Category Archives: eBay

Peeling the Nicira Onion

Nicira emerged from pseudo-stealth yesterday, drawing plenty of press coverage in the process. “Network virtualization” is the concise, two-word marketing message the company delivered, on its own and through the analysts and journalists who greeted its long-awaited official arrival on the networking scene.

The company’s website opened for business this week replete with a new look and an abundance of new content. Even so, the content seemed short on hard substance, and those covering the company’s launch interpreted Nicira’s message in a surprisingly varied manner, somewhat like blind men groping different parts of an elephant. (Onion in the title, now an elephant; I’m already mixing flora and fauna metaphors.)

VMware of Networking Ambiguity

Many made the point that Nicira aims to become the “VMware of networking.” Interestingly, Big Switch Networks has aspirations to wear that crown, asserting on its website that “networking needs a VMware.” The theme also has been featured in posts on Network Heresy, Nicira CTO Martin Casado’s blog. He and his colleagues have written alternately that networking both doesn’t and does need a VMware. Confused? That’s okay. Many are in the same boat . . . or onion field, as the case may be.

The point Casado and company were trying to make is that network virtualization, while seemingly overdue and necessary, is not the same as server virtualization. As stated in the first in that series of posts at Network Heresy:

“Virtualized servers are effectively self contained in that they are only very loosely coupled to one another (there are a few exceptions to this rule, but even then, the groupings with direct relationships are small). As a result, the virtualization logic doesn’t need to deal with the complexity of state sharing between many entities.

A virtualized network solution, on the other hand, has to deal with all ports on the network, most of which can be assumed to have a direct relationship (the ability to communicate via some service model). Therefore, the virtual networking logic not only has to deal with N instances of N state (assuming every port wants to talk to every other port), but it has to ensure that state is consistent (or at least safely inconsistent) along all of the elements on the path of a packet. Inconsistent state can result in packet loss (not a huge deal) or much worse, delivery of the packet to the wrong location.”

In Context of SDN Universe

That issue aside, many writers covering the Nicira launch presented information about the company and its overall value proposition consistently. Some articles were more detailed than others. One at MIT’s Technology Review provided good historical background on how Casado first got involved with the challenge of network virtualization and how Nicira was formed to deliver a solution.

Jim Duffy provided a solid piece touching on the company’s origins, its venture-capital investors, and its early adopters and the problems Nicira is solving for them. He also touched on where Nicira appears to fit within the context of the wider SDN universe, which includes established vendors such as Cisco Systems, HP, and Juniper Networks, as well as startup such as Big Switch Networks, Embrane, and Contextream.

In that respect, it’s interesting to note what Embrane co-founder and President Dante Malagrino told Duffy:

 “The introduction of another network virtualization product is further validation that the network is in dire need of increased agility and programmability to support the emergence of a more dynamic data center and the cloud.”

“Traditional networking vendors aren’t delivering this, which is why companies like Nicira and Embrane are so attractive to service providers and enterprises. Embrane’s network services platform can be implemented within the re-architected approach proposed by Nicira, or in traditional network architectures. At the same time, products that address Layer 2-3 and platforms that address Layer 4-7 are not interchangeable and it’s important for the industry to understand the differences as the network catches up to the cloud.”

What’s Nicira Selling?

All of which brings us back to what Nicira actually is delivering to market. The company’s website offers videos, white papers, and product data sheets addressing the Nicira Network Virtualization Platform (NVP) and its Distributed Network Virtualization Infrastructure (DNVI), but I found the most helpful and straightforward explanations, strangely enough, on the Frequently Asked Questions (FAQ) page.

This is an instance of a FAQ page that actually does provide answers to common questions. We learn, for example, that the key components of the Nicira Network Virtualization Platform (NVP) are the following:

– The Controller cluster, a distributed control system

– The Management software, an operations console

– The RESTful API that integrates into a range of Cloud Management Systems (CMS), including a Quantum plug-in for OpenStack.

Those components, which constitute the NVP software suite, are what Nicira sells, albeit in a service-oriented monthly subscription model that scales per virtual network port.

