eBay agrees to buy Skype, but why?


It was only a couple of weeks I wrote of Skype's need to 'get on with it':


"ZDNet and WSJ are reporting that the VoIP firm Vonage is planing an IPO to raise $600m, after having raised $400m with VC cash.

If this is true and works out, Skype will need to make its move soon. Either by its own IPO or by acquisition. What seems odd to me in all this is how the Telcos have stood around and watched this players move in on their turf.  Of all the possible suitors mentioned for Skype (usual suspects include Google and News Corp) I never hear the likes of BT or AT&T making their play.  I don't get it."
Well, turns out it wasn't any of the telcos or the 'usual suspects' that would become Skype's suitor but a complete outsider - it is eBay that has agreed to buy Skype for $2.6bn.

But why does eBay want Skype?

The speculation can end now regarding how much revenue Skype was making. According to PC Pro Skype financials showed revenues of $7 million for 2004 and expects $60 million for this year - the first full year of its paid-for services. Its guidance for 2006 is riding at $200 million revenues.  That's healthy growth...so eBay have roughly valued Skype at 10 times next year's revenue...BBC reports Skype has 53 million registered users and says more than two million people are using its software at any given moment.

eBay and Skype CEO's are spinning their yarn...From the BBC report,


""Communications is at the heart of e-commerce and community," said eBay chief executive Meg Whitman.


"By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in internet voice communications, we will create an extraordinarily powerful environment for business on the net."


The company said the move would "strengthen eBay's global marketplace and payments platform, while opening several new lines of business".


Skype chief executive Niklas Zennstrom, who will join eBay's senior management team, said the deal would help "revolutionise the ease with which people can communicate through the internet".

The analysts have mixed reactions. One low opinion of the news at TheStreet.com:

""If eBay was considering whether to make this move, it would be a not-so-subtle admission that growth is slowing," Hoefer & Arnett analyst Marty Pyykkonen said Thusday. He has a reduce rating on eBay.

After a decade of rapid growth, eBay has stagnated. Now, with a $2 billion pile of cash and short-term investments, the San Jose Net auctioneer seems to be looking for some new direction."

Another article, also at TheStreet is more bullish about the deal:


"eBay's last major acquisition, its purchase of PayPal, directly facilitated the service it offers on its auction site. Although companies often pay lip service to the word "synergy" when making an acquisition, it's hard to think of a more synergistic play than an auction site buying a company that makes purchasing easier.


Buying Skype, however, would be the first purchase by eBay that opens up an entirely new revenue stream -- pay-per-call Internet telephony. Similarly, Microsoft last week bought Teleo, a small player in VoIP, and Google with its new Google Talk service, allows a degree of telephony, albeit only at the computer-to-computer level right now. With Google and Microsoft, however, there are more synergies through which people can use their phone to conduct searches, play games and use other services offered by both companies."


It will be interesting to see how all this play out...

Updates Sept 05:


Update I Om Malik provides his take.


Update II Simplicity blogger shared his views on the matter in 'Why ebay bought Skype'

Comments (9)

  1. First I hear eBay has confrimed it is to buy Skype for 2.6bn.  That’s enough news for one day.

  2. Travis Owens says:

    I think people have it all wrong if they think eBay’s true reasons for buying Skype are simply because eBay wishes to get into the VoIP market.

    I believe eBay wants to take over ALL auctions by offering voice based (and eventually video?) auctions where users could bid in real time verbally.

    And of course why not use the technology to try to cash in on the VoIP market too.

  3. I can’t believe how many people out there "don’t get" the ebay-skype deal.

    What’s there not to get?

    Skype as a stand alone business (which Meg said will continue) alone is going to displace billions of dollars in voice revenue across the globe. That money now goes to VoIP providers like skype and skype is number 1 in the space.

    Ok so all the money going to be displaced will not go to Skype. It will be diluted considerably and shared amongst VoIP providers.

    But do the math. Vonage a big VoIP provider in the US uses a VoIP solution that was built by the telecoms industry – which translates to massive capital outlay especially as the network expands. Does Skype have to contend with this? No. Why? Cause they dont have to spend a cent as they grow bigger, and there is no limitation to how big the skype network will become and how much voice it can carry. So can it kill Vonage and all because it can provide the lost cost solution? Ofcourse!

    Are there many features you have not yet seen from skype that will generate them cash. Yes there is so much they can do in this space and if you think of all the money Google has made from adsense, skype will be able to replicate that will pay per click.

    That’s the biggy! Skype is not restricted to eBay as Paypal is not restircted to eBay, or the other companies eBay owns.

    Skype can integrate into any software solution that has network connectivity.

    So from the Dell website for direct sales to support to salesforce.com integration for customers who use the saleforce platform to directly talk to their customers to any ecommerce site which wants to provide a voice solution on the cheap which will match a normal PSTN service.

    And if they earn a few cents for each call, you are talking about another adsense, google senario.

    Plus they have the foundation for a portal to compete against Google and Yahoo! which you all dont seem to understand are their major competitiors.

    I could go on about this forever!

    Ebay has made a brilliant strategic move. Developing a solution to compete against Skype is easier said then done from a tech perspective. Then you have to win users. Take in the time to do that vs the time to integrate and then build a cost model including potentialy massive amounts of lost dollars in transactions that could have occured in the mean time from straight voice service through to transactions on ebay, rent.com etc

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