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Is the Clock Ticking on Skype?

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janusniklasIf history is any guide, then recent actions by Skype co-founders Janus Friis and Niklas Zennstrom indicate that they wouldn’t hesitate killing off their own creation, unless eBay (s EBAY) settles and pays them a lot of money. Here is why:

Friis and Zennstrom had earlier sued not only eBay but also the investor consortium (which is led by Silver Lake Partners and includes Index Ventures, Andreessen Horowitz) that was looking to acquire about 65 percent of the Internet communications service for about $2 billion.

Today, the Messrs Friis and Zennstrom sued Michael Volpi, who till recently was the CEO of Joost, an online video startup that was started by Skype founders. They also sued Index Ventures. Volpi recently joined Index Ventures, a London-based venture investor that had cashed out big time when eBay snapped up Skype for billions of dollars. As Liz reported earlier:

The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of a peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. And with this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation.

The lawsuit is pretty harsh on Volpi who was once viewed as a savior for Joost.

“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”

“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”

As I have pointed out in the past, there is no love lost between Skype founders and Index Ventures, and today’s lawsuit is further proof of that. I am not sure where the disagreements lie, but the fact of the matter is that the two groups are major players in Europe’s startup world. Skype founders run Atomico, an investment fund that is aggressively wooing startups in the old continent. And no one is ever going to mistake the Skype founders and eBay management as BFFs.

Whatever the reasons, this battle is going to get very ugly. The fact of the matter is that if you are a major eBay shareholder, you should be worried. I mean, very worried. People are overlooking the fact that eBay is going to have to pay at least half of the damages, whatever they might be. In other words, that cost is going to be borne by eBay shareholders. As I said…don’t just be worried, also be mad. Funnily enough, eBay’s stock is up for the week.

Secondly, the Skype founders are ruthless businessmen who are going to make eBay pay for their stupidity. They are in the catbird seat to basically define the destiny of their creation. Without JoltID’s peer-to-peer technology, Skype will have to reinvent itself as a SIP-based player — as likely as me playing for a minor league baseball club.

Friis and Zennstrom are not above shutting down Skype. Janko Rottegers, over on our sister site, NewTeeVee, recounts the history of JoltId in succinct detail and writes:

Kazaa’s code was developed under contract by a startup in Estonia, with all of the work being coordinated from the Netherlands. Kazaa became Zennström and Friis’ flagship peer-to-peer product, but the idea was always to license the underlying P2P technology through a separate corporate entity called FastTrack BV. FastTrack’s code became part of a number of file-sharing clients such as Grokster, Morpheus and iMesh.

Morpheus proved to be especially successful and eventually managed to get more users than Kazaa itself. Then, out of the blue, the Morpheus client stopped working in early 2002. It quickly became clear that FastTrack had shut down the client by denying it access to its P2P network. Morpheus alleged at the time that this was a ploy to steal its user base and once again make Kazaa the most popular file-sharing client. Friis and Zennström had a different take and argued that Morpheus had failed to pay its licensing dues.

By the way, Meg Whitman, who signed off the biggest corporate mistake in the history of Silicon Valley, is running for the position of the governor of California.

21 Responses to “Is the Clock Ticking on Skype?”

  1. “By the way, Meg Whitman, who signed off the biggest corporate mistake in the history of Silicon Valley, is running for the position of the governor of California.” …. scary indeed.

  2. There is only one thing that will save SKYPE – US Patent 7,089,319
    Skype can keep p2p architecture, but get rid of the legacy Kazaa augmentation and its antiquated delivery mechanism. This is the only feasible path forward. The Patent is available for them. Any third parties should contact anthony_remove_(at)adrodotcom

    I hate to wage this guerilla war blog campaign, but I do not see any other option to make my voice heard,089,319.PN.&OS=PN/7,089,319&RS=PN/7,089,319

  3. I think the p2p technology that Skype uses is much overrated. In the early days it might have helped the calling quality, but today bandwidth is really not an issue anymore. In fact, even though Skype works quite well in Skype to Skype calls, when using SkypeOut the quality is really not half as good as SIP based competitors such as VoIPBuster.

