Indian Intelligence Officials Want To Block Skype

from the as-if-there-aren't-alternatives dept

Skype and other VoIP tools have become quite useful for reaching people around the world. I know that, recently, when my wife happened to be in India on a trip, being able to call her via Skype was incredibly useful. It's a good thing she's back now, as reader Shailendra alerts us to the news that Indian intelligence officials are once again asking the government to consider banning Skype. The reason I say "once again" is that I remember similar proposals from a few years back that went nowhere. The official concern, of course, is that "bad people" may use Skype to communicate in a way that can't easily be tapped or traced. But that's going to happen no matter what. If Skype is banned, people will still figure out a way to use it, or they'll migrate to some other tool. Banning Skype or other VoIP providers isn't fixing a problem, it's pretending a problem doesn't really exist.

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Proof Of Concept Skype Wiretapping Malware Released

from the not-so-secret-any-more dept

One of the benefits of Skype was that, due to the way it works (P2P, encrypted communications), it made it much more difficult to do any sort of wiretap. This has upset various governments who are used to having the ability to wiretap any voice communications. However, it's never impossible. The most obvious way is to simply create some sort of trojan that gets installed on one user's computer that has audio recording abilities -- and Symantec is going around hyping up the fact that source code for just such a trojan has been released. Of course, even Symantec admits that there's no evidence of the code actually being used in the wild -- it seems more like a proof-of-concept. On top of that, it's hardly a new idea. Nearly a year ago, we talked about how German authorities were accused of using something that sounded quite similar. Still, it is a good reminder that even if you're using an encrypted Skype call, at either end of that call, the audio is decrypted, and a well-placed recording system can capture it.

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Skype Founders Claim eBay No Longer Has A Right To Skype's Core Tech

from the this-is-going-to-get-messy dept

As you know, eBay bought Skype for a ton of money a few years back, without having any real plan for what to do with it. There were no synergies between the two, and about the best that can be said for eBay's ownership of Skype is that they didn't kill it (though, frankly, the new UI is so bad, it makes me wonder what they were thinking) and let it continue to grow organically. Earlier this year, eBay finally announced plans to spin off Skype. Fair enough. It can probably do a lot more outside of eBay than from within. However, it turns out that there may be a bit of a legal hitch, as Skype's founders claim that eBay/Skype no longer have the legal rights to Skype's underlying technology. Apparently, the claim is that Niklas Zennstrom and Janus Friis and a separate company they ran, Joltid, only licensed the underlying technology to eBay/Skype for a limited time -- and that deal has now concluded. The two companies are scheduled to fight this out in court.

There are a few interesting asides to all of this. First, it reminds me of how Zennstrom and Friis ended up in another lawsuit a few years back, also involving questions about licensing the core underlying technology of Skype. There's a lot of background here, and not all the details are clear (at all), but that original case involved the claim that Zennstrom and Friis used the same core underlying technology that they used to build Kazaa to build Skype. Way back, Zennstrom and Friis had created two operations: Kazaa and FastTrack, which created the underlying tech used in Kazaa. However, they also licensed FastTrack to a company called Streamcast, that made a product called Morpheus that competed with Kazaa in the file sharing space. Got that?

The folks at Streamcast insist that part of their contract with FastTrack was that they had a right of first refusal on buying the underlying technology. But then, all sorts of stuff happened, with Kazaa being sold off to a group in the South Pacific, but Zennstrom and Friis supposedly retaining some core technology which (Streamcast claims) they used to build Skype. Then, once Skype sold, Streamcast claimed that the whole thing was an elaborate shell game, but in selling the Skype underlying technology, Streamcast claimed that Zennstrom and Friis violated their agreement on having a right of first refusal on purchasing the technology.

Yet, now I'm left wondering if that original claim was true. If the current claim is that Joltid still "owns" the original technology and Skype/eBay only licensed it, then the technology itself might never have actually been sold (unless, we're talking about two separate core underlying technologies... which is possible).

Still... the bigger question? How the hell did eBay make a deal and not make sure it had either purchased (entirely) the core underlying technology or had a guaranteed perpetual license that couldn't be revoked? The eBay Skype purchase was bad enough already. Could it be even more ridiculous in that eBay didn't even properly purchase the technology in question? It seems preposterous to believe that a company could screw up an acquisition that monumentally, so you have to wonder if it's actually true.

