Comms: Is Skype doomed?
ebay's buying up companies at a rate of knots. But its highest profile purchase, Skype, is proving to be a problem child. ebay admits it might not survive a custody battle over the core code.
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Skype makes its money from what it terms "Skype Out" - charging customers for calls to land lines and mobiles. But its popularity arises from its free computer-to-computer calls.
Yet, ebay has gambled on the presumption that, having got used to computer to computer calls, users will migrate to the paid for services. To that end, it has licensed its name to appear on a wide range of "Skype Phones" that default to use of the Skype service, regardless of the destination to be called.
And revenue is growing: an SEC filing on 29th July says "Communications net transaction revenues increased $25.5 million, or 20%, and $49.0 million, or 20%, during the second quarter and first six months of 2009, respectively, compared to the same periods of the prior year. The increase in net transaction revenues was due primarily to a 57% and 61% increase in SkypeOut minutes during the second quarter and first six months of 2009 compared to the same periods of the prior year. The increase in SkypeOut minutes during the second quarter and first six months of 2009 was due primarily to the growth in the cumulative number of Skype registered users to 480.5 million at June 30, 2009 from 338.2 million at June 30, 2008. We believe that the growth in Skype registered users was primarily due to its marketing activities, ongoing viral adoption (whereby users encourage others to become users), strategic partnership initiatives and the expansion of its product offerings."
Of course, it could also be that there are more people at home more of the time, many of them making phone calls looking for work, but that may be regarded as a cynical view.
But all of this may come to a grinding halt if ebay cannot resolve its dispute with Joltid, the Swedish company it bought Skype from for more than USD2,500 million. ebay bought the business - and a software licence. ebay now says "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 US patent cases pursuant to orders from US courts, Skype has breached the licence agreement."
Litigation is taking place in London: ebay sued Joltid to stop it saying such things. Joltid, in response, counterclaimed saying that it owns the underlying tech which is a form of peer-to-peer platform and that ebay/skype failed to protect its intellectual property as provided for in the agreement.
Just three months ago, ebay said it planned to launch Skype with an IPO. But the London litigation and uncertainty over the ownership of the core software is threatening to scupper that ship before it sails. And it's worse: Skype announced that it was developing its own platform. But it's not ready and that which is working is not reliable. In its filing ebay said "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."
The owners of Joltid are serial inventors: first there was file sharing software Kazaa, then (with all new code they said) Skype. With a track record like that, they raised funding for a peer to peer television service called Joost. It's not You Tube - although the professional channels on YouTube are clearly a rival. Joost uses the bandwidth of all connected computers to deliver the video. At launch, it used dedicated software, but since October last year, it runs in a browser window.
But it was the announcement earlier this year that Joltid's owners, Niklas Zennstrom and Janus Friis, had VC support to buy back Skype that really raised eyebrows.
The London case will be heard in the middle of next year. That provides a space for possible resolution in one way or another.
But if all else fails, Skype may be disconnected.