Open vSwitch, Minor Role for OpenFlow 

We then learn that the NVP communicates with the physical network indirectly, through Open vSwitch. Ivan Pepelnjak (I always worry that I’ll misspell his name, but not the Ivan part) provides further insight into how Nicira leverages Open vSwitch. As Nicira notes, the NVP Controller communicates directly with Open vSwitch (OVS), which is deployed in server hypervisors. The server hypervisor then connects to the physical network and end hosts connect to the vswitch. As a result, NVP does not talk directly to the physical network.

As for OpenFlow, its role is relatively minor. As Nicira explains: “OpenFlow is the communications protocol between the controller and OVS instances at the edge of the network. It does not directly communicate with the physical network elements and is thus not subject to scaling challenges of hardware-dependent, hop-by-hop OpenFlow solutions.”

Questions About L4-7 Network Services

Nicira sees its Network Virtualization Platform delivering value in a number of different contexts, including the provision of hardware-independent virtual networks; virtual-machine mobility across subnet boundaries (while maintaining L2 adjacency); edge-enforced, dynamic QoS and security policies (filters, tagging, policy routing, etc.) bound to virtual ports; centralized system-wide visibility & monitoring; address space isolation (L2 & L3); and Layer 4-7 services.

Now that last capability provokes some questions that cannot be answered in the FAQ.

Nicira says its NVP can integrate with third-party Layer 3-7 services, but it also says services can be created by Nicira or its customers.  Notwithstanding Embrane’s perfectly valid contention that its network-services platform can be delivered in conjunction with Nicira’s architectural model, there is a distinct possibility Nicira might have other plans.

This is something that bears watching, not only by Embrane but also by longstanding Layer 4-7 service-delivery vendors such as F5 Networks. At this point, I don’t pretend to know how far or how fast Nicira’s ambitions extend, but I would imagine they’ll be demarcated, at least partly, by the needs and requirements of its customers.

Nicira’s Early Niche

Speaking of which, Nicira has an impressive list of early adopters, including AT&T, eBay, Fidelity Investments, Rackspace, Deutsche Telekom, and Japan’s NTT. You’ll notice a commonality in the customer profiles, even if their application scenarios vary. Basically, these all are public cloud providers, of one sort or another, and they have what are called “web-scale” data centers.

While Nicira and Big Switch Networks both are purveyors of “network virtualization”  and controller platforms — and both proclaim that networking needs a VMware — they’re aiming at different markets. Big Switch is focusing on the enterprise and the private cloud, whereas Nicira is aiming for large public cloud-service providers or big enterprises that provide public-cloud services (such as Fidelity).

Nicira has taken care in selecting its market. An earlier post on Casado’s blog suggests that he and Nicira believe that OpenFl0w-based SDNs might be a solution in search of a problem already being addressed satisfactorily within many enterprises. I’m sure the team at Big Switch would argue otherwise.

At the same time, Nicira probably has conceded that it won’t be patronized by Open Networking Foundation (ONF) board members such as Google, Facebook, and Microsoft, each of which is likely to roll its own network-virtualization systems, controller platforms, and SDN applications. These companies not only have the resources to do so, but they also have a business imperative that drives them in that direction. This is especially true for Google, which views its data-center infrastructure as a competitive differentiator.

Telcos Viable Targets

That said, I can see at least a couple ONF board members that might find Nicira’s pitch compelling. In fact, one, Deutsche Telekom, already is on board, at least in part, and perhaps Verizon will come along later. The telcos are more likely than a Google to need assistance with SDN rollouts.

One last night on Nicira before I end this already-prolix post. In the feature article at Technology Review, Casado says it’s difficult for Nicira to impress a layperson with its technology, that “people do struggle to understand it.” That’s undoubtedly true, but Nicira needs to keep trying to refine its message, for its own sake as well as for those of prospective customers and other stakeholders.

That said, the company is stocked with impressive minds, on both the business and technology sides of the house, and I’m confident it will get there.

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Google Doesn’t Seem Entirely Candid on China Affair

James Fallows conducted a telephone interview with David Drummond, Google’s chief legal officer, and posed a salient question that most of the business press has not bothered to ask.

