Almost three decades after gaining independence, Estonia has built itself into one of the top tech and software developing nations in the world. With a government committed to digital life and companies like Skype paving the way for current startups, Estonia is becoming known by many as the Silicon Valley of Europe.
By Ben Snider-McGrath
Life wasn’t always easy in Estonia.
For hundreds of years, the country traded hands and different foreign rulers moved in and came into power. Exhibits in the Estonian History Museum outline this centuries-long power struggle.
It started in the 13th century when Denmark controlled northern Estonia while Germany ruled the South. Later on in the 1500s and 1600s, Sweden took charge. For a short stint, the Polish-Lithuanian Commonwealth ran the show in southern Estonia, while Denmark came into the picture for a century to govern the Estonian island of Saaremaa. Then, in 1710, the Russian Empire grabbed the hold of Estonia, and it refused to go to the end of the First World War.
In 1918, the Republic of Estonia finally gained independence. Estonian sovereignty was short-lived, however, and only two decades later the Soviets took over. Fifty years passed before Estonia regained its independence, this time due to the collapse of the Soviet Union in 1991.
While becoming an independent cause for celebration, Estonia suffered greatly following its secession from the USSR, and the country was ravished by poverty.
“When Estonia regained its independence in 1991, it was a very poor country,” says Kaspar Jõgeva. Jõgeva is a communication and branding consultant at Miltton JLP, a public relations firm in Tallinn which works with several of Estonia’s top tech companies. Born in 1989, Jõgeva grew up in post-Soviet Estonia and saw first-hand how the country suffered in the years after it became independent.
“The average net income was about 25 or 30 euros a month,” he says. “Estonia was a super poor country back then, and we had massive social problems.”
In the nineties, it would have been impossible to predict Estonia’s evolution into one of the world’s leaders in tech and software development. The re, of course, many factors that led to the country’s growth, but were most probably the most important: The creation of a digital society, the founding of Kazaa, the Skype Effect and, finally, Estonian brain drain and e Residency.
Creating a digital society
As Estonia struggled to recover after the collapse of the USSR, it was clear that something needed to be done. In 1996, the Estonian government launched the Tiger Leap National Program – an initiative to equip every school in Estonia with computers.
“Back then it was a huge decision, considering how poor the country was, not to spend the money on pensions or whatever, not to spend on policies, but to buy computers,” says Jõgeva. By the late nineties, the Tiger Leap Program was complete and every school in Estonia was equipped with computers.
Another key factor in the development of Estonia’s digital society, according to Mehis Sihvart, was internet banking. Sihvart is the director of the Center for Registers and Information Systems – the nucleus of the e-government – in Tallinn.
“We got our independence back in the beginning of the nineties, and we started from scratch,” says Sihvart. “We started building our country.” Estonian banks were early adopters of the internet, and by the late nineties it was commonplace in Estonia for people to take care of their banking online.
“You were able to do anything, almost,” says Sihvart. “Transfer, look at your bank account balance. You did not have to turn into the bank counter service to get the information or to daily business. “
Sihvart says that, because of this, citizens started to trust internet services. In 2002, the government introduced ID cards for citizens aged 15 and older. Once again, the banks played a large role in the acceptance of this system.
“It was a mandatory document for every citizen and it had – and still has – a chip in it … for digital signing,” says Sihvart. “On top of that, there was a digital signature law that declared digital signatures, they are equal to your handwritten signatures.” Banks jumped to support this technology and encouraged citizens to use their ID cards for online banking.
“So they pushed citizens to use the ID card,” says Sihvart. “If you think logically, you trust banks with your money. You trust the internet. Banks, they trust the ID card. You use your ID card to manage your money. So it built trust that, this ID card, it seems to be a very safe thing. “
From there, with the trust of Estonians, systems were built which allowed citizens to
use their ID cards for almost all government services, setting in motion the digital society that is still in place today.
Founding Kazaa and Skype
At around the same time that the Tiger Leap program was coming to fruition, Estonian software engineers Ahti Heinla, Priit Kasesalu and Jaan Tallinn – and Swedish and Danish entrepreneurs Niklas Zennström and Janus Friis, respectively – created Kazaa, a peer-to-peer software That enabled computers to interact with each other and share data.
“Kazaa was the mother of all internet piracy,” says Jõgeva. With Kaza’s peer-to-peer technology, users can share music, movies and any other data with other people.
“Kazaa goes super viral,” says Jõgeva. “So all the people in the EU, in Asia, the United States – everyone was Using Kazaa in 1999. But of course, the media companies, especially in the United States, they were furious. So there were several different lawsuits Initiated by the US media conglomerates. “
So why is Kazaa, a program that helped users steal music and other media, such an important part of Estonian history? It led to the creation of Skype.
