Skype’s unstable future

Last week’s story of how Skype may be forced to shut down is straight from the Bill Gates textbook on how to do business.
In late 1980, IBM were casting around for an operating system suitable for their new line of personal computers. The obvious choice was the CP/M program. However, IBM couldn’t come to an agreement with Intergalactic Digital Research (seriously, that was their name) over using the software.

So they ended up on the doorstep of a small company in Seattle who specialised in programming languages, not operating systems, who’s main product was previously highway traffic counting systems.

Microsoft didn’t have an operating system so they bought one from a nearby computer store, modified it slightly and did a deal with IBM.

Most of us would have sold the system to IBM and happily congratulated ourselves on making a quick couple of million dollars or so, but that wasn’t Bill Gates’ style.

Rather than selling the program outright Microsoft licensed it to IBM and so millionaires and one or two billionaires were made.

It also set the course for the world’s software industry. By and large software is licensed, not sold. Buying a disc at the local computer superstore gives you nothing but permission to use the program.

That’s the same model Skype’s founders, Niklas Zennström and Janus Friis used when they sold the business to eBay for $3.1 billion US dollars – the underlying software that actually drives the service was licensed to eBay.

Now Zennström and Friis are claiming eBay have breached that license and want to withdraw eBay’s rights to use the technology.

For eBay this is a big problem as they were hoping to sell Skype and the founders’ move makes that almost impossible.

Both the Skype and Microsoft stories show licensing can be a lucrative option with the bonus of a steady cashflow if you have the right product.

For business buyers, the lesson is stark – do your homework, talk to your lawyers and understand exactly the ramifications of licensing and similar arrangements.

If you’re a Skype user, you don’t need to worry as the case isn’t expected to be heard until June next year. By then either an agreement will have been reached or your Skype credits will have long expired.

Paul Wallbank is a writer, speaker and broadcaster on technology issues. He founded national support organisation PC Rescue in 1995 and has spent over 14 years helping businesses get the most from their IT investment. His PC Rescue and IT Queries websites provide free advice to business computer users and his monthly newsletter has over 3000 subscribers.

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