Digital Media

Online auction giant eBay announced Friday that its sale of a controlling interest in its Skype unit will proceed, following the settlement of litigation over the proposed transaction.

The settlement restructures the deal with an investor group led by Silver Lake and puts an end to a dispute with software maker Joltid over the licensing of software that underlies Skype's Internet telephony service.

In addition, the settlement brings Skype and Joltid founders Niklas Zennström and Janus Friis, into the investor group. The duo will take a 14 percent stake in Skype in exchange for contributing Joltid software and a "significant capital investment."

Silver Lake and other investors will now hold 56 percent of Skype, and eBay will retain 30 percent. Those other investors include the venture capital firm Andreessen Horowitz--started by Marc Andreessen, the man behind the early Web browser Netscape--and the Canada Pension Plan Investment Board.

Venture capital firm Index Ventures, which had been embroiled in the legal action, has withdrawn from participation in the investor group.

As in the initial agreement, eBay will receive approximately $1.9 billion in cash when the sale is completed, along with a note from the buyer in the principal amount of $125 million.

The deal, which eBay says puts Skype's value at $2.75 billion, is expected to close during the current quarter.

Under the settlement agreement, which involves the Silver Lake investor group, Joltid, and online video company Joost, Skype will have ownership over all software previously licensed from Joltid. All related litigation now pending against the investor group and eBay will cease at the closing of the acquisition.

Zennström and Friis had sold Skype to eBay for $2.6 billion in 2006, but they had also retained the rights to Skype's peer-to-peer technology via Joltid, a separate company that they had also founded. In its lawsuit filed in September of this year, Joltid raised charges of copyright infringement, alleging that Skype had acquired unauthorized versions of the source code, made unauthorized modifications, and disclosed the software to third persons.

Also in September, Joost--yet another company started by Zennström and Friis--filed a lawsuit against former Joost CEO Mike Volpi, who two months earlier had become partner at Index Ventures, which also was named in the lawsuit. Joost claimed that Volpi, who had done a stint on Skype's board of directors, had used confidential information as part of Index Ventures' participation in the Silver Lake-led effort to buy a majority share in Skype.

In the third quarter, Skype contributed $185 million in revenue to eBay, up nearly 30 percent from the year-earlier period. It has more than 520 million registered users.

Update at 8:10 a.m. PST: More details of the settlement have been added.

Mike Volpi's battle with his former employer Joost is now headed to court.

Joost announced on Friday that it has filed a lawsuit against Volpi, alleging that the former CEO used trade secrets and other confidential information in a bid to acquire a majority share in Skype from eBay.

Credit: CNET TV

Mike Volpi

The lawsuit comes just days after Joost relieved Volpi of his duties as chairman and a member of the board, saying that it was investigating his actions while he was chairman.

The fracas has its roots in the complicated relationship between online video provider Joost and VoIP provider Skype.

Joost was launched in 2006 by Janus Friis and Niklas Zennstrom, who also co-founded Skype. Volpi met and befriended the pair after serving on Skype's board of directors.

Once considered a contender for CEO at his former company Cisco, Volpi was tapped by Friis and Zennstrom to become CEO of Joost in June of 2007.

After a two-year stint, Volpi left Joost this past July to take a position as a partner at the venture capital firm Index Ventures. This same firm was part of a group that made a deal to buy a 65 percent share of Skype from eBay.

The question of Skype ownership between eBay and Friis and Zennstrom has been a dicey one. Though they sold Skype to eBay in 2006, Friis and Zennstrom kept certain rights via a company they formed called Joltid, and claim they still own the core technology and source code behind Skype. A licensing issue between the two companies triggered a suit that's set to hit a U.K. courtroom next summer. And a separate copyright suit was filed by Joltid this week in Northern California alleging Joltid's technology is being infringed on by Skype users "in the United States at least 100,000 times each day."

Joost's lawsuit filed against both Volpi and Index Ventures alleges that Volpi accessed and used confidential information while at Joost to help his group's bid for Skype. It alleges breach of fiduciary duty against Volpi and Index Ventures, aiding and abetting breach of fiduciary duty against Index, interference with prospective business advantage, misappropriation of trade secrets, breach of contract against Index, breach of confidence, and civil conspiracy.

Joost is looking for an injunction requiring Volpi and Index Ventures to return all confidential documents and files that were allegedly taken from Joost. The suit also is seeking to prevent both defendants from using the alleged misappropriated trade secrets.