In the meantime, since there are questions about how eBay can rebuild Skype's underlying core technology without violating the many patents in the space, it makes you wonder if eBay may be forced to simply buy someone else's technology. Maybe it's time to call up the Gizmo Project (which has built a very Skype-like product) to see what they're up to these days. Though, can you imagine eBay needing to buy another company just to power Skype so it can be spun off again? Yikes!

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Russian Telcos: Skype Is Hurting Our Business And Must Be Stopped

from the not-very-subtle dept

Usually, these days, when companies beg the gov't for protectionist policies against upstart competitors, they at least work out a convoluted story about some sort of real harm (i.e., beyond the bottom line of those asking for protection) caused by the upstart. So, you get the record companies claiming that music will stop being made, or perhaps food companies complaining about the safety standards of foreign food products. There may even be some truth to those stories (or not), but the real reason is to avoid competition. Over in Russia, for example, it appears that a bunch of telco execs are complaining about Skype. They at least try to pass off a plausible non-save-our-asses reason: mentioning security, but they don't do a very good job hiding the truth. Repeatedly they seem to plead that Skype is evil because it makes it difficult for the old guard telcos to charge super high fees. Competition is such a pain sometimes...

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eBay Finally Realizes That No One Is Interested In Voice Communication With Others During An Online Auction

from the about-time dept

When eBay first bought Skype we were among the many, many, many people left scratching their heads wondering where the supposed "synergies" were. We were told two things. First, that Skype had many users in China who would now suddenly start using eBay for auctions. Why? No one knows. In reality it had almost no effect. Just because you make calls via a software program it doesn't make you any more interested in doing online auctions through its parent company, apparently. Second, it would now allow buyers and sellers to communicate by voice. But why would they want to? Sure, maybe in a very rare case it might be helpful, but one of the advantages of an online auction system like eBay is that you don't need to actually talk to the other party. And if it was that important to talk, the buyer and seller could just agree to use Skype on their own without eBay spending billions. And, in fact, studies showed that this "feature" wasn't wanted by most eBay users.

But, still, in an effort to show that there really (no, really, really!) were some synergies, eBay integrated Skype into online auctions. Of course, now that eBay has finally admitted that there really were no synergies, taken a huge writedown on the investment and is looking to spin off Skype, the company is finally removing the integrated Skype buttons on auctions, and are even admitting that the company is involved "in an effort to remove features with limited buyer and seller usage." Was it really that hard to recognize how little synergies there were before spending multiple billions of dollars?

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Patent Dispute Blocks iPhone Skype In Canada

from the progress? dept

There's been a lot of buzz this week over a version of Skype finally being released for the iPhone (though, the fact that it's limited to only WiFi connections, rather than cellular ones is annoying, if expected). However, it turns out that Canadian iPhone users are discovering that their iPhones are blocked from using the new iPhone Skype, apparently due to some sort of "patent-licensing issue" related to the codec that Skype uses. The company isn't revealing much (and the link above includes a workaround for Canadians desperate to use Skype on their iPhones), but that's what you get when you end up using patented technology in your products. It makes it that much more difficult to actually offer your product in a variety of markets.

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Skype Takes Aim At Business PBXes

from the lost-in-the-static dept

We wondered a couple of months ago if eBay was warming up the Skype Billion-Dollar Buyout Plan, a hype-driven business model aimed at inflating the perceived value of the unit to would-be buyers. But Skype's emerged with a real business plan to try and boost its business by targeting small- and medium-sized businesses with a version of its service that can connect to their PBX phone systems using the popular SIP standard. Skype is selling one major benefit of the service as the ability for companies to accept inbound Skype calls to their PBX system, but aside from that, it's just trying to undercut other providers' rates for outgoing calls. But perhaps the bigger issue for Skype will be the high level of reliability and support business users will demand. Few will be willing to sacrifice those metrics on something as critical as voice telephony, and Skype's 2007 outage -- and subsequent lame explanation -- may not help in this regard. Also, as a company that thrives on taking away customers from more expensive services, Skype should realize that it, too, can be undercut. If all it's offering is cheaper prices, it won't have a very strong hold on its customers when the next cheaper solution comes along.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Italian Cops Complain That They Can't Listen In On Skype

