The Latest Skype Deal Drama

Sep 19, 2009 – 11:15 by Ryan

Recently, it was announced that eBay sold 65% of Skype to a consortium of private investors, led by Silver Lake for $2.75 billion. At first, this deal sounded great considering eBay purchased Skype for $2.6 billion in 2005 and was never was able to realize the original goal of integrating the product into its online auction service. However, more information has come out that makes this look like a potentially enormous mistake for the new investors. When eBay (at the time led by Meg Whitman) purchased Skype from Niklas Zennström and Janus Friis, Whitman failed to secure the rights to core P2P intellectual property. Failing to secure the core IP, known as the Global Index Software (GI Software) was an enormous mistake that potentially borders on negligence. Whitman,  who is now interested in becoming the Governor of California, may feel the sting of this mistake as people question her ability to properly manage the negotiation of complex deals.

Global Index Software

The core P2P IP (the GI Software) in Skype is still owned by Zennström and Friis in a holding company known as Joltid. Their company has licensed the GI Software to several companies including one of their latest ventures Joost, a video distribution company. Until recently, the CEO of Joost was former Cisco executive Mike Volpi. While at Joost, Volpi led the company away from a P2P approach (using the GI Software) and towards a CDN or semi-centralized content distribution architecture. This was a relatively smart move on Volpi’s part because of the limited upload speeds available to most home Internet connections. Limited upload speeds mean that it takes a lot of dormant/idle computers to serve HD content to a single user. Without an enormous install base, the Joost P2P product appeared to have difficulty streaming high definition content. While leading the migration away from the P2P framework, the Joost engineers had access to the GI Software source code. The transition was not trivial and it cost Joost a lot of time/money. More importantly, this gave Volpi experience in leading a migration away from the same proprietary software in Skype, which — thanks to eBay — is not owned by the company. Not too long ago, we wrote a post about Skype’s Achilles’ heel in their P2P core. Undoubtedly, we are not the only people who see the long-term issues with the P2P core.

Focus on Volpi

The major issues for Silver Lake are the new lawsuits against them and the people involved in the deal. Recently, Volpi’s employment at Joost was terminated. In a new lawsuit filed by Zennström and Friis, they alledge that Volpi (while still an employee of Joost) used his proprietary knowledge of the GI Software (and how to migrate away from it) to shop a deal around to investors to purchase Skype. They also claim that he recruited Joost engineers who worked on Joost’s migration away from the GI Software to Skype. Of course there are always two sides (at least) to every story, but the lawsuit against Volpi looks incredibly damning. This of course is up to the courts to decide but the impact on Volpi’s reputation may extend a lot further than this deal.

Future

We hope all this will not impact the availability of Skype. We use the product a lot but are concerned that the company/product may not weather these times well, due to its current legal woes. Perhaps the smartest thing would be to pay Zennström and Friis to go away, but we fear their price may be too high.

Happy Talk Like A Pirate Day!