Perhaps with the benefit of hindsight, firing Skype founder Niklas Zennstrom as CEO in 2007 and paying out only 1/3 of the potential earnout wasn’t the best idea. Zennstrom seems to be holding quite a grudge.
eBay is developing new peer-to-peer software to run the Skype service, they revealed in a quarterly SEC statement.
The existing peer-to-peer software is controlled by Joltid, a company controlled by Skype’s founders Zennstrom and Janus Friis. The software was not acquired by eBay in its 2005 acquisition of the Skype service and is now the subject of litigation in the UK.
eBay is developing the new software in the event they lose the right to continue to license that technology, but warns that “such software development may not be successful, may result in loss of functionality or customers even if successful, and will in any event be expensive.”
This comes as eBay prepares to spin off Skype as in independent public company. And the service is surging in popularity, with 480 million registered users and $170 million in quarterly revenue.
The case isn’t scheduled for trial until June 2010. Don’t expect an IPO before that, unless a settlement is reached quickly.
From the 10Q:
Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties. The parties had been discussing a dispute over the license. In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties. In particular, Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement. Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid’s copyright and misused confidential information. On the basis of, among other things, the parties’ mutual dealings since the execution of the license agreement, Skype asked the English High Court for declaratory relief, including findings that Skype is not in breach of the license agreement, that Joltid’s notice of breach and subsequent notice of termination are invalid, and that Joltid has certain indemnity obligations in relation to the U.S. patent proceedings. Trial is currently scheduled for June 2010. Although Skype is confident of its legal position, as with any litigation, there is the possibility of an adverse result if the matter is not resolved through negotiation. Skype has begun to develop alternative software to that licensed through Joltid. However, such software development may not be successful, may result in loss of functionality or customers even if successful, and will in any event be expensive. If Skype was to lose the right to use the Joltid software as the result of the litigation, and if alternative software was not available, Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.
Fekja! Another Silicon Valley soap opera begins
Gotta get some popcorn!
That’s the way Skype making money by cheating Ebay to buy Skype but the key technology with the company they own. Now, who want to believe Skype founder anymore?
Excellent move by the inventors. Now even if ebay spins it off, they can create a competing service.
I so much love it when a few guys can grab ebay by the balls
How on earth did eBay allow itself to get in this position? It bought a company (thus its IP) but allowed the former founders to keep what you would have to consider “core” technology in a separate company and “license” it back to the company they were selling… Wow, that’s a poor effort by eBay.
The answer now is, the founders want Skype back and eBay has to find a way to do a deal with them without losing too much face and get some kind of return.
They also bought the Two_Most_Likely_to_Disrupt_Companies, Paypal and Skype, and ‘lined-up with their respective industries.
Did Paypal go after Visa and Mastercard? No, they lined up with Mastercard. Their business was built much leaner than either of the two incumbents, yet they still kept the same per transaction costs. Looks like RevolutionMoney might be the only chance of disrupting the Credit Card Companies. At least they were all forced to go public.
Did Skype announce a real phone with 3G data and wifi? Or, even a usable “cordless” phone for the home? No OEM partnerships, and the true promise of VOIP was buried.
Once Ebay is done with their development, Joltid should just open-source their technology and let Ebay compete with that.
If Skype is surging in popularity and making $170 million a quarter why on earth would Ebay want to sell it?
I second this.. What is their annual burn? 170 million is low relative to nearly 500 million users but still , you’d think the brain power they have at their disposal could figure out a way to double that in 2 years.
I think skype needs a mass media marketing campaign. It’s too good of a service, I think withl a little marketing they could own small business phone service.
when meg bought skype she claimed it was so popular it was becoming a verb.
ebaay had to have known that they were not dealing with alter boys. obviously ebaay can afford to lose and wont be foreclosed on anytime soon. no loss here just another deduction.
An interesting thought…
Skype makes it monies from calls to non-skype users… and not from s2s calls. So as popularity of skype increases and users increase, its revenues will actually decline! An interesting paradox
PS: of course, theres always google and ad sense…
they clearly have no use for it. Skype has huge potential to become the worlds biggest telephony service
it can and should clearly stand on its own
Wow, you would think that ebay could afford good lawyers in 2005?
I’m also amazed that eBay would have allowed themselves to get into such a deal. Perhaps that was a desperation deal or some behind the scenes *wink* and nod to the founders, which came back to bite them in the ass.
After attempts at dealing with eBay in ‘99/’00 though I can say though that a deal like this happening doesn’t completely surprise me.
Ebay should just let it go. I mean has Ebay made any progress with Skype? Why do they even need a peer-to-peer feature?
What? From 60 million users to close to 500 million. Decent progress. Do they need p2p…well Skype wouldn’t work without it…
Well, eBay spent $1.3B in cash and handed over 32m shares, so if they just “set if free” I think their shareholders might object.
As for why they need “peer-to-peer” technology, think of what Skype is – it is a peer-to-peer communications client! When you setup an IM or Voice Call it is using the P2P technology – it is a little bit vital I’d have thought.
This would be a real pain! Skype is my life-line. It is the only cost-effective method of keeping in touch with friends who live abroad.
Meg sure looks like an idiot now…do you want her in a public office?
She always looked this way, but you used a wrong word for this look – it is called ‘MBA Stanford’.
This image appears on the Sydney Morning Heralds web site ( http://images.s...-420×0.jpg ) and features Niklas Zennstrom and Janus Friis, both of whom look very strange. If I didn’t know better, I’d say these had been photoshopped by a teenager?
wow – i wonder if Ebay´s head of acquisition is still at Ebay? poor job i must say.
