Skype Co-founder Zennstrom Bows Out

Niklas Zennstrom is stepping down as CEO of Skype to concentrate on video-over-the-Web startup Joost.

Niklas Zennstrom, one of the driving forces behind the growth of peer-to-peer file sharing on the Internet, has stepped down as CEO of Skype, according to parent company eBay.

The early departure of Skype co-founder Zennstrom three years after its acquisition by eBay was attributed to the entrepreneurs desire to focus on Joost, a startup he co-founded with partner Janus Friis to create a software platform for high-quality programming of TV and other forms of video over the Web.

Zennstroms sudden departure leaves VOIP (voice over IP) company Skype scrambling to find an appropriate replacement with "deep global and consumer technology background," said eBay spokesperson Jose Mallabo, in San Jose, Calif.

In the interim, eBay named Michael van Swaaij, eBays chief strategy officer, acting CEO until the company finds a permanent successor. A search has already been initiated.

In addition, eBay announced that Henry Gomez, Skype president, will return to eBay as senior vice president for corporate affairs. He had remained an eBay senior vice president during his two-year tenure at Skype.


Read more here about eBays acquisition of Skype.

Although eBay has been "somewhat disappointed" by the adoption rate of Skype and its integration into eBay, the company said, Zennstroms departure does not represent a no-confidence vote on the part of eBay management.

"Its been pretty hands-off in product and community development [at Skype] from the time we acquired them—based on the respect that [eBay CEO Meg Whitman] has always had for Niklas. They came to a good agreement that this was the right time to transition out of the business," Mallabo said.

eBay acquired Skype in September of 2005 for $2.6 billion, although former Skype shareholders had the potential to reap another $1.7 billion if Skype met certain performance levels in 2008 and the first half of 2009. Since the acquisition the company has added 160 million registered Skype users, for a total of some 220 million to date. It generated revenues of about $90 million in the second quarter of 2007, and $79 million in the first quarter.

Instead of the $1.7 billion, eBay as a part of its negotiated earn-out agreement with Skype shareholders paid about $530 million. Commenting on the payment, Skype co-founder Janus Friis in a blog posted on Oct. 1 said, "Earn-outs are inherently difficult creatures, but we are happy with the result of this one. We are approximately half way into the earn-out period and the settlement amounts to one-third of the total possible earn-out amount."

Although Zennstrom will remain as non-executive chairman of Skype, his departure as CEO will likely hurt the organization, said Henry Dewing, a principal analyst at Forrester Research.

"The bottom line is his leaving will probably have a negative impact on the organization. I think there are other free VOIP services taking a piece out of what was seen as Skypes market, which I think led to Skypes underperforming," Dewing said.

Spokesperson Mallabo said Zennstroms departure does not represent a change in Skypes strategy.

"We still think the strategy is the right one for Skype and eBay … overall. Skype is still the leader in peer-to-peer VOIP over the Internet. Its revenue grew 400 percent in two years. We think it still has a huge play in our e-commerce strategy," he said.

But eBay will try to accelerate integration of Skype within its auction business, and the company plans to pursue other monetization options for Skype outside of eBay, Mallabo said.


Click here to read about what caused a massive Skype service outage in August.

"Earlier this year we did an in-store deal with product licensing at Wal-Mart, which is a different revenue stream than integration with eBay. You will start to see more things like that," he said.

What may have held back greater adoption rates for Skype is its more proprietary approach to VOIP, said Forresters Dewing.

"Their codec for voice is nonstandard. That may be why they have not gotten the results eBay hoped for. Most [instant messaging] clients have a [standard Session Initiation Protocol] interface," Dewing said.

"There are a lot of ways to do it in a standard fashion that doesnt require a client download. I think open-standard competitors will end up with a better result over the long term," Dewing said.

And Skypes requirement that users download and install client software to use the service does not follow eBays business model, making it unclear how Skype can complement eBays auction business, he added.

"I never thought it made transactions that much easier, and it was never clear how eBay was going to monetize that. I would take this more as indication that perhaps eBay has less faith in Skypes ability to capture more than their fair share of voice on the Internet," he said.


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