from the attention-criminals dept

Italian police are complaining that criminals there are increasingly turning to Skype to communicate, having discovered that it's essentially impossible for the cops to listen in on their conversations. Italian police aren't the first to notice this: German authorities were caught talking to a vendor that offered some cumbersome Skype-tapping software, while Skype itself didn't deny that the Chinese government had the ability to monitor Skype conversations. Lots of countries have banned Skype, often to protect the revenues of incumbent (or state-owned) telecom operators, but its encryption -- apparently strong enough to frustrate police around the world -- could provide more ammo for future bans, particularly in repressive nations. Italy, though, could be an interesting place for this battle to play out. While police there love their wiretaps, politicians don't: after a number of political figures have been embarrassed by leaked recordings of their conversations, they're trying to change laws to limit the cases for which wiretaps can be used, and to bar the reporting of details from wiretaps until after convictions are delivered in criminal cases. Perhaps instead of trying to change the law, Italian politicians could just start talking on Skype instead.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Is eBay Warming Up The Skype Billion-Dollar Buyout Plan?

from the round-two dept

Back in 2005, we marveled at the success that Skype backers had in talking up the price of the company, eventually suckering convincing eBay to put together a $4 billion deal for it. This was what we dubbed the "Skype Billion-Dollar Buyout Plan" in which companies used press hype to create valuations far above their actual worth (see YouTube and Facebook for a couple of examples). Of course, what eBay was never really clear on was how it planned to make money from Skype, and it later went back and forth on whether it had given up on looking for the mythical "synergies" between Skype and its core auction business. Last week, eBay's CEO conceded that those synergies were "minimal" -- leading to more speculation that eBay might spin Skype off.

And thus the cycle begins again, with a figure of $900 million to $1.2 billion tossed out there as a potential starting point for the second version of the Skype Billion-Dollar Buyout Plan. What's interesting is that just like four years ago, Skype's financials are murky, as Om Malik points out. The company also still faces the same big problem: monetization. As Skype gets bigger, that problem could become even more difficult. After all, if Skype continues to garner more and more users, more and more calls will shift from the paid SkypeOut service to free Skype-to-Skype calls. Skype is said to be profitable (although there's no indication of how profitable), but it seems pretty clear that it hasn't been the runaway success that would have justified its $4 billion price tag. While it's possible that any current sale could carry a more realistic price, somehow we imagine that eBay will try to use the same tactic that drove up its price for Skype to drive up the next buyer's price.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Yes, China Is Spying On Skype Conversations

from the end-to-end-to-gov't-encryption dept

Remember how Skype was supposed to be "untappable" due to end-to-end encryption? Well, we've already seen that's not true, thanks to leaks that showed the German government had figured out ways to tap Skype, and it will probably come as no surprise to many that China has been tapping and storing Skype conversations. Some of the findings of this report are not new. Back in 2005, reports came out that various Chinese telecoms were investing in special "filters" for Skype that would block conversations using certain keywords. But, of course, it seemed rather obvious that if they were blocking those keywords, they would also use them to spy on what people were talking about. Besides, if the telecoms didn't filter or record Skype, the Chinese government made it clear that it would block the use of Skype altogether.

The only really surprising part of the new report was the fact that the folks storing the messages did it so poorly that the researchers who discovered it were easily able to go in and read messages from others. It's rather telling to note the responses from the two companies involved. A Skype spokesperson told the Wall Street Journal: "The idea that China's government might be monitoring communications in and out of the country shouldn't surprise anyone." No, it shouldn't surprise anyone, but one might think it's rather troubling that Skype promotes itself as having end-to-end encryption, when that's clearly not true. Even more telling, the only thing about this report that seemed to actually concern representatives from Skype was the fact that the conversations had been readable by outsiders, again, telling the WSJ that the "security issue" had been "remedied" by Skype's partner in China, TOM Group. In other words, Skype isn't so concerned about users being spied on, but it is concerned when people can figure out that users are being spied on.