The acqusitions people at eBay doing diligence for the deal knew about this and considered it a huge red flag, but it was the execs (Meg et al) who decided to press forward with it anyway. eBay had decent people; they just had ridiculously stupid top management that was basically a revolving door to MBA consulting firms like Anderson and Bain.
I think skype needs a mass media marketing campaign
You don’t mess with the Zennstrom.
… if you have a brainpower of a 10 year old.
Just an addition.
wow didnt know ebay could be that stupid leave the core technology out and buy a brand name way to go ebay
while I guess micheal could not resist posting this himself rather then handing it out to the staff I guess it is the lawyer in him
How does a company pen a $2.6 billion deal and not own everything?
When this deal was done, Ebay was doing the Skype founders a tremendous favor, Ebay could have spent a dedicated budget to build their own voice app back then.
I remember reading a Mark Cuban quote:
“If you sit down at the negotiation table and can’t spot out the sucker, then the sucker is you”.
How could Ebay give the founders the money to pay $600 an hour lawyer fees to litigate back with Ebay to snatch the very core of what was originally purchased.
This is a very weird example of web 2.0 business dealing.
There is an adage in Nepali – ‘Crow is so smart that it eats shit’
Who was the Ebay lawyer for this deal?
Pay over 1 billion, but still don’t get all the ip rights – WTF.
that wasn’t a lawyer to negotiate it…
Based on the amount ebay paid for skype, not buying the full rights to this technology might be the dumbest move ever made.
Without a doubt at that price, the founders would have sold it to them if requested.
Dumb Americans. Go figure.
Interesting.
If you want some more of the back story check out my coverage of the JoltId vs. Skype battle back in April. Read the comments which are particularly insightful, since one of the commenters is a former Kazaa employee, who worked on the Fastrack p2p technology that is also used in Skype. He said Skype could indeed be taken down. Yikes!
http://blog.tmc...-technology.asp
Excerpt:
I personally believe that they can take Skype off the internet remotely as they did to Grokster and since they did it to a very large audience I don’t see why this case is any different from the first.
Conclusion: Buyer beware and don’t lease software that can be disabled remotely by the vendor. Also, never purchase or lease software that is self encrypted, compressed or obfuscated because it’s not intellectual property that is being hidden, it’s always something else, and I say this because I can circumvent their “binary protection” code and what I have seen is nothing short of scary.
Decisions like this, evidents some of the underlying reasons why ebay has been on the downward spiral ever since. Ebay at it’s peak felt sacrosanct and inviolable. I was sort of in disbelief the last time realized that I hadn’t logged onto my ebay account in over a year or so.
wow ebay are idiots for not getting ip license 100%
I like P2P / Supernodes used in Kazaa, Skype and Joost! I’ve used all of it, i’ve spoken to a lot of people about it and i’ve recommended to a lot peers during my invitational alpha/beta tryout.
These guys are geniuses.
My take: Ebay Inc was desperate for Web real estate. They also had tons of cash. Skype at that time was the biggest hyped Internet application in the world. Janus and Niklas spent hell of a time, blood, sweat and tears developing their engine since the days of Kazaa. So who in their right mind would sell it for less than $5b? I wouldn’t. So obviously EBay Inc made a desperate attempt at acquiring Skype and succeeded and didn’t give 2 hoots about core technology because to EBay Inc, ‘Skype’ itself was a huge and large brand that was worth billions.
So now can i get an introduction to Atomico or not?
Mike can you set me up with Atomico?
An acquisition that long soured, synergies with eBay business did not live up to the hype and performance benchmarks on which original deal priced not met.
eBay just wants Skype out of the house and haggling with the founders on what it will take to make all parties happy. If eBay indeed wants to take Skype public, why the negative talk on its unwanted stepchild? It is strange they do not show more confidence in ability to dispense with Joltid technology and develop their own before IPO or to court date in 2010.
In the meantime new VOIP services innovating where eBay hasn’t are lining up to replace Skype. I recently found one which extends beyond Skype to allow free global calling from your mobile and frees you from your headset, PC and location. It is called Zenring and it provides free international calls for Mobile-2-Mobile, Mobile-2-PC, PC-2-Mobile, and PC-2-PC without the need to buy credits like Skype or other services. Please take a look at http://www.zenring.com
I was using Skype when they first came out and I must admit, I was totally happy because of the money I was saving. However, we all know the feeling when we get something, soon we want more. For me the ‘more’ included free international calls from my cell. I’m always on the go and don’t have time to sit at my PC and chat. I’ve tried lots and lots of products: jajah, rebtel, etc. I recently discovered Zenring and it seems the most convenient and simple solution. I don’t have to pre-schedule my calls. Also, international calls from my cell are totally free (using Zenring requires calling my home phone, and I have free calls between my cell and my landline). For me Zenring is definitely the best product on the market.
since that funny aquisition my eBay stock option became crap and the whole story changed…the most stupid aquisition I have ever seen, the most impossible sinergy between 2 (actually 3) businesses led to this disaster!
How cool is it to see other voip providers grabbing this chance and running with it. Voipbuster is already all over it:
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As it is now becoming more and more clear that Skype’s services will not be available much longer because their software license will expire (license is owned by Joltid, http://www.joltid.com), it is now the time to switch to VoipBuster;
“Skype is worthless without the license” (source: http://seekinga...hold-up-problem )
“Skype might have to shut down” (source: http://communit...0498448b,00.htm)
“Skype has breached the licence agreement” (source: http://chiefoff...is_skype_doomed)
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Kind regards,
The Voipbuster Team