A programmer who’d worked on the precursors to Skype’s code in the last millennium asked me where Skype’s spirit had gone. “I can still dig and see my code (we all put eggs in) but I have no hope that Skype will keep the faith. it has become the bane of what we were trying not to do. they married servers with p2p.” An hour later I’d Skyped this.
code is poetry
it’s also speech
skype’s code speaks to its founders’ values and the new owners’ goals
they have three goals in mind
liquidity events (personal wealth) meaning an ipo or buyout
world domination
avoiding failure
nothing there about making the world a better place
or leaving the internet better than you found it
they are going through the transition that villages go through when they become cities and then nations
Rumor: Michael Arrington suspects minority Skype owner Andreessen Horowitz is buying Foursquare. I love 4sq. Robert Scoble has 8 suggestions for building more 4sq consumer/platform value as Yelp copies 4sq features. Meanwhile, I can’t wait for an enterprise version, the better to check in with colleagues, clients, suppliers, partners. The location-based-workplace is here, waiting to be updated, searchable, social, and easy to navigate. LBS checkins should do wonders for triggering face-to-face work conversations, adding people virtually to f2f conversations, and plain old space-shifting virtual conversations. A little Skype integration, foursquare?
Steve Jobs announced iOS4 and iPhone 4 at the Apple WWDC. They should make a better platform for iSkype: faster processor, longer battery life, front (VGA) and back (HD) video cameras, two microphones with noise reduction, multitasking, an improved display and now support for Bluetooth keyboards. This could mean better performance from Skype, the ability to stay connected to the Skype network all the time, even better audio than what Skype’s SILK codec offers, touch typing text chat, and Skype video calling.
Apple announced FaceTime, iPhone 4-to-iPhone 4 video calling. The spec for FaceTime is based on some open protocols and Apple will submit the suite to standards bodies. The rumor that Skype wanted to use FaceTime was downgraded to Skype noticing it.
ooVooreset its pricing for multiparty video calling. $0.10 per minute per person (e.g. $18/hour for three people above the two free included in the service) or $20 per month for six-way calling. Clues to Skype for iPhone’s mobile video charges? ooVoo has to pay for expensive servers and bandwidth since every stream goes through its servers at least once. Unlike ooVoo, Skype distributes its iPhone and desktop video streams peer-to-peer. Skype can undercut ooVoo ten-fold and still make money.
Skype hiredRick Osterloh from Motorola to head consumer product management. This includes desktop software (netbooks? tablets?), Skype.com, and Skype’s paid products (SkypeIn, SkypeOut, SMS, voicemail, WiFi access, etc.).
Verizon will put Skype on non-smart phones too, according to a news release. "Skype mobile from Verizon Wireless, currently available on 12 different smartphones, will expand to more handsets later this year, including several 3G Multimedia phones." Good for Skype: a lower price-point means more users will have access to Skype. via Florin
Skype will redesign its Skype mobile UI to pursue international callers. From the same release: "In addition to Spanish, Skype mobile will also be available in Korean and simple Chinese, providing more flexibility and the ability to communicate with people around the world. Skype mobile customers will soon see an enhanced user interface with a drop-down menu with flags for international dialing."
Juniper Research predicts 100 million mobile VoIP users by 2012, half in the North America and Europe. An analyst said "we also anticipate that several more traditional operators will have joined 3UK and Verizon in the US and developed relationships with mobile VoIP players such as Skype."
People are using Skype from conception to the old age home
Telemedicine was attacked in today’s Telegraph Herald, covering Dubuque, Iowa. A right-to-life advocate is afraid out of town doctors will prescribe RU486 to women in local Planned Parenthood clinics through a Skype-like videoconference.
Kids are using Skype for video play dates. In a few years it will be Skype pajama parties. Then Skype sex. I saw a difference between watching people shoot pool through a video monitor and, as I did tonight, watching a pool game in a local tiki bar. As vivid as the video gets, the view is frozen. When I move my head, my body, perspectives change and the part of my brain that thinks spatially tells me this is real, not a painting. So let’s be sure to keep kids catching colds from other kids, immersing them in face to face reality along with skyped conversations.
