settled on the name Skyper, but they learned that it belonged to a German paging service. Friis suggested dropping the last letter, arguing that it could then become a verb. As the company has attained greater footing, the name has allowed Zennström to reach for omnipresence. “We want it to become synonymous with Internet telephony,” he says. “‘I’ll Skype you later.’”

After you have spent enough time with Zennström in a variety of settings and mental vapors, it becomes clear that he probably hasn’t raised his voice since he yelled, “Hey, I’m open,” in a high-school basketball game. And, even then, it was for common cause. This doe-eyed pose is not an act. All the same, Zennström consistently talks as though Skype is already snapping towels at the Three W Country Club with AOL, MSN, Google, eBay, Amazon, and Yahoo. There is also his doomsday talk over Verizon, Comcast, and the like, about how the fixed-line assets of these giants are “turning into a liability,” how the massive corporations will be “so stuck” when Internet calling goes standard, which should b e, oh, any day now.

Zennström and Friis want to make Skype “the global telephone company,” and at last look, faith, unlike greed, was still permissible. With 150,000 downloads per day, 140 million total downloads, and 44 million registered users in all the countries in the world—after only two years in business—Skype stands as one of the fastest-growing Internet companies ever, volume-wise, on a quicker pace even than Kazaa.

In the 129 years since Bell first transmitted voice, the biggest innovation in telephones has been the switch from analog to digital in the 1950s. This next step should prove to be more jarring. If phone-calling becomes another free Internet service, like e-mail, then, Zennström predicts, today’s phone giants will become broadband sellers and nothing more, leaving Skype to connect the calls. All well and fine, but where’s the money?

If a call travels from one Skype user to another, it is free. If you call a non-Skype phone number, or if a non–Skype member calls you, you pay a fee starting at two to three cents per minute. The company charges for premium services such as voice mail. Already, these add-ons have generated more than $18 million in sales since being introduced in July 2004, and the company claims that the $20 million it received in two rounds of funding will be all the financing it ever needs. Skype does not advertise, going 100 percent guerrilla, and it has no billing department to speak of, as premium services are all prepaid. With such a model, the company maintains that financial success will come if only 5 percent of users pay for the extras.

It’s no lock for Skype to rule the category, especially since competitors have flooded the market over the past year or so: traditional phone companies like Verizon and AT&T, cable/D.S.L. firms such as Time Warner Cable and Cablevision, and Internet-based newcomers such as Vonage. All of these companies have one main selling point over Skype—their Internet calling services allow you to use a normal telephone, while Skype still requires that you log on to your computer and communicate through a headset.

Skype believes that this point will boil off in the great tech advance, as its software has already begun to leap from the computer and onto the home and mobile phone, thanks largely to wireless technology. Also, most Web phone services cost between $25 and $35 per month, and they can be wildly complicated. Skype is free and wildly simple: download the software, plug in a headset, and dial. You’re up and calling in about 10 minutes.

Many argue that Skype won’t be able to compete with the vast resources of the phone companies, or that it will fail to fight off Microsoft, an assured future player. The Swede and the Dane point to the fact that they a re targeting the entire world, rather than limiting their market to the U.S. and U.K., like their main competitors. When a game has only just begun, speculation comes by the bucket, and the vinegar drinkers aren’t hard to find, no matter whom they’re rooting for. “Maybe [the naysayers] are right, maybe we’re wrong,” Zennström allows. “Well, actually, I know they’re wrong.”

Zennström and Friis may have history in mind, but they really want to build a company that makes money. Their main bogey over Kazaa hasn’t been strangers waving subpoenas in the dark of night, but the fact that after creating a gold-mine application they couldn’t find a way to make an honest dollar from it. In awful brokerage, they got famous instead.

HERE IN CANNES, whispers precede them. They’re off the yacht and past the main exhibition hall, where the movies get played at that other convention, but where today death comes by brochure and gratuitous backslap. Zennström and Friis avoid the human pile, traveling without encumbrance and leaving their hands free to greet their many admirers. Recognition comes every few blocks.

“It’s great on the way up,” Friis says, while noting unhappily that there aren’t many hotel-room keys arcing their way. “We get more attention from fat C.E.O.’s.”