As for TOM Group, its response is pretty much exactly what you'd expect on this issue: "as a Chinese company, we adhere to rules and regulations in China where we operate our businesses." In other words, the government says they need to spy, so we let them spy. Nothing too surprising, but important for folks to know if they somehow thought that Skype's supposed end-to-end encryption actually kept conversations secret in China.

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Skype Concedes In GPL Dispute

from the don't-mess-with-the-GPL dept

Tom wrote about the Skype/GPL case yesterday, and it's worth noting (as many in the comments did) that partway through the hearing, Skype gave in and agreed to drop the appeal and abide by the lower court ruling. That's a good thing. However, from the comments on Tom's post, it appears that many seemed to have misunderstood what he wrote, believing he was (a) supporting Skype or (b) disparaging GPL. It appears to be neither. He pretty clearly states that it's a "desperation" play by Skype, and so it's not at all surprising that Skype gave in after the court indicated that Skype's arguments were not convincing. Tom also does not appear to be disparaging the GPL -- he notes how it helped encourage much more openness in software development.

His actual point, which got less attention, was whether the power of the GPL specifically is waning as other licenses gain prominence -- and, specifically, whether it would be so horrible if the GPL somehow went away. He's not suggesting that's a likely or ideal scenario -- just questioning what would happen. And, the point he makes is that while the GPL paved a very important path, we're seeing other options now appearing, and that's a good thing for open source. Developers now have a much bigger choice among licenses they can choose to adopt, and that competition can lead to interesting innovations. It's not an anti-GPL post -- but recognition that the hopes and dreams of open source software development are no longer tied to the success or failure of the GPL. And that's a good thing for both the GPL and open source.

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Does The GPL Still Matter?

from the expired-license? dept

The GNU General Public License heads to court again today, as Skype attempts to defend its distribution of Linux-enabled SMC hardware handsets that appear to be in violation of the operating system's open source license. It's easy to guess why Skype is fighting the suit, which was brought by GPL activists: the company relies on a proprietary protocol, and releasing the code could give competitors an advantage. You can't blame them for trying. Although in the past few years the GPL has made important strides in establishing its legal enforceability, it's still conceivable that a court could find something wrong with its unusual, viral nature.

Few think that this will be the court case that makes or breaks the GPL. Skype's already lost early rounds of this fight, and the claims it's now making seem so broad as to imply desperation. Besides, the case is being tried in the German legal system, which to date has proven friendly to the GPL.

But even if the license was invalidated, either in this case or another, there's an argument to be made that the GPL has already served its purpose. Its impact on the world of open source software is undeniable: by ensuring that an open project would remain open, the license encouraged programmers to contribute to projects without fear of their work being coopted by commercial interests. And by making it difficult, if not impossible, for a project derived from a GPLed project to go closed-source, it encouraged many programmers to license their efforts under open terms when they otherwise might not have.

But today, with open source firmly established as a cultural and commercial force, the GPL's relevance may be waning. The transition to the third version of the license left many in the open source community upset and intent on sticking with its earlier incarnations. And an increasing number of very high profile projects, like Mozilla, Apache and Open Office, have seen fit to create their own licenses or employ the less restrictive LGPL. The raw numbers bear out the idea of a slight decline in the GPL's prominence, too: Wikipedia lists the percentage of GPLed projects on Sourceforge.net and Freshmeat.net, two large open source software repositories, as 68% and 65%, respectively, as of November '03 and January '06. Today, the most recently available numbers show that Sourceforge's share has fallen to 65%, and Freshmeat's share has fallen to to 62%.

This is, of course, a small decline, and the GPL remains the world's most popular open source license by a considerable margin. But it does seem as though there may be a slowly decreasing appetite for the license's militant approach to copyleft ideals. I certainly don't wish Skype well in its probably-quixotic tilt at the GPL, but if they were to somehow get lucky at least they'd be doing so at a point in the open source movement's history when the GPL is decreasingly essential.

Tom Lee is an expert at the Insight Community. To get insight and analysis from Tom Lee and other experts on challenges your company faces, click here.

