There Goes The Other Reason eBay Bought Skype

from the two-strikes-and-you're-out dept

Back when eBay bought Skype for $2.6 billion (potentially $4.1 billion), the company tried to justify the decision with a variety of vague statements. However, two specific rationales stood out: (1) it would be easier for eBay buyers and sellers to talk to each other (2) Skype was huge in China, where eBay had very little presence. The China story didn't make much sense. First off, as had been announced before the acquisition even occurred, Chinese telcos were looking at ways to block Skype, a process that has continued to move forward. However, even without that, it was never clear why someone who used a free VoIP system would then turn around and start using an online auction, just because it was the same company. The first point, about eBay buyers and sellers talking, didn't make much sense either. As we noted at the time, it's extremely rare that a voice conversation is needed in an eBay transaction. Turns out that we weren't alone in feeling that way. The executive director of the Professional eBay Sellers Alliance, a group that apparently represents the top sellers on the site, says that most of the group's members have no interest in Skype, and prefer to discuss auction results via email as they've always done. So, we've now crossed off the two big reasons why the company was worth buying at all (neither of which explained the price tag, either). What else is there?


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  1.  
    identicon
    No one famous, Dec 2nd, 2005 @ 4:12am

    It's a steal..

    Ebay bought Skype for $2.60? And you say it's worth over $4 billion now..?

    Seems that the biggest online auctioning site has had a few lessons in buying and selling.

     

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  2.  
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    Aaron Friel, Dec 2nd, 2005 @ 4:34am

    Re: It's a steal..

    I think he means that they potentially payed $4.1 billion for it.

     

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  3.  
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    Arizona Glover, Dec 2nd, 2005 @ 4:47am

    Re: It's a steal..

    I think he is saying that if ebay bought skype for less than 3 bucks then they got a deal. Arizona Glover http://paulsbaker.blogspot.com/

     

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  4.  
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    Chris H, Dec 2nd, 2005 @ 5:19am

    No Subject Given

    Skype got one hell of a deal out of this.

     

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  5.  
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    Ryan, Dec 2nd, 2005 @ 6:06am

    No Subject Given

     

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  6.  
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    Christopher Shaw, Dec 2nd, 2005 @ 6:08am

    Now, what might eBay be interested in selling?

    Here's why I think eBay bought Skype:

    Skype already has a large installed user base, and provides P2P transfer of much more than just voice - you can send files, etc. There is already built in user authentication, and a robust payment system capable of handling large numbers of small payments (for SkypeIn and SkypeOut). Hmmm...

    Could it be that eBay wants to use Skype as a service for its sellers to automate sales of music, say? Its very own P2P merchandise distribution system? Just visit an eBay store and buy the latest hits? And how much of each sale do you think eBay might want for this if presented as a turnkey solution of MP3 distribution?

    They may not even be really interested in the voice part.

     

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  7.  
    identicon
    _, Dec 2nd, 2005 @ 6:23am

    Re: It's a steal..

    EBAY paid $2.6B for Skype. Should Skype accomplish a certain set of goals they get another $1.5B for a total of $4.1B.
    Think of it like a sports contract w/ performance bonuses

     

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  8.  
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    phantomcircuit, Dec 2nd, 2005 @ 6:53am

    Re: Now, what might eBay be interested in selling?

    the skype network wouldn't work very well as a content distrabution system, any files sent must be sent in hole from start to finish, no chunking occurs except at the TCP/IP level

     

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  9.  
    identicon
    Kat, Dec 2nd, 2005 @ 8:06am

    No Subject Given

    Skype has the potential to be the biggest thing since sliced bread. Ebay saw this and could afford them. End of story.

     

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  10.  
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    D++, Dec 2nd, 2005 @ 8:26am

    Re: Now, what might eBay be interested in selling?

    It's not hard to improve skype's rudimentar file transfer system.

    So... it could still be used to buy eletronic media over the net.

     

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  11.  
    icon
    Mike (profile), Dec 2nd, 2005 @ 9:17am

    Re: It's a steal..

    Ebay bought Skype for $2.60? And you say it's worth over $4 billion now..?

    :) Whoops. Thanks for catching that. Fixed now.

     

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  12.  
    identicon
    wag, Dec 2nd, 2005 @ 11:33am

    No Subject Given

    Its simple, big acquisitions are a way for the management of public companies to hide slowing overall growth in order to avoid a big stock price hit. They get to hide it in their acquisition costs etc.

     

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  13.  
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    drew, Dec 2nd, 2005 @ 2:00pm

    Re: No Subject Given

    true, but i don't think thats the case here.

    while ebay sure isn't growing as quickly as it used to, its still making truckloads of money.

    they see value in skype, they aren't trying to hide anything.

     

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  14.  
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    Doug, Dec 2nd, 2005 @ 6:41pm

    I don't think you understand

    Yes, eBay wanted Skype so that buyers could talk to sellers. However, it's not the sellers who are hawking the stuff out of their garages, or even the small Mom and Pop shops that make a living selling their wares. Rather, it's lawyers selling legal services, realtors leasing commercial properties, used car dealers offering a deal, and other high-ticket items. eBay could even get into B2B-type transactions. This is all new stuff for eBay. But you don't pay that kind of money for Skype if you don't have grand ambitions. Get it? Yes, anyone could pick up the phone and call. But eBay is betting on the fact that some would prefer just a mouse click to call. And eBay will get a per call referral fee or a small commission on the transaction.

     

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  15.  
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    Enki, Dec 2nd, 2005 @ 7:44pm

    Paypal

    The joint Skype and EBay Userbases might help paypal to reach critical mass, and acceptance as an internet currency. succeeding in establishing an online currency, it would justify the enormous sum they invested. still sounds like an enormous gamble.

     

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  16.  
    identicon
    duodave, Dec 2nd, 2005 @ 8:11pm

    Only a matter of time

    It was only a matter of time. Look at the successful products and services online - ICQ, got acquired. Netscape - got acquired. Broadcast.com, acquired. eGroups, acquired. Paypal, acquired. Blogger, acquired. Flickr, acquired.

    Obviously ebay saw a large established userbase and sees a potential revenue stream.

     

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  17.  
    identicon
    DzNutz, Dec 2nd, 2005 @ 8:17pm

    Re: Paypal

    I cant hate eBay for seeing potential in this market. By Vonage Chairman & CEOs own account:"The average revenue per user is around $30 a month. So, 400,000 users, $30 per user, it's not hard to figure out our revenues." At least 130m/yr in cash coming in - a pretty good reason for eBay to want to get into the voip market.

    SkypeIn & SkypeOut transactions add to PayPals user base. eBay can always use that to leverage more companies into using PayPal to process payments.

    With the right marketing, they can get Skype into the business market. Then there would free VOIP contact with companies (on the consumer end), and thanks to PayPal, secure phone purchasing. Last I checked, QVC, HSN, and all the little As Seen On TV companies were still making a killing! More PayPal tranactions!

    There are plenty of reasons for eBay to have bought Skype - there is a lot of potential for profit there. Just none of them seem to be relevant to the reasons they said.

     

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  18.  
    identicon
    Ace Ventura, Mar 28th, 2006 @ 2:34am

    Re: Re: Paypal

    Skype looks very different to Vonage - much lower customer acquisition costs, but most "customers" don't pay Skype anything, so not sure this is a good comparison.

    Equally, since Vonage's revenues are lower than the marketing costs it's incurring to attract customers (see the IPO filings), it's not clear this is a great market to get into.

    Hopefully there's more in the PayPal angle, or eBay has wasted a lot of money!

     

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