Niklas Zennstrom, who has also been working on his Joost Internet TV startup in recent months, will become nonexecutive chairman of Skype's board of directors.

W. David Gardner, Contributor

October 1, 2007

2 Min Read

Facing up to the disappointing financial performance of its Skype unit, eBay reported Monday that Skype CEO and co-founder Niklas Zennstrom has "stepped down" as CEO of the VoIP operation and eBay will take a $1.4 billion charge related to Skype's operation.

Zennstrom, who has also been working on his Joost Internet TV startup in recent months, will become nonexecutive chairman of Skype's board of directors.

When eBay announced the Skype acquisition two years ago, the online auction company paid $2.6 billion for the VoIP phoning company and earmarked another $1.7 billion payout to be based on Skype's reaching certain performance goals, with the expected payout to take place in 2008 or 2009.

However, in its Monday announcement, eBay said it has paid just $530 million "to settle all of its future obligations under the earn-out agreement."

The eBay announcement noted that the earn-out agreement would be "based upon specific active user, revenue and gross profit targets that were to be achieved in 2008 and the first half of 2009. eBay believes that the [$530 million] payment is reasonable given the progress and anticipated rapid growth of Skype's active user base."

At the same time Monday, eBay said Skype president Henry Gomez will return to eBay as senior VP for corporate affairs. Michael van Swaaij, eBay's chief strategy officer, will serve as acting Skype CEO until a successor is found in a search campaign being conducted by Russell Reynolds Associates.

While Skype has signed up more than 220 million registered users and has paced the exploding VoIP market, it has missed its financial targets. When eBay acquired Luxembourg-based Skype Technologies in September 2005, it anticipated Skype would generate $200 million in 2006 and long-term operating margins of between 20% and 25%. In January, eBay CEO Meg Whitman expressed disappointment in Skype's financial performance. The company's revenue was about $196 million in 2006.

Zennstrom and Janus Friis founded Skype in 2002. The company quickly staked out a dominant position in international VoIP calling whereby users could call each other free of charge. SkypeOut, a service for Skype callers to call non-Skype users, later debuted, offering prices that are still way below those charged by established telephone companies. In recent months, Skype has offered many additional features for its service.

Zennstrom and Friis founded Joost in January 2006. The founders labeled it as "the world's first broadcast-quality Internet television service." Joost quickly lined up a group of blue-chip investors, who chipped in $45 million in venture capital in support of the startup venture.

EBay's stock was up marginally -- less than 1% -- in early trading Monday after the announcement.

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