The founders of Kazaa realized they could not get many legal battles coming from the US, but instead of walking away from their product, they used the software for a new app – this time for making phone calls rather than stealing music.
“They figured out att,” Yeah, we can use the same peer-to-peer technology and this will be a legit business, “says Jõgeva. ” And they did it. They work in order two program Skype and Implement the peer To-peer technology with Skype. That’s how Skype was founded. “
The Skype Effect
Skype was launched in 2003, and, like Kazaa, it went viral. The company’s triumph on the global stage was very important for future Estonian entrepreneurs, because it proved that businesses coming out of Estonia could have mass success and earn billions of dollars.
“Skype grew very quickly,” says Jõgeva. “It got the attention of eBay and it was sold in 2005.” This gave the Estonian market the boost it needed.
“We call it the Skype Effect,” says Riina Johanson. “[When] Skype was sold, after all of the first employees, they all got some money. They didn’t put it in their pockets and have a good life, they reinvested it in the ecosystem. They built a lot of new startups themselves, which bloomed out and sold out again, and it had that effect – you do one thing and it has huge impacts.
Johanson works at Startup Estonia, which is a “governmental initiative aimed at supercharging the Estonian startup ecosystem.” .
If not for the Skype Effect, it is safe to say that Startup Estonia would not have been created, and the 550 startups they work with would, at the very least, not be based in Estonia, or they might not exist at all.
These 550 startups are following in the footsteps of Skype, all hoping to become the next big thing to come out of Estonia. Since Skype, many businesses have been created in Estonia, and several have become unicorns , a status that every company is chasing.
In the business world, unicorn status means that a company is valued at over $ 1 trillion. Estonia has four unicorns – Skype, TransferWise, Playtech and Bolt. Bolt is a rideshare service well on its way to rally Uber, with much of its business in Europe and Africa.
“[Unicorn status] is a level that not too many tech companies, especially in Europe, get to,” says Marek Unt, Bolt’s head of PR. “I think Estonia has been extremely lucky to be the place where, on a per capita ratio, you have the most unicorns.”
Estonian brain drain and e-Residency
Without Kazaa and Skype, it is unlikely that the Estonian startup ecosystem would have grown into what it is today, and the country would not have the most unicorns per capita in the world. The Skype Effect helped show Estonians and onlookers that Estonia is a viable place to find and build a business.
So many countries experience a brain drain, with their talented minds and entrepreneurs moving to countries with more established tech sectors, like the US or UK While standing talented leave to work abroad as well, returning home to a business with the experience they gained while they were away.
“I think it’s really good and beneficial to people from Estonia to work in the UK or in Silicon Valley,” says Unt. Sihvart, from the Center of Registers and Information Systems, agrees with Unt.
“I don’t believe that young talents should not go abroad,” says Sihvart. “We cannot close the borders. We cannot assume that talents don’t want to see around. Of course they want to see. But there should be the logic that they want to come back. “
It also says that while Estonians are working elsewhere, they should be able to be connected with Estonia through the government’s digital services. The e-services allow estonians to run businesses from anywhere in the world, so even if the country has physically lost talent due to a brain drain, it can still benefit from Estonian businesses that are run in the digital system.
This is the logic that goes into the country’s e-Residency program, which allows non-citizens to set up businesses under the Estonia’s online system.
“After you get the e-Residency card, you are equal to any other citizen in Estonia,” says Sihvart. “We can actually let you in, you can establish a company and start making a business.”
E-Residency – a program introduced in 2014, which Sihvart calls an “Estonian government startup project” – makes it so that, in addition to a brain drain of Estonian talent, Estonia experiences a brain gain as the country becomes an attractive and accessible destination for international entrepreneurs.
For citizens and e-residents, setting up a business take of minutes through the online system. Inger Viirpalu, the head of client and international relations at the
Center of Registers and Information Systems, says the e-registry is seen as an average of 2,000 new businesses every month. In one year, Estonia citizens and e-Residents create over 20,000 companies.
Estonia has a population of 1.3 million people, and every year it is tens of thousands of new businesses. Many of those companies will fold or go bankrupt, of course, but with over 20,000 businesses, the odds are pretty good that at least a few will find success on a national or even global scale.
Life was tough in Estonia for a long time. It faced hundreds of years of war, foreign rulers and poverty. It gained independence only to have it done right back. And when it finally became its own country again, in the 1990s, it was unclear if it could survive.
But after three decades spent building a digital society and supporting businesses like Skype and its successors, Estonia is making its mark in the world, and this time around, it looks like it’s here to stay.