Among the specific claims in the suit:

"This action arises out of the acts of a faithless fiduciary, who has taken advantage of the trust and confidence placed in him to steal confidential, highly proprietary information relating to an extremely popular Internet-based technology...Using that misappropriated information and in utter disregard for his fiduciary obligations, Volpi, acting in concert with other participants, put together a successful bid for Skype that has shocked the investment community."

"Numerous sophisticated strategic bidders (including, among others, Google and Microsoft) who initially expressed an interest in Skype could not get comfortable proceeding with formal bids. The reluctance of these sophisticated parties is hardly surprising given that intellectual property that is essential to Skype's business currently hangs under a cloud of litigation. Yet somehow the successful bidder, led by Volpi, was able to get comfortable with the enormous risks of proceeding with a Skype transaction. That comfort level could have been obtained only with knowledge of and an intent to use confidential information that had been misappropriated by Volpi..."

A phone call placed to Index Ventures for comment was not immediately returned.

Joost was launched more than two years as another portal for online videos but has struggled to gain a foothold in the market against competitors such as YouTube and Hulu.

Note: CBS, which owns CNET News, is investor in Joost.

Former Joost CEO Mike Volpi has been stripped of his post as chairman and removed from the board by a shareholder vote, the online video service confirmed Saturday. Joost also said it is investigating Volpi's actions during his time as chairman and chief executive.

Joost was co-founded by Janus Friis and Niklas Zennstrom, who also co-founded Internet phone company Skype. Volpi left Joost as CEO a few months ago, taking a position in July as a partner at Index Ventures, a global venture capital firm. Index Ventures is part of the consortium that earlier this month signed a deal with eBay to acquire a 65 percent stake in Skype, with eBay retaining 35 percent.

Reports earlier this year cited sources saying that Friis and Zennstrom were attempting to put together a bid of their own to buy back Skype.

Former Joost CEO Mike Volpi has been removed from the company's board.

(Credit: CNET TV)

"Mr. Volpi was removed from the board of directors and from his position as chairman of Joost by shareholder vote," a London-based spokesman for Joost said in a statement. "The company and its board of directors is conducting an investigation into Mr. Volpi's actions during his tenure as CEO and as chairman."

CNET News sent an e-mail to Volpi requesting a comment. Volpi told Reuters on Saturday, "I am no longer associated with Joost."

A story in the U.K.'s Times said the investigation is believed to be about intellectual property issues.

Friis and Zennstrom's relationship with eBay concerning Skype hasn't been exactly rosy. In 2006, eBay bought Skype for $2.6 billion, but Skype's co-founders retained the rights to some of the service's technology via a company they formed called Joltid. In a licensing dispute, Joltid said it might take back some of the technology. eBay is suing Joltid to keep it from doing so, but the case isn't set to go to trial until June 2010. In July, eBay said it was building new software to run Skype.

So how does all this affect the sale of Skype?

A Wall Street Journal story Friday noted that in eBay's SEC filing regarding the sale of Skype, it "said consummation of the deal was subject to 'no settlement of the pending litigation with Joltid Limited having been effected without the consent of the Buyer (subject to certain limitations).'"

Launched a few years ago, Joost was once a competitor of YouTube and Hulu. In June, however, CNET News reported that Joost was getting rid of its consumer service and instead would put its efforts into building "white label" video platforms for "cable and satellite providers, broadcasters and video aggregators."

Before joining Joost in June 2007 as CEO, Volpi was on the board of Skype and spent 13 years at Cisco Systems.

Joost is actively seeking a buyer and the beleaguered video service has told cable and satellite providers that it could be their online video solution, said sources close to the companies.

Time Warner Cable is one of the companies that has expressed interest in Joost, the sources said. Spokespeople for Joost and Time Warner Cable said they don't comment on rumor or speculation.

Joost is a story of missed opportunities, bad luck, and the folly of thinking whiz-bang technology alone is enough to forge a winning entertainment site.

Joost launched in 2007 with seemingly everything going for it. The company's founders are Janus Friis and Niklas Zennstrom, the same pair who founded Skype and Kazaa. The thinking in the media was the site couldn't lose with Friis and Zennstrom's peer-to-peer technology, which was supposed to be more efficient and provide higher-quality video.

Two years later, and after the company struggled with management shakeups, technology setbacks, as well as a failure to land top TV shows and films, Joost's traffic and content library are mediocre at best. In the Web video sector, Joost has fallen far behind the leaders: YouTube and Hulu, the site formed by NBC Universal and News Corp.

The latest setback came earlier this month when Sony Pictures did not renew its licensing agreement with Joost. At about the same time, Sony Pictures was striking a licensing agreement with YouTube, the much larger and more successful Joost rival.

It should be noted that CBS, which owns CNET News, is investor in Joost.

