Monday, September 12, 2005

eBay buys Skype

For $4.1B. That's one costly deal for eBay, an inflated purchase price to acquire a company that has little to do with e-commerce.

[Found on Findory]

Update: Om Malik says:
I don't think, Skype will be the white knight for eBay -- which has been facing executive exodus and general loss of market momentum. I mean, if you can put up a website, and buy Google adwords, you are taking eBay out of the equation. Will Skype help prevent that shift? Not sure, it will.

This is proof the company, which is floundering a bit, is looking for new markets.
See also my previous post, "Google and eBay pursue sellers".

Update: Seven months later, Om Malik says that Skype's revenues are not growing as fast as eBay projected and that "I just can't seem to get the hefty $2.6 billion tag out of my mind."

Update: Two years later, Rachel Konrad at the AP reports that "eBay takes $1.43B charge for Skype" and "$900 million will be ... impairment, essentially acknowledg[ing] that San Jose-based eBay, one of the world's largest e-commerce companies, drastically overvalued the $2.6 billion Skype acquisition."


Greg Linden said...

I agree, the best explanation is that Skype is strong in international markets that eBay has had difficulty penetrating.

The question remains whether the purchase price can possibly be justified. The cost per customer acquired likely will be absurdly high (Skype has had 50M downloads, only a fraction of which are real and regular users, only a fraction of those don't use already eBay, only a fraction of those remaining can be converted). Skype's revenue is low (projected 2005 revenues of $60M). Use of Skype as a communications tool between buyers and sellers could have been done without a costly $4.1B acquisition.

And all of this expense is for a company that has very little to do with e-commerce, a company that will be very difficult to integrate into eBay.

I think this is a sign that eBay is desperate. They made growth promises they can't keep, so they're trying to buy growth anywhere they can at any price.

Scott said...

I agree that the price for Skype is wayyyyyyyyyyyyyyyyy too high to make any sort of business sense. I guess I fail to see how Skype is going to directly lead to revenue for eBay. Is the hope to use Skype to connect buyers and sellers? If that's it, wouldn't it be much cheaper for eBay to build their own VOIP system, or to buy a smaller company for less $$$? Basically make their users sign up there if they want to use the service?

Or is the hope to advertise to those existing Skype users? If so, what a hefty price tag for advertising, and, as Greg points out, what an insanely high cost per new customer.