eBay Evaporates $1.43 Billion In Supposed Skype Synergies

from the not-quite-so-good dept

eBay made a few announcements this morning concerning Skype, and while the press seems focused on Skype founder/CEO Niklas Zennstrom leaving the company, that's hardly the interesting part of the announcement. Instead, the important news is in the fine print, concerning how much eBay is paying Skype as an earnout. Back when eBay bought Skype, there was an initial payment, and then an earnout based on how many new users and how much revenue Skype brought in. At the time, we noted that Skype really didn't have that many users and while it was a good product, we didn't see the synergies with eBay. Two years in, and it seems that this view was correct, as the supposed synergies never showed up. And, while Skype has continued to grow, the pace has certainly slowed. Back when the company was bought, at peak times there were usually around 5 to 7 million users online. These days, it seems like it's usually 8 to 10 million. That's not bad, but it's hardly astounding growth.

And, in fact, this slow growth is clearly seen in the earnout. eBay only had to pay an additional $530 million -- well short of the $1.7 billion maximum payout, clearly suggesting that Skype's growth has been a lot weaker than the company had hoped. To underscore how poorly Skype seems to be doing compared to eBay's plans, the company is also taking a $900 million impairment charge to write down the "goodwill" associated with the Skype acquisition. Ouch. That hurts. It's also leading to calls from all over about how eBay should sell off Skype, admitting defeat in an acquisition that never made sense in the first place. The funny thing is, a big part of the reason why eBay ended up paying so much for Skype in the first place, was due to a ridiculous and misleading hype frenzy (in part, based on a typo). You would think that eBay, of all companies, would recognize the buying frenzy created by an auction situation -- but apparently not. As for Zennstrom, it hadn't really seemed like he was all that engaged at Skype anyway, and the timing of his departure coincides with the launch of his new product, Joost.
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Filed Under: earnout, niklas zennstrom
Companies: ebay, joost, skype

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  1. identicon
    Poomer, 1 Oct 2007 @ 12:43pm

    I had done a brief research-newstory for a grad class on EBay and Skype a while ago and had found the merge interesting. I thought that skype was going to offer a new way for ebay users to connect anonymously using skype and that ebay was going to transform into a community site. However, that didnt come through.

    Merely buying a company and thinking that the userbase would also transfer over that would increase the sales is such a bad business practice. Skype's userbase of 8-10 million doesnot translate into 8-10 million new users for ebay. So paying millions of dollars for a service that doesnt add any value would be setting up for failure...

    reply to this | link to this | view in thread ]

  2. identicon
    sonofdot, 1 Oct 2007 @ 12:48pm

    Blame it Meg

    Blame for all of this can be placed squarely at the feet of Meg Whitman. While she's made billions for herself, her complete lack of understanding of her business has practically ruined eBay for both sellers and buyers. Legitimate buyers avoid eBay because they've heard it's nothing but a hangout for scammers; sellers are leaving in droves because eBay fees have reached the level of obscene (making it almost impossible to turn a reasonable profit), and the good buyers just aren't there any more. Meg and her cluelessness have practically ruined eBay for everyone.

    eBay is a perfect example of what happens to a good business when suits are allowed to take over. Meg and her cronies may have MBAs, but they still haven't figured out that if they fuck over their customers they won't have much of a business left. And they have yet to even figure out that sellers are the customers of eBay, not buyers.

    reply to this | link to this | view in thread ]

  3. identicon
    Anonymous Coward, 1 Oct 2007 @ 1:30pm

    The main problem as I see is that eBay never really made it good as what it could do. In theory I can link my auctions to my Skype account so potenial buyers can ask me questions via skype when I'm online. But I have to first list the item, then edit it, just to get the link to work. I would have expected it to happen automaticly once I linked my Skype and eBay accounts. Or even to be on the default sell your item form, not just in the edit mode (and then only sometimes I spot it there!)

