US online giant eBay to sell Skype: report

US online auction giant eBay will announce Tuesday a plan to sell its Web communication service Skype to an investment group, The New York Times reported.

The group of private investors would likely include Andreessen Horowitz, a venture capital firm headed by Netscape co-founder Marc Andreessen, the newspaper said, citing two people briefed on eBay's plans.

London-based venture capital firm Index Ventures, an early investor in Skype, and private equity firm Silver Lake Partners were also involved in the arrangement, whose value was not disclosed.

But the Times noted that eBay has said it wants about two billion dollars for Skype, which could take in over $600 million in revenue this year.

eBay purchased Skype in 2005 for a price tag that eventually exceeded $3.1 billion, including payouts to Web entrepreneurs Niklas Zennstrom of Sweden and Janus Friis of Denmark, who founded the company in 2003.

But eBay found it difficult to integrate the company with its core auction business and later wrote down $900 million of Skype's value.

The auction company said in April it had planned an initial public offering for the Skype division next year, but the Times noted eBay has since been in talks with companies and investment groups interested in making the purchase.

Last month, eBay negotiated with Internet giant Google over Skype, which bypasses the standard telephone network by channeling voice and video calls over the Web, the newspaper said. But Google walked away from the deal.

Since the sale to eBay, the number of Skype users has exploded from 53 million to 405 million. Skype allows users to call each other free of charge and to connect with land lines or mobile devices at low rates.

Where's Open Source/Free Software when you need it [Skype alternative]?

Free software is definitely going strong in some areas, especially in the server market. However, there are other areas where free software and free protocols have failed. Internet based voice and video communication is one of those areas. The market is basically fully owned by Skype, a piece of proprietary software based on a proprietary (and abusive) protocol in the hands the same company that runs eBay. Free software advocates have been saying “what if Skype was discontinued?” for years. Then I read about eBay considering shutting Skype down. Pardon?

The Skype copyright issue

The problem is that when eBay bought Skype, they were in too much of a hurry to read the fine print. Skype’s original owners retained the copyright for some crucial portion of Skype, specifically the peer-to-peer side of it — the same code which is probably responsible of making sure that user A routes packets for user B without his or her knowledge of authorisation.

So, the 2.6 billion dollars eBay paid for it was obviously not quite enough — Niklas Zennstrom and Janus Friis have been getting “licensing” money for that code since “selling” Skype to eBay.

To me, it sounds more like a rental agreement more than a sale: eBay paid 2.6 billion dollars for the right to rent Skype’s core technology from Skype’s owners. Let’s call it a “bond” — an expensive one. Especially when the landlord decides to throw you out.

Where was free software?

Free software and free protocols have been lagging behind in terms of user penetration. I very much doubt that the user base of every every single free voice client available now gets even close to the 480 million users Skype enjoys.

Why?

One simple answer: “fragmentation”.

There is a protocol — a free protocol — which can be used for internet-based voice communication: it’s called SIP. At the beginning, it had its problems — it didn’t work behind an ADSL router, which meant it didn’t work for most people who might want to use it. A lot of those problems are now solved. But, some of them stayed. For example:

• Voice quality tends to be low — and definitely lower than Skype. SIP is a “container” protocol. Voice can be compressed and treated using several sub-protocols. This means that each SIP client needs to be able to deal with at least a few of them, and for each call SIP clients end up “negotiating” which one to use. The two clients also need to have a compatible implementation of that voice protocol, which is not always the case. Result: quite often the voice quality is really quite low.
• Video doesn’t always work, and it’s poor quality. This is the same problem as the point above, except that it’s worse. Video protocols are harder to implement, and incompatibilities are more frequent.
• You can’t find other SIP users. Whereas with Skype you can find pretty much anybody by typing their names in the Search box, with SIP you have a bunch of independent networks ad no ability to find other people. Creating a global “search” option would have fixed that, but creating something like that is anything but easy — in fact, it takes tons of work, and (even more importantly) cooperation amongst SIP clients using a well defined, established protocol.
• Configuring a generic SIP client is often confusing — too confusing for the normal user. Configuring a “branded” SIP client is not confusing, but binds people to a specific SIP network. There should be a zero-configuration system where all the server information (STUN, forwarding, etc.) is gathered from the SIP server once you put the account name and password.

SIP is not the only protocol available to make voice calls. While developing its gTalk IM client, Google took the XMPP protocol (which allows federation and other neat features) and extended it so that it supported voice. Google did things right, and made sure that those extensions became part of the XMPP protocol. However, today it’s 2009 and the only client that supports voice in XMPP is… gTalk, which is not available as free software and only exists for Windows (!). I had great hopes when gTalk came out. However, 2010 is approaching, and I very much doubt that gTalk has a sizeable user base that uses it for voice calls. I see this as a missed opportunity for Google. I wonder if federated user searches using XMPP and a multi-platform gTalk client would have helped. I guess so!

I could also mention that audio in GNU/Linux is very much messed up: using PulseAudio in Skype results in calls resembling a badly dubbed movie, OSS and ALSA proponents are still arguing (!), and so on. But that’s a different story, and GNU/Linux only has a tiny percentage of the market anyway.

What happens if (when) Skype shuts down?

We've all seen growth of Open Source Software in so many sectors of the IT industry including, operating systems being just one of them. However, Voice over Internet Protocol (VoIP) is one area that is yet to see some OSS development in. According to recent surveys, Skype - a company owned and controlled by the same people behind eBay, the proprietary-based VoIP service is the largest cross-border voice service provider with a total 8% chunk of the market traffic.

eBay says it may have to shut down Skype due to a licensing dispute with the founders of the internet telephony service.

The surprise admission puts a cloud over the 40 million active daily users around the world who use Skype for business or to keep in touch with friends and far-flung relatives.

A recent study by market researcher TeleGeography found Skype carried about 8 per cent of all international voice traffic, making it the world’s largest provider of cross-border voice communications.

The online auction powerhouse bought Skype from entrepreneurs Niklas Zennstrom and Janus Friis for $US2.6 billion in 2005, but this did not include a core piece of peer-to-peer communications technology that powers the software.

eBay has since been licensing the technology from the founders’ new company, Joltid, but the pair recently decided to revoke the licensing agreement.

The matter is now the subject of a legal battle in the English High Court of Justice, with eBay trying to force Joltid to let it continue using the technology.

In a quarterly report filed with the US Securities and Exchange Commission, eBay said in no uncertain terms that if it lost the right to use the software it would most likely have to shut Skype down.

eBay said it was working on developing ‘‘alternative software’’ to that licensed through Joltid, but this ‘‘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,’’ eBay wrote.

In the filing eBay also said that, even if it was successful in developing alternative software, the technical challenge of assuring backward compatibility with older versions of Skype’s technology ‘‘may be difficult to overcome’’.

This was echoed by analysts, with the Info-Tech Research Group’s Jayanth Angl telling Bloomberg that ‘‘it would be quite difficult to replace what they already have as the underlying component to their service’’.

‘‘There are a number of barriers to that, not the least of which are legal barriers,” he said.

The case is set to go to trial in June next year, which could seriously hinder eBay’s plans to spin Skype off as a separate company in a public stock offering next year.

Already, eBay has had to write down Skype on its books to $US1.7 billion, an admission that the business is not worth nearly as much as it originally paid for it. However, its revenues for the second quarter grew 25 per cent to $US170 million.

But, even though Skype has not been a major financial success, it has succeeded in becoming the dominant internet telephony service globally.

Skype has more than 480 million user accounts - almost twice as many as Facebook - and the application comes bundled with more than 50 mobile phones and even the Sony PSP.