Skype In Negotiations To Acquire Gizmo5

Litigation-beleaguered Skype is in negotiations to buy peer-to-peer VoIP startup Gizmo5, say multiple sources. The price tag is said to be in the $50 million range, but the deal is far from consummated. Other potential buyers may be looking at the company as well. Gizmo5, which was founded in April 2003, has raised $6 million to date, plus an unspecified amount from founder/CEO Michael Robertson.

Skype, which is being sold from eBay to a new investor group, doesn’t have control over it’s core P2P technology, and that intellectual property is now the subject of two lawsuits – one against Skype and one against Mike Volpi and Index Ventures, who are part of the buyout group.

That puts Skype at significant risk. Without the technology Skype can’t make Skype to Skype calls, the core of its service. And those lawsuits don’t appear to be close to settlement – some people close to Skype saw that there is a good chance the cases will actually end up being tried in a court.

We’ve heard Joltid wants as much as half of Skype Unless Skype makes huge concessions to plaintiff Joltid and settle the case, they have two backup plans.

The first is to rebuild the back end themselves. The second is to acquire someone who they can plug in in lieu of Joltid. Skype is doing both.

They have an internal project called Gecko to build a SIP based P2P back end for Skype. And they’re hiring like crazy. Theo Zourzouvillys, Bruce Lowekamp and Jason Fischl are just a few of the senior VoIP/SIP experts they’ve brought in recently to work on the Gecko project within Skype Labs.

But Gecko may not be progressing as quickly as Skype needs it to. That’s where Gizmo5 comes in.

Gizmo5 is a solid Skype-like service. With just 6 million registered users, it’s far from a competitive threat. But Gizmo5 is a tested, partially scaled SIP P2P VoIP system with a team of engineers that understand the issues Skype is facing.

Unlike Skype, Gizmo5 isn’t able to do all calls over P2P. Server nodes are still used for NAT and Firewall traversal. But bandwidth prices have dropped substantially over the years, and the cost savings from Skype’s architecture may no longer be necessary for the business to remain profitable.

More on this as it develops.