Quoting from Fallows’ interview with Drummond:

I then asked Drummond about something that has always puzzled me. If the original occasion for the shift of policy was (as generally reported) a hacking episode, why did it lead to a change in the censorship policy? What’s the logical connection? He explained the reasoning in a way I hadn’t seen before.

The initial premise, that it all started from a hacking episode, is not quite right. We did have a hacking incident. Most hacking incidents that you see are freelancers — maybe government sponsored, maybe not. They are out there trying to steal intellectual property, make some money. Or they might just be hackers who want to damage something for whatever reason. That’s a fact of life that internet companies deal with all the time.

This attack, which was from China, was different. It was almost singularly focused on getting into Gmail accounts specifically of human rights activists, inside China or outside. They tried to do that through Google systems that thwarted them. On top of that, there were separate attacks, many of them, on individual Gmail users who were political activists inside and outside China. There were political aspects to these hacking attacks that were quite unusual.

That was distasteful to us. It seemed to us that this was all part of an overall system bent on suppressing expression, whether it was by controlling internet search results or trying to surveil activists. It is all part of the same repressive program, from our point of view. We felt that we were being part of that.

That was the direct connection with the hacking incident. It wasn’t in isolation. Since the Beijing Olympics, our experience in China has gotten worse. Although we have gained market share, it has become more and more difficult for us to operate there. Particularly when it comes to censorship. We have had to censor more. More and more pressure has been put on us. It has gotten appreciably worse — and not just for us, for other internet companies too.

So we increasingly came to feel that the original premise of our entry into China was being undermined. We thought when we went in that we could help to open the country and things could get better by our being there. Things seemed to be getting worse.

Does that answer make sense? I’m not sure that it does. For one thing, it seems to conflict with what we already know.

Let’s begin with what Drummond says about the nature of the hack attack. He says it was “almost singularly focused on getting into Gmail accounts, specifically of human rights activists.”

Really? I have read multiple reports, including one today, that the attack perpetrated on Google was part of a broader cyber onslaught, called Operation Aurora, aimed at 30 or more U.S.-based companies. Moreover, the objective of the sophisticated, systematic raid wasn’t to crack activists’ email accounts, but to purloin intellectual property from the companies targeted, which included Juniper Networks, Intel, and Adobe, among others.

As McAfee CTO George Kurtz explained, “social footprinting” was a notable feature of the attacks. The attackers took special care to identify employees with access to source code or other intellectual property, then posed as social acquaintances of those employees to enlist them as unwitting accomplices to the thefts.

Perhaps Drummond is right, but most reports suggest that the assailants primarily were after intellectual property, and only secondarily interested in cracking the Gmail accounts of human-rights activists.

What else is wrong with Drummond’s answer? He appears hopelessly naive or disingenuous when says the hacks seemed “part of an overall system bent on suppressing expression.” What did he think the Chinese government represented? Sweetness and light? Freedom and liberty? Fun and frolic?

I think Google knew the beast long before these attacks, and that it was wiling to make accommodations and compromises to continue doing business there. Something else changed from the time Google set up business in China, back in 2006, to now. For whatever reason, Google doesn’t want us to know the whole story.

Nonetheless, Drummond hints at the bigger picture. He says “our experience in China has gotten worse,” and “it has become more and more difficult for us to operate there.” He also says censorship is the main issue for Google, but again I question the party line.

In search, Google is a distant second to Baidu in China. But we should understand that Google is not alone among Western Internet companies that have found China to deliver less than it promised as a market destination. Yahoo, eBay, and Microsoft flamed out or underachieved, and China’s authorities slammed the door shut on Twitter, Facebook, and YouTube (now owned by Google).

Did these companies make missteps in their engagements with China? Absolutely. But it’s also true that the Chinese government has done them no favors, and that China, with its “indigenous innovation” policies, wants to create its own technology-sector powerhouses rather than play host to what it perceives as Western interlopers. And, yes, it’s also true that China’s rulers don’t embrace the freedom of expression that many of these companies and their services encourage.

In pursuing its industrial policies, China’s leadership has the support of China’s populace, which is, to a great degree, fiercely nationalistic. Chinese consumers will gravitate toward products and services provided by Chinese companies, not because the products or services are better — though that’s sometimes the case in that particular market — but because they’re Chinese.