Meanwhile, check out Skypito: "Kids can finally safely chat on the Internet. Strangers and bad guys cannot reach them anymore." Uses Skype, naturally. Free, sponsored by EasyBits. This follows the classic blend of server based community and desktop based Skype plug-in. Meanwhile CNN readers who’ve never seen kids play together virtually objected strongly to video play dates.
They came for fortune but were keelhauled and made to walk the plank. Now Skype’s founders are back in a small fast ship, ready to sink her if they don’t get paid. Do you fight to defend the S.S. Skype? Can you bribe the scoundrels and trust them to leave? Or do you bend, take them on as partners, and suffer them so you can put back to sea?
The Captain Z and Mister Friis wield barristers and silver. They sued Skype over the software license, swearing oaths were broken, blood is due, and Skype should be dry-docked until treasure is paid. They sued the new investment team, claiming keys to Joltid’s treasure were smuggled from Joost’s lockbox to key investors. And they lugged a treasure chest of cash and promises for outright ownership.
eBay and the Capitalists race to safer waters. Skype’s quartermasters slaved for months to replace Skype’s sails with sheets of their own making. Skype’s lawyers dispute each scurvy claim and denounce them. It looks like prevailing winds for Skype’s lawyers but fate, the courts, and codemongers are uncertain.
Can eBay buy their absence cheaply this winter? Are you better off swashbuckling until a verdict comes next summer? Would you throw the Index Capitalists overboard, making room for the Dane and Swede at the Captain’s Table? Could you ever turn your back once they were aboard?
The tale comes to this. Would you make a deal with the Devil himself to save your ship a battle? Or can you chart a course for open seas that leaves the pirates adrift in your wake?
Bonus Clue: Are the pirates on retainer in a grander scheme? Who benefits if Skype fails? Who would pay two billion dollars to shut Skype down?
Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties.
That’s the software that lets your Skype client find and talk with other Skype clients. Joltid Limited is a British Virgin Islands company.
The parties had been discussing a dispute over the license.
Skype’s founders want a second payday. They flubbed their $2 billion dollar payout at eBay, missing targets, settling for a nine figure buyout.
In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited.
Skype picked the venue.
Following the filing of the claim, Joltid purported to terminate the license agreement between the parties.
"We’re ending your license." "You’re just purporting to end our license."
In particular, Joltid has alleged that Skype should not possess, use or modify certain software source code
Presumably, someone at Joltid provided that source code to Skype. Their contract (not yet public) may have detailed how that code was to be used. Or not.
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.
Since this is about facts, discovery should be interesting.
From an earlier SEC filing:
In particular, Joltid has alleged that Skype should not possess, use or modify certain software code (the "Code") and that, by doing so, and by disclosing the Code in certain U.S. patent cases, pursuant to orders from U.S. courts, it has breached the license agreement.
On the basis of, among other things, the parties’ mutual dealings since the execution of the licence agreement, Skype is asking the English High Court for declaratory relief, including findings that:
(i) Skype is lawfully accessing, in possession of, using and modifying the Code so that Skype is not in breach of the license agreement with Joltid and accordingly Joltid’s notice of breach and subsequent notice of termination are invalid;
(ii) Skype lawfully disclosed the Code in the U.S. patent cases so that Skype is not in breach of the license agreement with Joltid and accordingly Joltid’s notice of breach and subsequent notice of termination are invalid; and
(iii) Joltid has certain indemnity obligations in relation to the U.S. patent proceedings.
Skype sued first, to finalize Joltiid’s claims. Skype is asking the court to rule Skype didn’t breach the contract and the contract is still in effect.
So, of course, Joltid sues back…
Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid’s copyright and misused confidential information.
If Joltid wins on copyright infringement, Skype users downloaded the software more than 1.5 billion times. Is Joltid the new RIAA?
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.
"Dear Judge, shut up Joltid."
Trial is currently scheduled for June 2010.
A deadline!
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.
It’s to Skype’s advantage to strike a deal with Joltid as soon as possible. Joltid, however, may enjoy a better bargaining position the closer they get to the court date.
Skype has begun to develop alternative software to that licensed through Joltid.
When did this project begin? While the Joltid founders were still running Skype for eBay? Five minutes after the founders left? When Joltid claimed breach?
Skype can improve their bargaining position by replacing the Joltid p2p engine. They could buy the technology from Bluemoon.