  4. I would not take anything away from Janus Friis and Niklas Zennstrom technically. Skype was an excellent achievement when it was done.

    Om you have got this one right. If eBay will not sell Skype back to them they will try to destroy it. I would bet on eBay and US courts.

    If eBay would sell it to them at this point, what will Skype become? I don’t get it. Janus and Niklas should keep their money.

  5. I was always amazed how Janus Friis and Niklas Zennstrom (especially Niklas) were given such a “robinhood” “hero” reputation, that has held until recently. Where were all you guys (including you, Om) five years ago when you were telling us how great these guys were? Now, finally, we see talk of the the real Niklas – he is finally becoming known for his litigiousness, greed, and “dark side” that has always been there.

    It always blew me away how his past never caught up with him. Perhaps it won’t again. It was weird how so many users, bloggers, and “experts” saw him (with Skype) as some kind of savior and protector from the big telecoms corporations, doing all this for the sake of the users. And then trusting their computers and network resources to his software, and agreeing to insanely one-sided TOS etc. and looking right past it all. I never got that. Microsoft could have never gotten away with the same things.

  6. Good question – maybe ask “Michaelangelo” Volpi. He seems to be sucking at the teet of their innovations for a while, and is trying to go back to the well one last time.

    What a mess. Zennstrom and Friis, not satisfied with the billions they got the first time around? Volpi, so bitter about your failure at Joost that in some operatic twist you had to screw the guys that brought you in? This is a den of thieves and you have to question everyone’s judgment. Silly humans.

  7. This is getting very silly. There are several approaches that Skype could take that are superior to the “PTP approach” Skype currently uses. Skype had a tremendous first mover advantage but if this keeps up it will be lost? Skype co-founders Janus Friis and Niklas Zennstrom are doing what all good “patent trolls” do. The suit is timed to delay the sale thinking this is eBay’s most vulnerable time.

    Skype should change out their current technology to a SIP based multiple proxy architecture. An architecture that completely avoids Frilis and Zennstrom. The law suit contends that the Skype phone service and the PTP technology is inextricably tied. This is simply not true.

    Why in the world would anyone do business with these two guys?

  8. I think the buying consortium can make the argument that Skype is a brand with a large user base and that they can choose to re-implement a service on any technology – including cloning the Skype client UI and client to client codecs (all of which they would own). They could argue that they saw the value in exploiting that user base that eBay was unable to do and that is why they bought.

    They could even argue that while the JoltID GI software was an asset for a small and growing startup 5 years ago, it has become an impediment to the methods that they choose to exploit the user base, interoperate with developers and telco networks, and gain legitimacy in world networks.

    Volpi’s arc prior to Joost includes a lot of Voice over IP work at Cisco.

  9. Hey Om, try not to turn an otherwise decent article into a political diatribe.

    “By the way, Meg Whitman who signed off the biggest corporate mistake in the history of Silicon Valley is running for the position of the Governor of California.”

    Are you serious? How about Xerox not commercializing the Alto and its GUI? How about Apple hiring John Sculley and firing Steve Jobs? How about Atari’s role in the video game crash of 1983? The management screwups at Fairchild in 1966/1967 that encouraged Bob Noyce and Gordon Moore to leave and start Intel?

    I’m not defending them, but if you think Ebay failing to license or acquire some IP as part of an acquisition is the “biggest corporate mistake” in the history of the Valley, you just don’t know your history very well.

  10. Om, your axe against Ebay and/or Meg is wearing thin. Jolt is unlikely to win and Skype will move off the GI software anyway (it’s completely unnecessary as dozens of VOIP services have amply demonstrated)(in fact, it is a disadvantage as Skype is well-known for inferior call quality).

  11. @PXLated I belive that you meant “Carly” as in Carly Fiorina.
    Marc Andreessen, who is the chairman of the board, is also part of the group that purchase Skype from Ebay.
    I hope that, for his sake, this fiasco gets worked out amicably.