Chinese distrust and fear of foreigners are powerful demagogic levers in the hands of China’s leaders. It’s a way for the leadership to make common cause with the masses, to divert focus to a perceived external threat, and to align to its own interests with those of the people. After all, Chinese companies that become market leaders, if only in China, will reflect glory upon the nation and the people.

So, in the context of China, Google confronted a market that was inordinately inhospitable to its charms, and Chinese agents that were trying to pilfer its crown jewels. Is it any wonder Google chose this moment, under these circumstances, as an occasion for introspection and a strategic change of tack?

Reviewing the Skype Deal

If the battle for Skype were a television series, it would have been equal parts soap opera and suspense thriller. It nearly segued into courtroom drama, but it wouldn’t have been a good one, likely way too one-sided for engrossing fare.

In the end, it was the specter of a courtroom rout that got the principals to the table to hammer out a settlement that leaves a few people happy, a few people content, and a few people disconsolate. There were winners, losers, and those who fall somewhere between those unambiguous extremes.

I think Om Malik has done an excellent job categorizing how the various players fared. His blunt assessment is keenly accurate, cutting through the cant and dishonest spin of those who would try to persuade us that we can trust neither our own lying eyes nor our critical faculties.

As far as the official breakdown, eBay finally gets to sell majority ownership of Skype to a consortium of investors, though the composition of those investors — and the overall percentage of the company they’ll take off eBay’s hands — has changed.

The key paragraph, excerpted from the press release announcing the settlement, is this one:

“As part of the settlement agreement, Joltid and Skype founders Niklas Zennström and Janus Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 percent stake in Skype. As a result, Silver Lake and other investors including Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will together hold 56 percent of Skype and eBay will retain 30 percent. As previously announced, eBay will receive approximately $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million. The deal, which values Skype at $2.75 billion and is not subject to a financing condition, is expected to close in the fourth quarter of 2009.”

In the original ill-fated arrangement, announced September 1, eBay sought to sell 65 percent of Skype to a consortium of investors that was led by Silver Lake. That consortium included Index Ventures but excluded Skype’s founders, Zennstrom and Friis, who — by the time this story runs its course — will have been both sellers and buyers of Skype in separate transactions with eBay.

Like the doomed proposal that preceded it, today’s announced agreement values Skype at about $2.75 billion.

Index Ventures and Mike Volpi, a partner in that firm, are not part of the deal. Index would like us to believe that this arrangement occurred entirely of its own volition, but the evidence suggests otherwise. Here is what Danny Rimer, a partner at Index Ventures, had to say about the Skype settlement:

“We are pleased that Skype will now be able to put litigation behind it, and we wish Josh Silverman, his team and the Skype investors well in continuing to grow a great business. Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction.”

Om Malik contends rightly that this is . . . er, poppycock.

I don’t know whether Index could have said anything to take the sting out of the loss it sustained, on multiple fronts, in this whole Skype imbroglio. Nonetheless, the quote Rimer provides is embarrassing and ungracious. There are times when it’s best to say nothing, and this qualified as one of them.

It’s all over but the shouting now. With 23 directors, Skype might want to soundproof the boardroom.

Reported Skype Settlement Sees Founders Taking Ownership Stake; Index Ventures Out

The battle between the founders of Skype, its current owners (eBay), and others who wish to own it will reportedly reach its end in a negotiated agreement.

So says the New York Times. Before the Times published its report, Om Malik also reported that a settlement might be in the works.

Several people briefed on the situation told the Times that the proposed settlement will be struck between a consortium of investors, who successfully bid for Skype in September, and the original founders of Skype — Niklas Zennstrom and Janus Friis — who filed a fusillade of lawsuits in an effort to derail the consortium’s $1.9-billion deal to buy 65 percent of Skype from eBay.

The settlement mooted by the Times’ sources would restructure the consortium buying Skype, with Zennstrom and Friis, who created Skype and sold it to eBay in 2005, taking a significant interest in the p2p communication company they founded. (Back in September, I wrote about a potential settlement along these very lines.)