This was originally posted at ZDNet's Between the Lines.

eBay's first-quarter results were better than expected, and the company argued that it is operating with more discipline and smarter.

For the quarter ended March 31 (statement), the company reported net income of $357.1 million, or 28 cents a share, on revenue of $2.02 billion, down $171.6 million from a year ago due to poor performance in its marketplaces unit. On a non-GAAP basis, eBay reported first-quarter earnings of $499.9 million, or 39 cents a share.

eBay is outlining how it is indeed operating smarter. Click the image for a full chart.

(Credit: eBay)

Wall Street was expecting earnings of 33 cents a share on revenue of $1.94 billion. Meanwhile, the second-quarter outlook was in line with estimates. Wall Street was projecting earnings of 35 cents a share on revenue of $1.98 billion.

eBay is arguing that it is operating smarter. Is it? I'd give eBay a qualified "yes" on operating improvements. To wit:

• The spin-off of Skype indicates that there's more focus. It fetches a decent valuation;
• The acquisition of Gmarket shows that eBay is doubling down on e-commerce;
• eBay is also jettisoning bad acquisitions such as StumbleUpon.

The big question is whether operating smarter will really help eBay in its battle with Amazon. eBay's quarter was relatively solid, but the picture is mixed. By the numbers:

• The marketplaces unit--eBay, Shopping.com, StubHub, Kijiji--saw revenue fall 18 percent from a year ago to $1.22 billion.
• The payments unit revenue was $643 million, up 11 percent from a year ago. PayPal penetration was up, as was Bill Me Later. (Bill Me Later may be a worry spot, going forward, though eBay says charge-offs were in line with expectations.)
• Skype's first-quarter revenue was $153.2 million, up 21 percent from a year ago.
• eBay ended the quarter with $3.06 billion in cash.

eBay announced Tuesday plans to spin off its Internet phone and video-conferencing service, Skype, with an IPO in the first half of next year.

The decision comes four years after online auction giant eBay , with the plans to offer customers the ability to discuss their transactions in real-time. But over the course of the four years, eBay found its acquisition failed to provide the synergies it sought.

John Donahoe, eBay's chief executive, said in a statement:

Skype is a great stand-alone business with strong fundamentals and accelerating momentum. But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential. This will give Skype the focus and resources required to continue its growth and effectively compete in online voice and video communications.

Although eBay plans to launch a Skype IPO in the first half of next year, the company noted its exact timing will be based on market conditions.

Last year, Skype generated $551 million in revenues, up 44 percent over the previous year. The number of Skype's registered users has increased to 405 million at the end of last year, up 47 percent from the previous year.

Over the past year, eBay has been weighing its options regarding Skype's fate. When the company announced Donahoe as its new CEO last spring, eBay indicated the online auction giant would take a year to evaluate the future of its online phone and video-conferencing service.

Meanwhile, reports surfaced earlier this month that Skype's founders were interested in repurchasing the company, with the aid of private equity firms KKR, Warburg Pincus, Elevation Partners, and Providence.

eBay shares rose 3.76 percent in after-hours trading on Tuesday to $14.92 a share. During the regular session, eBay closed down 1.71 percent to end the day at $14.38 a share.

Skype's founders are reportedly encountering turbulence in striking a deal with eBay to buy back the Internet phone service, despite the financial backing from a group of large private equity firms, according to The Wall Street Journal.

KKR, Warburg Pincus, Elevation Partners, and Providence are reportedly teaming up with founders Niklas Zennstrom and Janus Friis, who reportedly are interested in repurchasing their company from eBay.

But eBay and the founders' group face a wide gap on price, the Journal reported, and a deal involving the private equity firms appears unlikely.

The private equity firms are reportedly interested in kicking in $1 billion toward the total purchase price, according to the report, which noted it remained unclear on the total bid price.

Back in 2005, for $2.6 billion, asserting that it would allow customers to discuss their transactions in real-time.

eBay has since publicly stated there are few synergies between the companies and that it would be willing to sell off Skype for the right price.

If you don't like the new look, you can now switch to Skype's classic view.

(Credit: Skype)

Skype 4.0 beta 2 (download) has done a lot of growing since the first beta for Windows rolled out this past June. While that release showed some success reorganizing Skype's services, we predicted that folks would protest the gawky layout. We were right.

The ability to switch into the classic compact view is one concession to user demand that shows up in Skype 4.0 beta 2. Now you can toggle between the expanded default view that fuses the contact list and active conversation, and the traditional view, which breaks them into separate windows. This change definitely improves the way users will experience this version of the VoIP calling application, though we think it's something Skype should have implemented from the start.