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Things I Was Wrong About

from the fun-stuff dept

A friend just sent me a great blog post by Kevin Kelly where he talks about some online things he was completely wrong about -- including products or companies he thought would flop that succeeded, as well as those he thought would succeed which went nowhere. He starts with the example of The Sims, which he thought would flop, but which just sold its 100 millionth copy. In looking through his list he notes:

Sadly I can detect no pattern to my mis-predictions. In some cases, I did not anticipate improvements and advances that would remake a pathetic first version into a truly cool tool. In others I anticipated advances that never came.

It got me thinking about which predictions or trends I totally missed on, and thought it might be fun to post some of them here. In Silicon Valley, people are so focused on the future, they don't look back often enough. Besides, it's healthy (and a bit cathartic) to review your mistakes every once in a while. I'll admit that on some of these it took some serious thinking to remember my initial feelings about them, as my opinions have changed. Anyway, feel free to think through some of your own in the comments.

• Google. Now, to be fair, I always thought that Google was a great offering, and I was one of the early adopters and users of the search engine. What I didn't understand was how the company would make money -- and why Kleiner Perkins and Sequoia would put $25 million into a company that had no revenue and no clear path to revenue. Given the founders rather vehement claims that advertising on a search engine was bad (and, yes, they were vehement about this early on), I thought the company would struggle to find a business model. In fact, it did struggle for a little while... but once the company figured it out....
• RSS. While we at Techdirt were a somewhat early adopter in providing an RSS feed, I wasn't much of a believer in the technology for a while. I had been using various "multibrowser" systems that would load up a bunch of websites in a huge long list -- and that seemed like a perfectly efficient system for me to use. I was on the record saying I thought RSS was too confusing for most people -- and I still think it suffers from some of those problems, but it's become tremendously successful -- due, in large part, to the user-friendliness of various RSS readers, starting with Bloglines and moving on to Google Reader and the various customizable home page solutions.
• Skype: It launched to a ton of hype and I wasn't buying any of it. There were already a bunch of voicechat products on the market, and there had been for years. I just didn't see what was all that different about Skype. To be honest, I'm still not sure what was so different about it -- but it got users, and for the most part "it just worked." Never underestimate the power of those two things.
• The web itself: I first heard about "the world wide web" in early 1994. I had been using email, usenet and gopher for a while before that. While I knew that the web was something special, as soon as I first tried out Mosaic in 1994, I didn't think it would become this big of a deal. In fact, I just assumed that the world would move on to something else after a few years. After all, after the web came along, gopher pretty much died out, and I assumed that some new offering would come along and make the web obsolete, just as the web did to gopher.
• The original Napster: While I actually only played around with Napster briefly (at the time I had no broadband connection), I thought that it would revolutionize the music industry. In a way, it did, but not the way I expected it to. I honestly thought that (1) Napster would be found legal and that (2) the recording industry would quickly realize what a useful tool it would be for distribution and promotion of music. Boy, was I wrong on that one.... Though, to be fair, at the time, there were plenty of others who felt the same way. It's only in retrospect that people now say that Napster was obviously illegal.
• Intelligent Agents. I had done a research project in college about some of the work being done on intelligent computer agents, and I really thought the technology had a lot of promise. I figured that well before now, there would be virtual assistants everywhere, doing things and making people's lives more efficient. Turns out the technology never really worked all that well, and at best, most of the early efforts in the space moved on to things like collaborative filtering.

Well, that's the quick list I came up with. Like Kelly, I'm not sure there's a real pattern there, but it doesn't mean I can't learn from my mistakes.

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Then Again, eBay Claims It's Still Hunting For Skype Synergies

from the there-must-be-a-pony-in-there-somewhere dept

Just a month ago, the guy in charge of Skype finally admitted that eBay had given up trying to find the mythical "synergies" between eBay and Skype as the few they had suggested turned out not to exist. Apparently, Skype's GM isn't on the same page as his boss, eBay CEO John Donahoe. He was just quoted saying that eBay will spend this year trying to find synergies with Skype and if it still can't find any, it may sell off or spinoff the unit. Given the lack of synergies so far and the massive write down on the purchase price, you have to figure they're going to be digging pretty deep to turn up any kind of synergy between Skype and eBay.