Apparently withdrawing from the deal — doubtless at the strong insistence of Zennstrom and Friis — will be Index Ventures, a London-based venture capital firm whose partner, Mike Volpi, formerly served as CEO and chairman of Joost, a video-sharing firm also founded by Zennstrom and Friis.

This is where the tale gets tangled and sordid, and where it requires some expository backtracking.

A phalanx of intellectual-property disputes and lawsuits relating to software technology licensed to Skype by Joltid — a company controlled, again, by Zennstrom and Friis — was designed to prevent eBay from completing the $1.9-billion sale of a 65-percent interest in Skype to a group of investors that includes Index Ventures, private-equity firm Silver Lake, venture-capital firm Andreessen Horowitz, and the Canada Pension Plan Investment Board.

But there’s an additional subtext to this byzantine story. It involves Volpi, a former Cisco executive who was involved in a great many of the networking giant’s acquisitions through the late 90s and into the current decade. In 2007, Volpi left Cisco to take the helm at Joost, a video-sharing business built atop some of the same software technology that provided the p2p architectural foundations for Skype and Zennstrom and Friis’ earlier companies, including file-sharing trailblazer Kazaa.

What transpired at Joost is key to understanding the intense antagonism between the principals involved in the fight for Skype.

At some point, as Joost struggled to gain ground against established video-distribution websites, Volpi turned his attention to Skype. In February of this year, while he was serving as CEO and chairman of Joost, Volpi began email correspondence with Danny Rimer of Index Ventures — the VC firm Volpi would later join — regarding a scheme to take control of Skype in conjunction with private-equity firm SIlver Lake and others. To make matters worse, Volpi wrote the correspondence using his email account at Joost.

In a motion for a preliminary injunction as well as in a preceding lawsuit, Jotid and Joost accused Volpi of a veritable panoply of chicanery and outright malfeasance. Regarding the investment-consortium’s bid to take majority control of Skype, the plaintiffs charged that “the entire transaction is . . . . infected with Volpi’s misconduct.”

With Volpi having used his Joost account for email correspondence regarding Skype, the Joost and Joltid plaintiffs produced Volpi’s email messages and other documentation to support their injunction demands.

Not only did Volpi discuss a Skype takeover with his future colleague at Index Ventures while he was still at Joost, but Volpi also made critical, even disparaging, comments about prospective deal partners (including former Cisco colleague Charlie Giancarlo) and about his employers, Zennstrom and Friis.

Regarding Giancarlo, Volpi wrote:

“Charlie is a good guy, but not a superstar . . . . His core asset at Cisco is (sic) that he was much more inclined to say “yes” to John (Chambers, Cisco’s CEO) than I was.”

In those email messages, Volpi also discussed how Skype could change its underlying software architecture to obviate the intellectual-property claims related to Joltid and its p2p software.

The entire saga may have done irreparable damage to Volpi’s previously stellar professional reputation. In a column published originally on October 31, the San Jose Mercury News’ Chris O’Brien wrote:

Even if we give Volpi the benefit of the doubt and assume he prevails on the legal issues, his actions and behavior are likely to put a considerable dent in his reputation. It may be hard to predict who will be the winner in these legal cases, but it’s clear that Volpi is the early loser.

If the New York Times report proves accurate, the epilogue of this story will be worth following.

Joltid Versus Volpi: The Antagonism Intensifies

The high-stakes battle for Skype already was contentious, even bitter.

It became poisonous today when companies controlled by Niklas Zennstrom and Janus Friis filed a motion for a preliminary injunction against Michael Volpi and venture-capital firm Index Ventures in the United States District Court for the District of Delaware.

In the motion and accompanying supporting documentation — filed by Joost US, Inc., its indirect parent company Joost N.V., and Joltid Limited — Volpi, formerly the CEO and chairman of video-sharing company Jooost, and Index are accused of a veritable panoply of chicanery and outright malfeasance. Many of the allegations are nothing short of incendiary.

Flowing from intellectual-property disputes and lawsuits relating to Joltid software technology, the motion is intended to prevent eBay from completing the $1.9-billion sale of a 65-percent interest in Skype to a group of investors that includes Index Ventures, private-equity firm Silver Lake, venture-capital firm Andreessen Horowitz, and the Canada Pension Plan Investment Board.

