EBay buying Skype - I don't get it. Do you?
Dear Vorticians,
Of late, we've been discussing Vonage's planned IPO and the future of the voice-over-Internet Protocol (VoIP) market. In earlier pieces, one of the oft-cited problems for Vonage is the growing success of Skype - a 'free' VoIP service that is spreading like wildfire around the world. (I say free in quotes because there are some features that users can elect to buy.)
Today, The Wall Street Journal is reporting that online auction giant EBay is said to be in talks to acquire Skype for - get this - anywhere from $2 billion to $3 billion. (You can imagine how difficult it is to put a valuation on a company that offers a free product.) While this type of development speaks to the volatility in the VoIP market that will be difficult for any company, such as Vonage, to manage successfully, I just don't get this proposed pairing at all.
Here's how the Journal reporter outlined the benefits to EBay. "But the person familiar with the situation said that EBay is keen on adding services that make it easier for its customers to buy and sell goods online, as it did when it acquired the electronic-payment processing service PayPal in 2002. The San Jose, Calif., company is also interested in entering new businesses that could open up ways for the company to generate revenue, such as pay-per-call Internet telephony, in ways that it cannot in its current structure, said this person. EBay has long said it plans to increase its market share of Internet commerce and would explore new areas that allowed it to do so. Skype offers the Internet auctioneer a thriving e-commerce business that benefits from so-called network effect, which is a good or service that has value to a potential customer based on the number of customers who already own that good or use that service, said this person familiar with the matter. EBay's massive and technology-literate user base of 157 million could prove willing adopters for Skype software. And those customers — which are often segmented into niche communities — could use the software to communicate with like-minded enthusiasts. Skype's software has been downloaded 162 million times, and has 52 million users world-wide."
Let me get this straight: EBay should spend billions to help its users make phone calls to each other? If they really want to call, couldn't EBay just as easily outfit them with something it developed or acquired on its own? With Google and others already moving into the VoIP space, why on earth would EBay pay a huge premium for Skype?
What am I missing here?
Back to Vortex Blog
Comments
When internet conncetivity is more ubiquitous than POTS dial tone, Skype will be as important as American Telephone and Telegraph Corp. was in 1890. eBay wants the pie, and a slice won't satisfy. If you detect hyperbole in this, consider how little it costs to be wrong, compared to the power of being right, through a good aquisition.
Posted by: Jeff Engel on September 9, 2005 08:12 PM
John,
It's called Google-fear and it is reactive. Comparing Paypal to Skype is like comparing soccer to footbal. However, as dumb as it is, it will never top that Time Warner/AOL thing.
Bill Baker
Posted by: Bill Baker on September 10, 2005 06:25 PM
John,
It's called Google-fear and it is reactive. Comparing Paypal to Skype is like comparing soccer to footbal. However, as dumb as it is, it will never top that Time Warner/AOL thing.
Bill Baker
Posted by: Bill Baker on September 10, 2005 06:31 PM
Post a comment