Skype's goals with 4.0 beta

Skype envisions a less cluttered version 4.0 that's easier for novices to pick up without any prior experience. Skype also wants the redesign to unearth functions other than VoIP calling to get more people placing video calls, using Skype's IM, and buying credit for its premium PC-to-landline calling and texting plan, Skype Out.

According to Skype's product manager for Windows, Michael Bartlett, the changes have been mostly successful, though people aren't glomming on to IM like Skype had hoped, and the application still doesn't have everything users have been asking for.

Changes in 4.0 beta 2
Still, Skype 4.0 beta 2 answers requests to instate an optional compact view, notifications for missed calls and incoming messages, and the ability to group contacts together. Besides switching views, you'll be able to resize most elements within the program window by dragging them, your profile photo or the size of the video screen on a video call included. Both are welcome additions that grant you more control over Skype's display.

In this beta, message alerts pop up in the system tray.

(Credit: Skype)

Since users complained of missing too many messages in 4.0 beta 1, the second beta now displays an orange notification icon in your system tray whenever you receive a new message. A panel will also light up in the app's conversation window.

In other changes, the ability to simply drag and drop files into the conversation window has returned. So has the feature to organize contacts into groups, though the treatment differs in Skype 4.0 beta 2. Skype will honor any groups you've previously established (like coworkers), but also includes categories based on status, such as who is currently online, who you've recently contacted, and who you're trying to add as a friend. We don't personally find all these categories relevant, but you can easily delete any you don't want and create your own in the contacts tab. We give Skype kudos for letting us populate categories by dragging and dropping in names from the master list.

View contacts by Skype's categories, or delete them and add your own.

(Credit: Skype)

Still to come: Skype 4.0 beta 3
Skype 4.0 beta has really shaped up in this release, adding many features that usefully let the caller customize the display. Yet the work isn't done. Skype plans to release one more beta before Skype 4.0 is deemed ready for prime time, and it will include call history, birthday reminders, and public chats, plus other changes that beta users will demand in chorus.

It's interesting that Skype choses to release three betas to users' scrutiny before unveiling the final version. The tactic is one we've just seen with well-established communications appYahoo Messenger, which just released version 9.0 after two public beta cycles, and with Windows Live Messenger beta, which advertises the competing messenger's new look. It could be risky laying out a rough draft of your software that's inevitably flawed, but in terms of starting a discussion with users and gaining valuable market research for free, it seems to be working just fine.

Intel's remote wake-up chip could finally turn PCs into phones.

One of the biggest drawbacks of current PC-based Internet phone services like Skype, which allow people to make phone calls from their computers over the Internet for free or for reduced fees, is that you can't receive calls when the computer is turned off. But that is changing with a new chipset introduced by Intel Thursday that allows computers to wake from "sleep" to accept calls and do other tasks like accept downloaded content.

Intel has teamed up with JaJah, a California-based voice over IP start-up, to allow JaJah users to receive calls on their PCs when their computers are in "sleep mode."

"The Intel technology turns the PC into a PBX for the home," said Trevor Healy, CEO of JaJah. "With the JaJah soft client you can plug in any USB-enabled phone and start receiving inbound calls anytime."

The deal with Intel also means that JaJah technology will come already configured into certain PCs so that users don't have to download any software to make Web calls. This makes it different from other PC-based IP telephony services, like Skype, which require users to download a software client. Jajah provides users with local phone numbers and routes calls over the Internet to allow users to call any fixed or mobile phone anywhere in the world for a fraction of what they would normally pay.

JaJah was the first telecommunications partner that Intel selected to be used with its new Remote Wake technology. JaJah with more than 10 million subscribers is small potatoes compared with the biggest name in PC-based VoIP, Skype, which boasts over 300 million subscribers. But Intel's venture arm is an investor in JaJah, pouring $20 million into the company in May 2007.

That said, Intel said that the Remote Wake technology could work with any VoIP service.

"Intel Capital invested in JaJah, so this extends that relationship," said Joe Van De Water, Intel's director of consumer product marketing. "But the Remote Wake technology is open. There is a software development kit. So there's no reason that other VoIP providers like Skype couldn't use this."

Skype didn't respond to requests for comment.

While Remote Wake could make it easier to use a PC as a phone, it could also help make online video services work more efficiently. Orb Networks and CyberLink, two online content services, are also working with Intel to use the technology to work with their services so that songs, photos, videos, or other content can be downloaded onto PCs during off-peak hours. Intel is also hoping to work with PC services that do remote back-up or security updates so they can use the technology to offer their services during off-hours when there is less congestion on the network.