Zennstrom and Friis would like to own Skype, in whole or in part, and they’re desperate to stop eBay’s Skype deal from coming to fruition.

A press release announcing the preliminary-injunction motion spells out the plaintiffs’ immediate objectives:

The Motion for Preliminary Injunction asks the Court to enjoin Index and Volpi from using any of Joost’s and Joltid’s confidential information regarding (among other things) the Global Index Software, the technology developed and owned by Joltid that provides the peer-to-peer capability embedded in the Skype program. The Motion also asks the Court to enjoin the defendants from:

(i) using the confidential information in connection with the operation or strategic planning of Skype;

(ii) communicating such information to other parties in the “Buyout Group” that has made a bid to acquire Skype from eBayInc.;

(iii) soliciting employees of Joost and Joltid with offers to join Skype;

(iv) having communications with current or former employees of Joost orJoltid regarding the companies’ confidential information; and

(v) further participating in the Skype acquisition or assuming any position with Skype until a final adjudication of the merits of the case.

Citing allegations made against Volpi and Index Ventures in a lawsuit filed on September 19, the filing flatly asserts that “the entire transaction is . . . . infected with Volpi’s misconduct.”

Those who haven’t been following this complex and personally fraught conflict can be forgiven for not understanding the complicated drama without the benefit of an annotated program. As I attempted to explain in an earlier post, the allegations are centered on former Cisco wheeler-dealer Volpi’s tenure as CEO and chairman of Joost, a company founded by Zennstrom and Friis.

Like other companies – such as Kazaa and Skype – launched by Zennstrom and Friis, Joost leveraged and licensed underlying peer-to-peer software code from subsidiary companies (including Joltid) also owned by Zennstrom and Friis.

In 2008, during Volpi’s unsuccessful reign at Joost, he is reputed to have led an effort to shift the company’s client-based software and p2p architecture – based on Joltid’s Global Index (GI) software, which also provides the underpinnings for Skype — to a web-based model with a centralized server-based architecture. Although he cited business and technological reasons for the move, Zennstrom and Friis contend skullduggery was afoot.

Essentially, the plaintiffs assert, Volpi used inside knowledge of how Global Index and other Joltid software worked to help Skype violate terms of an executable-license agreement it had struck with Joltid for use of the General Index software. Unlike Skye, Joost had a license for the source code.

Meanwhile, Joost’s fortunes were waning while Skype remained popular with millions worldwide as a means of conducting presence-based voice, IM, and video communications.

At some point, in early 2009, while he still was the CEO of Joost, Volpi is accused of conspiring with his colleagues at Index Ventures on a plan to gain a controlling interest in Skype, partly through his knowledge of how Joltid’s General Index functioned. The plaintiffs allege that Volpi, trading on confidential technical information he obtained at Joost, made himself indispensable to the “buyout group,” and that he subsequently met with senior executives at Skype to discuss technical workarounds that would extricate that company from its lawsuits with Joltid over use of General Index code.

Volpi is also alleged to have attempted to poach employees at Joost who had intimate knowledge of how the disputed p2p software worked.

A welter of email correspondence and other documentation has been adduced by the plaintiffs to support their case for an injunction. Some of those background documents make for fascinating reading, particularly Volpi’s email correspondence relating to the structure of the Skype deal.

I might revisit some of that content in future missives. Suffice it to say, Volpi’s remark about Charlie Giancarlo – now with Silver Lake Partners, but formerly an executive counterpart of Volpi’s at Cisco – will raise eyebrows.

Said Volpi of Giancarlo: “Charlie is a good guy, but not a superstar . . . . His core asset at Cisco is (sic) that he was much more inclined to say “yes” to John (Chambers, Cisco’s CEO) than I was.”

Volpi’s Joost Tenure Key to Understanding Skype Saga

Perhaps the key to understanding the increasingly bitter battle for Skype can be found in what transpired during Michael Volpi’s tenure as the CEO of Joost, the video-sharing startup founded by Niklas Zennstrom and Janus Friis.

In the current context, what’s important about Volpi’s reign at Joost is that it coincided with an architectural change in how the company delivered video over the Internet.

