Why Settlement with Joltid Appears Best Option for Skype’s Backers

Even as Skype continues to plot and execute what could be a lucrative enterprise strategy involving interoperability with SIP-based PBXes, a cloud hangs over it.

In the battle between Skype’s founders and its current owner and would-be investors, the sphere of engagement is not limited to the courtroom. There are unsettled technology issues, too.

Representatives of Skype and eBay have told the media that a technical “workaround” is being explored that would extricate them, and their prospective new investors, from the ongoing legal entanglements with Joltid and Skype’s original founders, Niklas Zennstrom and Janus Friis.

I have no question that Skype is assessing technical alternatives to the current Skype architecture, which is predicated and dependent on underlying peer-to-peer software licensed from Joltid. That software, which eBay had neglected to procure from Joltid when it bought Skype for $2.6 billion in 2005, is now the focus of a legal dispute between the parties.

The trouble for Skype is that a “workaround” does not seem technically possible. Instead, eBay and Skype’s new owners would have to recreate the service from the ground up, essentially starting all over again with a brand-new architecture. In this context, it is important to recognize that what is called Skype for SIP is just a server-to-server mechanism that provides interoperability between SIP PBXes and Skye, not a potential replacement for the Skype service.

Whatever emerges as a substitute might be called Skype, but it would be something else entirely, probably based on the industry-standard Session Initiation Protocol (SIP), which was mentioned above and has been widely adopted by wireless operators, telecommunications carriers, and enterprises of all sizes.

The current incarnation of Skype is based on Joltid’s proprietary P2P code. In its early days, the software did not play well with the evolving SIP standard, which was designed to facilitate and support not only voice communication but also videoconferencing and instant messaging. Skype supports voice, video, and IM, too.

For a long time, SIP and Skype developed on parallel tracks, providing similar functionality but not talking to each other, figuratively and literally. Skype got the market jump on SIP for a variety of reasons, some having to do with telco-versus-Internet political battles that encumbered and retarded SIP’s development in the IETF and other standards bodies.

Another major difference was that Skype, with its peer-to-peer architecture and its promiscuous approach to establishing communications sessions, was built to circumvent firewalls and network-address-translation (NAT) gateways.

From a technical standpoint, Skype’s facility for firewall and NAT traversal made it effective and easy to use. From a business perspective, the fact that it was free made it popular. That’s why Skype got off to such a great start, and why it has more than 480.5 million registered users.

If one’s strength also is one’s weakness, then Skye’s initial asset, its NAT-traversing peer-to-peer architecture, has developed into a potential liability, both legally and technically. With a key piece of the peer-to-peer architecture in Joltid’s hands, Skype and its current and aspiring owners must win the litigation or develop a technological solution that obviates the legal threat.

Unfortunately for Skype, as has been explained in this forum previously, a simple workaround – in the form of a patch or a software adjunct – doesn’t appear feasible. That means Skype and its backers must hope they prevail in the legal battle, or that they can build, from scratch, an entirely new service that will assume the Skype name.

Skype and its future owners won’t put all their eggs in one basket. They won’t sit back and count on winning in the courtroom. In fact, they’re exploring how to reconstitute Skype in a different form. The latter will take a lot of time, and presumably a lot of money. The cost, seemingly prohibitive, would have to be factored into any calculation of risk and reward.

There is one other possibility.

That third option involves a settlement with Zennstrom and Friis and their corporate vehicle, Joltid. Given the scenario I’ve just laid out, I think this alternative will be thoroughly investigated. There’s a good chance Joltid would drop the litigation if it were given an ownership position in Skype. Relevant questions then would be: How much do Zennstrom and Friis want, and how much would eBay and its new investors be willing to concede?

Regardless of how it ends, the story will be interesting to follow.

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