Skype’s Legal Problems

In 2005, eBay purchased Skype for a reported $2.6 billion and now, four years later, eBay is in a legal battle with Skype’s founders over software licensing issues.  eBay made a huge mistake in the terms of its Skype purchase.  One of the most important components, namely the peer-to-peer communication technology that drives Skype, was not a part of the sale.  Instead, eBay licensed the peer-to-peer technology from Joltid Limited.

The licensed peer-to-peer technology is now the subject of litigation which could potentially end badly for eBay and Skype.  Replacement software is already being developed should the trial which is scheduled for June 2010 not end in eBay’s favor.  Though eBay is confident in its legal position, their second quarter Q-10 filing with the Securities and Exchange Commission describes another possible outcome.

Skype has begun to develop alternative software to that licensed through Joltid. 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. 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 has apparently been trying to sell Skype since the beginning of the year according to the New York Times.  Could Google step in here and completely change the rules of the game?  There is a strong case to be made for that possibility whether they were to purchase Skype from eBay or develop a similar technology themselves.

Google Could Capitalize

If Google Voice also included those features offered by Skype, it would create a comprehensive voice communication offering that would be hard to beat.

Currently, Google Voice is a front end voice traffic cop.  Though Google Voice provides a phone number to its subscribers, it does not actually offer phone service.  Subscribers of the service can provide their actual phone numbers on which to be contacted and Google Voice will contact those numbers, as specified, when it receives an incoming call.  Subscribers can give a single phone number, their Google Voice number, to clients, friends and family and Google Voice can provide a personalized greeting to friends, another to clients and screen calls from unknown callers.  Once Google Voice either processes the voicemail or transfers the call, it is finished and out of the picture.  It does have many more features which are described on the Google Voice website.

Skype, on the other hand, provides the ability to make internet calls, including video, for free and offers paid services to allow placing calls to land phones or receiving land calls to an assigned Skype phone number.  Skype’s service is very innovative and reliable for the most part, but Skype is not an actual phone company as we know it.

Imagine if Google Voice added Skype’s features into its own mix.  This could happen in one of two ways.  Google could purchase Skype from eBay if the price was right.  That may not be a likely scenario since eBay originally paid too much for Skype.  A more likely scenario would be for Google to develop Skype-like software themselves.

Google has a proven track record for quality software development.  Their search engine technology is a given, so let’s look at their other development projects.  There is maps, Gmail, groups, calendar, docs, sites, checkout, Chrome, Chrome OS (currently in development), Android, earth, goog-411, iGoogle, wave (currently in development), Orkut, Picasa, translate, YouTube and several others.  Some of these products were developed by Google while others were acquired.  Either way, Google has proven its ability to develop quality software and successfully manage and further enhance the software it purchases.  If any company can pull off a Skype-like development project, it is Google.

Conclusion

As for eBay, they are stuck with a bit of a dilemma.  Until they can resolve their legal situation with Joltid Limited, Skype is not a very salable company.  The lesson to be learned here is that when spending $2.6 billion on a company, make sure that all of the key components that define that company are included in the deal.