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Kevin Martin's Latest Gift To Telcos: Dismissing Skype Petition

from the we-don't-need-no-discussion-at-all.. dept

A little over a year ago, Skype filed a petition with the FCC asking to extend the Carterfone decision to mobile networks. The Carterfone ruling was what allowed people the opportunity to connect non-AT&T telephones to the phone network, and kicked off an awful lot of innovation in the telephone arena (getting everyone past the black rotary phones). The Skype petition was a bit misguided, because the situation in the mobile world was quite different than the AT&T telephone monopoly of the 1960s. In fact, there is a lot more competition and openness in the mobile world -- and that competition has pushed many of the players to continue to open up at a greater rate, knowing they need to in order to compete.

So, it probably doesn't come as much surprise to find out that telco buddy Kevin Martin is dismissing the Skype petition outright. He announced this at the CTIA conference, where it was greeted by applause -- suggesting that it was mostly employees from mobile operators in the room. Martin pointed out that there was a lot of competition in the mobile space and also noted Verizon Wireless' move towards openness. Of course, it may be a bit early to declare Verizon Wireless truly open, and it seems a bit odd to dismiss the Skype petition out of hand without any public discussion. While it's probably true that the Skype petition was asking for unnecessary regulations, you would think that at least a discussion could have been held around questions of openness on mobile networks before the petition was totally dismissed.

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eBay Finally Gives Up Looking For Mythical Skype Synergies

from the it's-all-over dept

When eBay first surprised plenty of folks by buying Skype in 2005, the company insisted that there were plenty of synergies between the two companies -- despite them being quite hard for anyone to see (and for eBay management to explain). They trotted out a couple of ideas that were easily shown to be false. All of this was finally confirmed last year when eBay wrote off much of the acquisition. Now, finally, eBay is admitting that there really are no synergies between the two, even though it apparently spent about two years trying desperately to find them. In talking about how Skype faltered after merging with eBay, Skype's latest General Manager admits that looking for synergies between the auction business and the VoIP business are a thing of the past: "There is less focus at eBay today on finding the place where eBay and Skype intersect on the web, on using mashups to create a new communications paradigm for eBay, and more focus on Skype growing its business and eBay growing its business." Why that only cost a few billion dollars to figure that out.

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Net2Phone Jumps Into The VoIP Patent Lawsuit Business: Sues Skype

from the everyone's-doing-it dept

In the last year, we've witnessed plenty of companies dig up VoIP patents with which to sue market innovator Vonage. Verizon, AT&T, Sprint and Nortel all were able to get Vonage to cough up some money, rather than continue to fight some questionable patents. The fact that there are so many overlapping patents, is exactly the "patent thicket" problem that our current patent system encourages. Of course, there are always more patents to choose from, and it appears that Net2Phone has dug out an old patent and decided not to sue Vonage, but to go after Skype instead. Unfortunately, there's very little in the way of detail. The ZDNet post just claims it happened, but doesn't give any details about the actual lawsuit (even where it's been filed). Also, the writer seems amazed that it's based on a patent filed in 2000, even though it's common enough to see old patents used in patent lawsuits. In this case, it's absolutely true that Net2Phone was an early pioneer in the VoIP space, but saw its business eclipsed when it had trouble coming up with a product people actually wanted to use (and then watched as providers like Skype passed them by). If anything, this seems like yet another example of those who lost in the marketplace punishing those who innovated better. Skype came up with a good product that people wanted to use. Net2Phone did not. It's hard to see why Skype should be punished for doing a better job serving the market.

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German Government Struggles To Tap Encrypted Skype Calls

