Solon Partners

On 23 July 2009 Apple  pulled the developer license for the one of the world’s most prolific iPhone developers - Perfect Acumen. The Pakistani development team led by founder Khalid Shaikh has launched 943 applications on iTunes - which  is about 5 apps a day, every day, for 250 days. This armada of apps was reportedly earning  a total of several thousand dollars per day (full list of his apps http://www.yappler.com/Developer/98920/Khalid-Shaikh.aspx )

Other development houses such as Brighthouse Labs have also capitalized on the strategy of releasing a flood of cheap simple apps, with over 2,000 apps available at $0.99. Together these two companies’ apps accounted for about 5% of all applications for the iPhone.

Shaikh’s revenue model was simple - develop simple apps such as news readers targeted at every major niche topic -“US Army News” (military) “WWE Updates” (wrestling), “Skin Care Updates” (cosmetics),”iSoaperStarsUpdates” (soaps) etc. The price of the app was $4.99, and their only function was to pull news feeds for internet sites with keywords for that target niche.

Over the course of 9 months and 900 separate reviews and approvals, Apple did not detect what it now asserts to be  hundreds of Shaikh’s apps using copyrighted images without permission. Clearly this shows that enforcement was not overly stringent during the past year. The mere volume of apps being published over such a short period of time under one developer name should have triggered some additional scrutiny.

The decision to ban Shaikh appears to signal Apple’s strengthened enforcement of its developer policies. Now that Apple has reached  50,000 app milestone, enforcement of application quality will likely go up the priority list. Even though the price of the apps is 4.99 or less, customer expectations are surprisingly high and buyers feel cheated when they realize that all they get is a second rate RSS feed.

It is important to note that Apple did not ban Shaikh because it sold applications with poor quality and low value to the customer (such a termination would be contractually very difficult to defend), but it had to premise the termination on the alleged IP violations. To improve customer experience Apple is certainly willing to enforce it’s developer agreements, and updated restrictions seem likely in the future.

Unlike the usual outrage by developers against Apple’s ban decisions, the Shaikh’s license revocation has been greeted with a modicum of support. Everyone agrees that  iTune’s customers in general are willing to tolerate only a handful of purchases gone bad and cases of buyer’s remorse before considering switching to other providers - whether that is going to push customers to look for big brand  and/or famous studio apps (read EA and ), jail-broken apps or downloading free apps from torrents.

Regardless of which of these three options  diverts customers, it is not good for independent developers. Shaikh was an easy target, but the diffult task is still ahead - it is in the interest of Apple and all indi-developers to resolve the issue of perceived value and transparency in application quality.

yrjo uncategorized iPhone

Joltid Ltd, a British Virgin Islands company founded in 2001 by Niklas Zennstrom and Janus Friis, the team that created Skype, Kazaa, and Joost, is threatening to shut down eBay’s Skype service. Skype’s approximately 450 million users generated $500 million in revenues in 2008, a figure expected to grow to $1 billion for 2011, according to the Wall Street Journal.

eBay bought Skype from Joltid Ltd in 2005 for $2.6 billion, but the deal did not include the complete assignment or transfer of the “Global Index P2P software,” merely a license for this core technology component.

Joltid Ltd. still holds a key patent on the content distribution platform technology that allows Skype to manage bandwidth efficiently. US Patent number: 7480658 filed on 14 July 2004 lists Joltid Ltd as the owner, and the Estonian programmers Ahti Heinla and Priit Kasesalu as the inventors of the technology.

eBay’s 10Q quarterly report filed with the SEC disclosed that in March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Ltd. due to its cancellation of the software license, and Joltid counterclaimed for copyright infringement and license repudiation.  The outcome of the dispute will be determined by the UK trial scheduled for June 2010.

Joltid has now canceled eBay’s license, and if effective, the cancellation could disable the whole service, as re-engineering the entire P2P architecture for half a billion users around the world within 10 months would be a mission to mars. eBay would have to rapidly develop, test and roll out world wide an alternate non-infringing technology, license an alternate technology, or abandon the service altogether. According to the 10Q eBay has chosen to try to develop an alternative technology.

This kind of an IP disaster is reminiscent of the Volkswagen deal to buy various Rolls Royce and Bentley factories and assets, but failing to buy the Rolls Royce trademark which was sold to BMW. For more embarrassing IP disasters look here.

The moral for entrepreneurs - make sure that you get qualified advice when negotiating and documenting technology deals to avoid such colossal PR, technology and financial disasters. The advice applies equally to those start-up founder/heroes that fancy themselves Renaissance-men capable of playing any role in any company, consultants that attempt to give occasional IP advice as an up-sell on their other services, and those CEOs thinking that their in-house lawyers should be able to handle it - I mean - how hard can it be?

eBay and Volkswagen found out the hard way.

yrjo internet, software licensing