I was reminded of Joost’s architectural overhaul by Julian Cain, an engineer who worked on Kazaa and is familiar with Joltid, bluemoon, and Skype. Cain, as you’ll recall, was a source for an earlier post I wrote on the deepening antagonisms between Skype’s founders and its current and would-be owners.

Zennstom and Friis originally set up Joost with the p2p architecture that formed the technological basis for companies the pair had founded previously, including Kazaa and Skype. In 2007, Michael Volpi became Joost’s CEO. Under his leadership, and evidently as part of a project he led, Joost slowly began an architectural transition away from its p2p roots. As Cain explained in a email message last night:

In case you don’t know how the Joost migration worked, well, it simply began to use p2p less and the long-tail providers more. Killing the Joost client for an ActiveX/NPAPI plugin with a p2p runner application for p2p services, and then removing the Joost plugin from download, is what abolished the p2p network for good. If the website could not load the Joost plugin, then it used Adobe Flash. It was seamless;, however, they didn’t have to deal with paid services and such a large user-base and other factors. Of course, look what Joost is now.

That architectural change looms as a central issue in the lawsuit Joltid, the company owned by Zennstrom and Friis, filed against Volpi and his colleagues at Index Ventures last week. That, of course, was the latest in a series of legal dustups between Zennstrom and Friis on one side and Skype and eBay on the other.

At the time of the architectural shift at Joost, Volpi claimed plausible reasons for the change. The justifications were commercial and technical. Other video-sharing sites, namely YouTube and Hulu, had proven far more popular. Meanwhile, some Joost users had complained that videos were slow to load.

Nevertheless, Cain contends those weren’t necessarily the only reasons Volpi pushed for the architectural overhaul.

Volpi’s move from p2p to Adobe Flash while at Joost wasn’t in any way to do with the lack of gain at that time. If they wanted to (do so), they would have been pushing HD content (both live and prerecorded) over p2p with long-tail back-off by now without any real competition . . . . . Volpi broke that into myths and theories based on what he wanted to do, not technical facts, trends, statistics or analytical data.

Still, Volpi had successfully transitioned Joost from the Joltid p2p foundation on which it was based. He’d moved it onto a server-based architecture that used Flash-based clients at the end points. He’s done it once. There’s no reason to think he couldn’t do it again, this time at Skype.

If the conflict plays out the way Cain believes it will, Zennstrom and Friis will not back down and neither will Volpi and his confederates.

In my last post on this topic, I suggested a settlement might be possible. Cain believes that isn’t in the cards. Both sides are playing to win, and neither is in the mood for accommodation. One way or the other, it will be settled in court.

I also said in my last post that eBay and Skype’s new majority owners would have to rebuild Skype from the ground up to obviate the lawsuit Joltid has filed regarding the disputed “Global Index (GI)” software, the patent for which became active early this year. While it remains true that Skype would have to be reconstituted from scratch, the reconstruction effort could be completed earlier than I anticipated.

A means of getting there faster is represented by technologies offered by Adobe. Henry Sinnreich and a team of SIP experts have worked for Adobe for a long time now, and Cain reminded me that Adobe Flash supports SIP p2p with NAT traversal. He explained as follows:

Don’t forget Adobe Flash has SIP and p2p with NAT traversal as well. This would be very easy to offload the client without much interruption; however you can kiss the desktop client and p2p network goodbye.

Om Malik wrote a post in 2008 that foresaw the implications of Adobe’s work in this area. Commenting on the advent of Flash p2p, Malik wrote:

The reason we should pay attention to this product is Adobe’s distribution strength. The company can easily upgrade its Flash clients and instantly become owner of one of the largest p2p services. What that means is that now anyone can contemplate a Joost-like service that works within a browser. Using AIR to extend those p2p abilities to the desktop would be fairly easy as well.

So, the move to a new client architecture could be achieved with relatively minor disruption to Skype’s operations. Meanwhile, the service’s registration index would have to be transferred to a centralized server-based model.

It appears Volpi and company have a solid plan in place, and one can assume they’re well on their way to executing it. Not for the first time — and certainly not for the last – I stand corrected.

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.