eBay Reaches Deal With Skype Founders

Skype users can breathe easier, now that one of technology's greatest business blunders has been fixed. The outside chance of a Skype shutdown has gone away, messy lawsuits have been resolved, and Skype's founders are back helping run the company.

The Wall Street Journal reports today that Skype founders Niklas Zennstrom and Janus Friis will join the consortium that is buying the company, taking a 14 percent stake, and joining the company's board.

The two founders will also make an “undisclosed cash investment” in Skype, according to the Journal. More importantly, they will withdraw their lawsuits and contribute the Joltid software, key to Skype's operation, to the new company.

All this is necessary because in 2005, when eBay CEO Meg Whitman purchased Skype, eBay bought the company but its founders kept the Joltid technology its service was based upon. The deal cost eBay about $2.6 billion in cash and stock.

In the heady days of the supposed eBay/Skype “synergy” this may have seemed like a good deal, but only if you weren't very smart. Which describes eBay's thinking that purchasing Skype was somehow going to benefit auction customers.

It never did and as the deal turned sour–and especially after Whitman left–eBay started looking for ways to unload Skype. First, through a public offering and finally by selling Skype to an investment group that hopes to do more with the company than eBay has been able to accomplish.

The new owners include an equity investment company, Silver Lake; Netscape founder Marc Andreessen's venture fund; and the Canadian Pension Plan Investment Board. Together, they own 56 percent of the company, while eBay retains a 30 percent interest.

The big loser in the deal, besides Whitman, who may face “what were you thinking?” questions during her California gubernatorial bid, is Index Ventures, a VC firm apparently forced out of the deal by Skype's founders.

An Index employee formerly worked for Joost, another company owned by the founders, complicating the legal entanglements.

Today, one of the sorriest chapters in Silicon Valley business history has ended. Skype users no longer have to worry about major changes to the service, necessary if Joltid were removed, or even potential shutdown.

In the end, the money eBay is getting, reportedly $2 billion, removes some of the sting from the Skype purchase. The 30 percent ownership stake that eBay is retaining gives it considerable upside potential if the new owners are successful. (eBay's share was lowered from 35 percent in the final agreement).

There is an important business lesson here: A contract that seems to make sense when everyone is happy and the sun is shining can become a nightmare when clouds gather and relationships sour. Good contracts always consider the great possibility that a deal will go wrong and help solve that problem in advance.

Allowing Skype's founders to keep Joltid was a huge mistake that severely limited eBay's options, probably lowered the eventual selling price, and took fancy maneuvers to fix.