Also from theorists and futurists, whose blood rushes to the extremity while they posit Skype as the fruition of some white-toga dream, where no one needs money and the sky is always without cloud, the computer having solved man’s every woe. “The thing I like about Skype is that it works—the first time, it works,” says Michail Bletsas, a Greek who is director of computing at the MIT Media Lab, a boggy brain tank for 20 years. “I can’t explain to my mother back home that you have to configure your V.P.N.”

The group sits at a table with Perrier and close conversation, the engine of commerce loudly chugging all around. Bletsas prefers to expound on Skype’s importance as some kind of human tool, a new wrench, maybe, rather than just another means to fill the billfold. He is positioned at the vanguard of developing the so-called $100 computer, a project that would allow the world’s poorest to get online, and, theoretically, even make free phone calls. “It’s a personal thing for me with Skype,” he says. “It’s the realization of our vision.”

SOME VISION IS fuzzier than others. In Tallinn, Estonia, Skype’s technical HQ, a bunch of geeks are getting hammered, lunging at one another in a second-story food house.

These are Skype’s programmers and high-strung I.T.-heads, erupting in great bursts of antisocial behavior, loaded up on defensiveness and bottom-shelf whiskey. Many of them, drunken or not, are thwarted in their social advances by an unshakable sum of behavioral ineptitude. Presumably, they are enjoying one another’s company.

A white wind lashes Tallinn into a late-December squeeze that only drinks can make you forget. There’s not much sun up this high on the map, this deep in the datebook. But, for Zennström and Friis, there’s plenty of reason to stick around.

The big Soviet switchboard plugged some of its best computer scientists into the city decades ago, and Tallinn, with its U.S.S.R.-to-E.U. shuffle of centrally planned housing projects and platinum-card retailers, retains a tech-friendly posture—along with a hunger among its programmers that, Friis and Zennström say, is hard to find elsewhere, post-bubble. You can pay for parking with a cell-phone text message here. In the history-and-culture section of Estonian Air’s in-flight magazine, you will find Skype mentioned alongside NATO and World War II. Along these streets you filter among more than 200 Wi-Fi hot spots.

SO MUCH SHOUTING drowns out the clicking of your heels. At one table, several of Skype’s young men in washed-out T-shirts race to discover who can write the fastest two-sentence text message on a cell phone. The handsets clatter down to the table one by one, and a single geek raises the arms, exultant in his moment of the laurel wreath, champion of thumb-typing. A few programmers huddle at another table, getting a deep-blue tan from the laptop that lies can-opened before them. Young Slavic models patrol the floor looking fairly lonely, but all these guys can see is Skype and, still again, Skype.

Everything goes bottom up here in Skype’s Estonian parish. References to Boba Fett, the Star Wars bounty hunter, stack like fire fuel. Social proficiency becomes a harmful trait, as it could hamper your yearning to dig deep into the cold code and remove the bugs from Skype’s ever evolving web, which gets re-spun every month or so. Skype’s geeks, though, do possess a redeeming geek glee, believing themselves fortunate players on the team that’s going to carry the day.

These are the geeks who built Skype, since Zennström and Friis have never been the type to stare into a computer’s deepest reaches, although they share that nuance of a slightly crossed eye. These programmers do all the squinting, and at all hours of the day, under all weather conditions. But lest you think it’s all dry times, the drinks hit with digital quickness in this crowd, which is happily devoid of any Yankee sense of healthy limits. Work for them appears at most intervals to be some welcome gift.

They have constructed Skype, as Kazaa before it, on peer-to-peer technology, or P2P, which allows the computers that are logged on to Skype to communicate directly with one another, rather than having their requests routed through a central server. This provides their company’s chief advantage over the competition: the corporation exists one step from blue smoke and suggestion.

Traditional phone companies take a momentary cash hit when they add a new customer, which includes establishing a billing account and sending a technician to the house. Not only does it cost Skype less than a cent to add someone to the roll, but once that user logs on, the extra computer only makes the existing P2P network more powerful. On top of that, it is in the best interests of each new user to persuade friends to join up, thus perpetuating the cycle. The whole thing scales to about infinity.