This is an opportunity to improve on the original p2p engine. Skype could build a p2p engine that:
scales faster and more reliably,
crosses more residential and enterprise firewalls,
works at low power on wireless networks,
survives hostile conditions including blocking,
updates status and presence more quickly,
recovers more quickly from disruptions in the p2p fabric,
efficiently creates creates supernodes and relays.
Skype’s new CTO has one year to design, test, and deploy a new p2p engine assuming they started construction in 2009q2 (would eBay have reported it if they’d started sooner?). That’s a tight deadline when p2p isn’t at the center of your expertise.
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.
No pressure.
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.
The stock market values Skype, instead of bankers or M&A experts. Mark Evans. "Skype has a strong, global brand and a fast-growing business to pull off an IPO. In fact, Skype’s IPO could be red-hot given how it will have strong appeal to retail investors."
Value When The Market Is Low. The IPO won’t be for all of Skype’s stock. It could be for as little as ten percent. A 2010h1 IPO will value Skype near the bottom of a (presumed) economic and stock market recovery. So Skype’s prices should rise with the market if the IPO is executed properly.
Bargaining chip? Friis and Zennstrom were clearly trying to preempt a public valuation, getting Skype cheaply. Could an IPO actually help F&Z raise more money to buy Skype before an IPO?
Brier Dudley. "I wonder if this will be a milestone, marking the return of tech IPOs. Or could it be a negotiation tactic, to get someone to buy Skype before the offering?"
Larry Dignan: "My translation: eBay wants Zennstrom and Friis to raise their price for Skype. And the threat of a Skype IPO is one handy way to get that price up."
More Liquidity. Post IPO, eBay can sell off the rest of its shares as it sees fit, hopefully appreciated. Meanwhile it can recognize its Skype holdings at more than the post-write-down purchase value.
Bet on Management. IPOs are a vote of confidence in a company’s management. John Furrier: "This again is total validation for the new management at Skype and Josh Silverman. Josh has masterfully led this rapid acceleration of one of the best performing five years old since ‘Sunshine Street’."
Happy HR. Skype employees will switch to Skype stock instead of eBay stock, improving hiring, retention and motivation.
Identity. Ownership won’t change Skype’s operations. It will probably affect their financial reporting, no longer filtered through eBay.
Andy Abramson is concerned about the company: "But, the issue around JOLT ID needs to be clarified and other questions remain, mostly how in a measured broadband world, Skype keeps playing without any payment to the ISPs, how they deal with the regulators and E911 issues as they look more and more like a telco each day; what their mobile strategy is and more."
Rich Tehrani is excited for VoIP: "It will wipe away the idea that Vonage represents the entire IP communications market."
Alec Saunders is excited for the stock market: "A massive Skype IPO would be just the thing to electrify financial markets, and bring tech stocks back with a roar. Could Skype have the same impact on financial markets as Netscape with their massive IPO in the 1990’s? We can only hope."
Larry Dignan is excited for the M&A game: "Now is a good time to take Skype public. It’s growing, it has a critical mass and it could be a fine acquisition target in the future—for a company other than eBay. By plotting an IPO eBay is clearly stating that Skype is worth more. Game on."
A group including KKR, Warburg Pincus, Providence* and Elevation Partners recently teamed up to back the founders of Skype in an attempt to buy back their free Internet calling service from Ebay, according to people familiar with the bid.
Founders Niklas Zennstrom and Janus Friis originally approached Ebay about repurchasing Skype, which acquired the service for $2.6 billion in 2005. Ebay encouraged them to make an offer, and the Scandinavian billionaires rounded up a group of private-equity firms to back them, the person familiar with the bid said. News of the Skype’s founders’ offer was earlier reported in the New York Times, but names of the private-equity firms have not yet been reported.
The proposal involved private-equity firms contributing some $1 billion to the deal, according to people familiar with the situation, though a full deal price could not be learned. The transaction also involved Ebay providing financing for the deal.
The founders’ offer fell on deaf ears, as it was well below the price at which Ebay was willing to sell the business. The two sides are far apart and at this stage a deal involving the private-equity firms is unlikely to be completed, said people familiar with the matter.
*I suspect it was Provident Bankshares, not Providence; Provident is about to be purchased by KKR.
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