from the crypto-works dept

The Wikileaks project is starting to bear fruit, with documents leaked to the site beginning to get a lot of attention. The latest example is correspondence between the German government and a vendor (via Slashdot) that apparently makes software for intercepting Skype calls. Interestingly, the interception technology appears to be pretty primitive and rather expensive. The software has to be installed on the Skype client, and the vendor suggests that this can be accomplished by attaching a trojan to an e-mail or physically entering the premises to install the software on the target machine. And, evidently, only Windows 2000 and XP are supported; Vista support is still in the works. The company charges thousands of euros per target computer. This suggests that Skype's encryption technology is secure against at least the eavesdropping techniques available to the German government. Apparently they haven't found a way to decode encrypted Skype traffic off the wire, so they're forced to resort to these fairly cumbersome attacks on Skype clients -- attacks that are no more convenient for law enforcement than simply bugging the target's office. That suggests that the risk of comprehensive government surveillance of online telephony is still a fair ways off. If you encrypt your online activities, they're probably pretty secure. Of course, it's entirely possible that other government agencies, such as the NSA, have more sophisticated eavesdropping technology that they haven't shared with the Germans. My guess is that any government agencies possessing really sophisticated eavesdropping tools are also less likely to have their private documents show up on Wikileaks.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Is LinkedIn The Latest To Play The Skype-Hype Valuation Bubble Game?

from the anyone-taking-bets-on-the-final-amount? dept

Over the past few years, we've noticed a pretty consistent pattern among startups trying to create huge valuations for themselves in a short period of time. While other companies have done it in the past, the latest cycle really kicked off with Skype confusing people into thinking it was worth billions. Despite having relatively low revenues, there suddenly leaked rumors that Skype was for sale. Skype denied it, and then had one of its investors say the company was worth well over a billion. Then the feeding frenzy began, until eBay came out the winner -- a move it later regretted. Facebook was the next to follow the Skype Hype Strategy, but may have been a bit too early to the game. It took an extra year, but the company may have outdone Skype in its $15 billion valuation (though, unlike Skype, Facebook hasn't turned that into real cash yet). In between, YouTube used a nearly identical strategy to pump up its valuation.

Here's what you do: get a little buzz. Leak a report to the press about a buyout offer. Deny the reports of the buyout offer and then have either an exec or an investor make an offhanded remark about how the company is actually worth billions, allow the feeding frenzy to begin and eventually pick an exit opportunity. It also doesn't hurt to have some sort of PayPal connection (which both Facebook and YouTube had). The latest to test out this strategy may be LinkedIn, which also has the PayPal connection. Last week the rumor broke that News Corp was trying to buy LinkedIn. The company's CEO quickly denied the report and said that the company would need to sell for "a lot more" than a billion dollars. Now, the latest reports are that News Corp isn't buying LinkedIn, but just like those other stories, the stage has now been set. Suddenly others may start thinking that perhaps LinkedIn is a good buy for over a billion dollars, and the feeding frenzy begins again. Anyone want to take guesses on the next startup to play this game?

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eBay Evaporates $1.43 Billion In Supposed Skype Synergies

from the not-quite-so-good dept

eBay made a few announcements this morning concerning Skype, and while the press seems focused on Skype founder/CEO Niklas Zennstrom leaving the company, that's hardly the interesting part of the announcement. Instead, the important news is in the fine print, concerning how much eBay is paying Skype as an earnout. Back when eBay bought Skype, there was an initial payment, and then an earnout based on how many new users and how much revenue Skype brought in. At the time, we noted that Skype really didn't have that many users and while it was a good product, we didn't see the synergies with eBay. Two years in, and it seems that this view was correct, as the supposed synergies never showed up. And, while Skype has continued to grow, the pace has certainly slowed. Back when the company was bought, at peak times there were usually around 5 to 7 million users online. These days, it seems like it's usually 8 to 10 million. That's not bad, but it's hardly astounding growth.

And, in fact, this slow growth is clearly seen in the earnout. eBay only had to pay an additional $530 million -- well short of the $1.7 billion maximum payout, clearly suggesting that Skype's growth has been a lot weaker than the company had hoped. To underscore how poorly Skype seems to be doing compared to eBay's plans, the company is also taking a $900 million impairment charge to write down the "goodwill" associated with the Skype acquisition. Ouch. That hurts. It's also leading to calls from all over about how eBay should sell off Skype, admitting defeat in an acquisition that never made sense in the first place. The funny thing is, a big part of the reason why eBay ended up paying so much for Skype in the first place, was due to a ridiculous and misleading hype frenzy (in part, based on a typo). You would think that eBay, of all companies, would recognize the buying frenzy created by an auction situation -- but apparently not. As for Zennstrom, it hadn't really seemed like he was all that engaged at Skype anyway, and the timing of his departure coincides with the launch of his new product, Joost.

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