ALL OF THIS helps explain the zeal of Skype’s geeks, who understand better than any handsfree-wearing conventioneer what all of this could mean. Even though their eagerness can get the better of them, there are some well-adjusted individuals in the ranks. As chief of the network’s information systems, Edgar Maloverian, a Russian raised in Tallinn, endures the endocrine crush of having to stand on call at all hours, and for the slightest dashboard quirk. He is 31 years old, and he recently worked at a salary of $90,000 for a software company called FutureTrade, in San Diego. But when you have reached the beach, you have reached the end. “Too boring,” Maloverian says before downing 50 grams of clear drink and checking his phone for an update on the system, stubbing another smoke.

The unconventional becomes unremarkable within these boundaries. Skype is populated by a high percentage of college dropouts, as well as many who still have the chance, since they are still enrolled. Average age: 20-something. Besides programming proficiency, general abnormality provides the hook on incoming C.V.’s. Zennström and Friis hired one Swedish programmer, Zennström says, strictly because he worked an exchange program to Norway into another that sent him to Cornell. The con is very much admired, in accordance with the companywide plan to disrupt the world.

THE GEEKS HAVE moved on to Tallinn’s walled Old City, where you will find the cobblestone streets of Europe largely unmolested. It’s all cocaine-white inside the high-style Stereo Lounge. The banquettes. The cloud-dwelling girls. The Apple monitor up at the bar, which is connected wirelessly to the Internet, as, it seems, everything else is in Tallinn.

Wi-Fi represents the great enabler, which will take Skype off the laptop and place it onto the cell phone, where the world’s billion and a half mobile-phone subscribers will be more apt to use it. To listen to the futurists, all cell phones will carry broadband capability, and homes and town centers will be equipped with Wi-Fi points throughout. In this way, you will be able to use an application like Skype via your cell phone no matter where you are, as though navigating one giant set of monkey bars. Many municipal governments are now considering subsidizing the construction of citywide Wi-Fi grids, ultimately leaving cities, not individuals, to pay for connection fees. Philadelphia, for one, has already begun building its own wireless network. And Wi-Fi, they tell us, will soon give way to something called WiMAX, which can transmit a signal as far away as 30 miles. “It’s like Wi-Fi on steroids,” says Friis.

It’s not steroids, but something is goosing Friis’s system as his black fashion sneakers scuff up one of Stereo’s vanilla tabletops. While Zennström fends off two drunks who paw at him for a job, his female assistant snores loudly at the table. Maloverian leaps from his seat and his full tumbler, hustling into the hallway to take a call and sort out the latest network hiccup.

This certainly doesn’t look like a grouping that will lay the stick to the world’s phone giants. But the big phone and Internet companies are sure to keep the locators fastened on Zennström and Friis, just as the record companies and their subpoena-toting bikers before them. This is why firms like Yahoo, Google, and AOL continue taking their meetings with Skype, and why they prefer to keep it quiet. All alliances will soon be made, the VoIP landscape carved up like Poland.

“These companies take a long time to move, but when they move, they move with force,” says Friis, who has climbed down from the table and palmed a fresh drink, shouting over the music, which is a pure white stream. “If Yahoo had come out with their own program a year ago, they would have squashed us. But now with our user base, we are regarded as not only an equal but as someone to reckon with. A year ago we had 15,000 downloads a day. Now we have 150,000 per day. We’ve seen this with Kazaa. It’s a snowball and nothing can stop it.” With Skype propelling itself on its own momentum, its authors are trying to capitalize on the heat that has everyone calling for dates. They won’t own up to what it is yet, but they say that their next piece of disruptive technology is close to completion. “Here’s a hint,” Friis says. “It’s P2P.”

THE GEEKS HAVE moved on once more, this time to a darkened scum hole called Club Hollywood. It’s past late, and one of the young programmers has engaged in an unwise quarrel with a numb Viking at the coat check. Human behavior remains elusive.

On Hollywood’s upper level, Zennström relaxes as his charges cannot, finding sprawl on a chair with three legs. His eyes focus, then refocus, as he attempts to stay until the last of his company has gone through the door. He looks cashed after all the hours, but at this long table sit many adherents who take their cues from him, listening in for whatever may come next.

“Don’t you love The Godfather?” he says. “The best management movie ever.” Zennström sits up in his chair, rising to this midnight condition. “That scene when the Don is in the hospital and Sonny is freaking out. Michael sits there and is totally calm and says he’ll take out the cop. ‘It’s not personal, Sonny, it’s strictly business.’” In Hollywood it’s hard to see, but you can tell that the Swede isn’t talking just to talk.