Skype Founders Are Destroying Their Reputation

| About: eBay Inc. (EBAY)

Kazaa/Skype/Joost - and I guess Joltid - founders Janus Friis and Niklas Zennstrom are richer than God. Let’s get that out of the way.

Kazaa was a disruptive and destructive force in music that took the baton from Napster after the RIAA killed the popular file sharing software. But Kazaa’s fate was no different than Napster’s.

Skype, on the other hand, was not only disruptive but also wildly profitable. The duo cashed out admirably in a sale to eBay (NASDAQ:EBAY). It turned out, of course, that eBay bought everything but the underlying technology.

Joost was a disaster from Day 1, and as one of our distribution partners, that was clear from Day 1. We tried to tell them all of the things they were doing wrong, to no avail.

Regardless, even if every other project they touch fails, they have made their mark - and earned their fortunes - with the sale of Skype. However, I wonder if this has made them lose their senses.

In fact, I think that it’s a good thing that they seem to have begun to focus on investments through their Atomico Investments, because I think they are damaging their own reputation as entrepreneurs and businessmen with the way they have handled everything since the sale of Skype.

For one, selling eBay the company without the technology is just bad form, even if the clueless Meg Whitman didn’t see a problem with this. I understand Friis and Zennstrom planned to use the underlying Joltid peer-to-peer Global Index technology for subsequent projects, including Joost, but it is simply bad form. What they should have done is worthy of a separate article.

However, the fact that they are now suing former Joost CEO and Chairman Mike Volpi is also bad form, because I don’t think that they will be able to recruit as many would-be CEOs in the future. By the looks of it, if what they allege is true, Mr. Volpi has also acted questionably, but at some point, you cut your losses and walk away.

As an entrepreneur, I inquired about Atomico way back in the day (full disclaimer: Atomico since invested in DECA, another content producer, though it isn't really competitive with, but seeing how they have gone about this eBay/Volpi mess… you have to ask yourself, if you are an entrepreneur, does this saga make you more or less interested in partnering with them?

The answer to that question should trouble current investors.

Further reading on this saga:

From GigaOm:

The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of a peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. And with this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation. (…)

“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”

“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”


—Volpi is described as “a faithless fidicuary” who “took advantage of the trust and confidence placed in him to steal confidential, highly proprietary information relating to an extremely popular Internet-based technology, as well as other strategic, commercially valuable and sensitive information.” As president and CEO of Joost, Volpi, they claim, had access to info from both Joost and Joltid—including the Global Index P2P software that powers Skype and other Zennstrom-Friis efforts. Joost had the source code; Skype had more limited access—an executable-only code form of GUI. (That’s the license that is being litigated in the UK between eBay and Joltid; Skype’s continued use of the code is the subject of the copyright infringement case.)

and Tech Crunch re: the technical aspect of why Skype could never open up to developers:

A source code version of the GI Software is licensed by Joltid to Joost, allowing Joost to be the first company to successfully deliver television and other video content in real-time over a peer-to-peer network. An executable-only object code form of the GI Software was licensed by Joltid to Skype, a well-known Internet-based company that provides users throughout the world with free or low-cost telephone services over the Internet. Skype did not obtain a license to the GI Software source code, however, and the license it did obtain was terminated based on Skype’s breaches of the license agreement.

This is getting ridiculous. Is there anyone in this saga that doesn’t stink, basically?