When it purchased Skype in 2005 for $2.6-billion, eBay made a critical error: it neglected to ensure that Skype owned the core technology needed to run its VoIP service. And the fact that Skype only licensed the Global Index Software P2P technology from developer Joltid cost eBay $400-million.
That’s according to a UK-based escrow agent. The UK is where Skype and Joltid launched lawsuits against each other during the first half of 2009, while Joltid initiated another copyright suit in the US in September.
With more than 88-million active users globally, eBay is the world's largest online marketplace, where anyone can buy and sell practically anything.]
Skype is software used by millions of individuals and businesses to make free and low-cost video and voice calls, send instant messages and share files with other Skype users.
Believing that combining an e-commerce leader with an Internet voice communications leader to create an extraordinarily powerful business environment was the way forward, eBay acquired Skype in 2005. However, its decision to sell off a majority stake in the VoIP company to the Silver Lake investor group, sparked a licensing dispute with Joltid.
After several months of wrangling, the dispute was expensively resolved – however, it could have been avoided completely if eBay had insisted on an escrow agreement in 2005.
Commenting on the situation, Escrow Europe MD Andrew Stekhoven, says: “The third Draft King Report on Corporate Governance in South Africa (King III) released by the Institute of Directors (IoD), clearly points out that the risks involved in information technology (IT) governance have become significant.
“King III directly addresses what is required of South African directors and officers to manage the risk associated with the use of licensed technology such as software products. Until recently, this operational risk has generally been underestimated if not ignored because either the protection that ‘active’ escrow offers was not readily available to South African organisations or it was only available based on contracts governed by foreign legal jurisdiction.
“Furthermore, Gartner also acknowledges the importance of escrow, calling it 'a smart and effective component of a business continuity strategy that software licensees can use to protect their mission critical applications in an ever-changing environment'.
Stekhoven believes the situation eBay found itself in when it tried to sell off Skype highlights why it is imperative that all businessmen assess their risk by providing answers to the following questions:
* How many mission critical software platforms do we use?
* What are our annual revenue streams that depend on these platforms?
* Do we have escrow agreements in place for each platform, and if so, how many (different) escrow agreements do we have? Are they of any use (active or passive)? Are they governed by foreign jurisdiction (ie. would pursuing a release be so costly as to call into question the value of having such an escrow arrangement in the first place??
* Do we have an escrow standard that provides a uniform risk profile for all vendors that supply and support our mission critical software platforms?
"To manage the risk of your business’s absolute dependence on your software supplier, active software escrow provides your business with guaranteed access to the source code for your mission critical systems. It is an elegant and cost effective solution for managing the multifaceted business continuity risks and due diligence obligations facing you as a director and/or officer,” Stekhoven says.