    Link it up properly, then possibliy all the eBay users who don't use Skype might consider it worth while downloading.

    reply to this | link to this | view in thread ]

  4. identicon
    freak3dot, 1 Oct 2007 @ 1:44pm

    Web 2.0

    eBay needs to update it site with some of the web 2.0 or ajax stuff. Imagine a bid button that doesn't require a page refresh.

    eBay needs updates to searching, why can't I just browse everything by price or ending time? Why doesn't it show shipping + auction price on the search page?

    These are just some of the eBay issues.


    reply to this | link to this | view in thread ]

  5. identicon
    Rick, 1 Oct 2007 @ 3:02pm

    I like Skype

    ...as a PHONE alternative. I use their SkypeIn and Unlimited SkypeOut service instead of a landline. Vonage is overpriced, and Skype gives me the same thing with my USB to phone adapter - minus 911 service for about $6/month. I don't have ANY Skype contacts nor do I care to have any. I see no need to add more IM clients to manage even more friends lists.

    I do have issues with their site though, and I'm sure many others do as well - negatively affecting their sales.

    Prices are always in Euros - I'm in the US, they know that - I'm logged in - show me prices in DOLLARS.

    Skype Pro 'sounds' interesting, but it's unlcear what discounts it gives me on my SkypeIn and SkypeOut options. If I add SkypePro - what will I get other than the vague descriptions it notes on the info page? Show me examples - show me US prices for the whole collection of services.

    They SHOULD market themselves as a MUCH CHEAPER alternative to VOIP or landline services.

    They should partner up with Dish Network and DirecTV so their satellite boxes can 'call-out' via Skype, rather than a landline.

    They should link into other voice enabled IM systems.

    They should get their act together, as an eBay stockholder I expected MUCH more, but they have so far dropped the ball.

    reply to this | link to this | view in thread ]

  6. identicon
    Don Jones, 1 Oct 2007 @ 4:08pm

    eBay & Skype

    Maybe the Skype guys were so busy with their own venture capital outfit, Atomico...

    reply to this | link to this | view in thread ]

  7. identicon
    Evilned, 1 Oct 2007 @ 4:31pm

    Skype is making money

    My father is a broker and we spoke this evening about things. He mentioned that he had read somewhere today that Skype was being sold. I did a quick search and couldn't find anything other then the original stories. I found this one and called my father back and read it to him.

    "Now that makes sense!"

    As I read through this story I also noticed that Skype's revenue is up 102% from this time last year, and they have made money the last 2 quarters.

    My father is a Skype user, (For business. He has a home office), and uses SkypeIn and Skype Out. He isn't the most computer savvy guy on earth, but he loves Skype since the annual cost is so cheap for him. (Also the headset is handy since he is a bit hard of hearing)

    He told me that Skype should be making money since it's so good. I have to agree with that. The quality when I'm talking to him through Skype, (Particularly if I'm using a land line or my cell)

    I think that if Skype is handled correctly they will do nothing but make great piles of cash. One of the few problems I foresee is our wonderful governments making their usual regulatory demands and force the costs up.

    reply to this | link to this | view in thread ]

  8. identicon
    Cowarldy eBaiter, 1 Oct 2007 @ 11:11pm

    eBay Miss-Steps

    I'm shocked (sarcastic grin)! I dunno Mike...

    Some of the clowns at eBay don't seem to recognize a lot of things that are blatantly obvious to even most basic of thinkers. They've ignored major problems with their user interface for years. They lay blame on sellers for problems they could easily fix in their search results. They have a confiscatory rate structure that is unnecessarily complicated. They call it a 'community' and then smack down commentaries from the brave voices who refuse to 'shut up and drink the kool-aid'.

    This executive departure and massive write down is just the first round. Wait until they 'unveil' the new and improved version currently in the works leading buyers and sellers to exit in droves after a lack luster holiday selling slump.

    This company is poised for mediocrity.
    - Next stop: Irrelevance.

    Eventually, Google Product Search (formerly Froogle) will simply eat their lunch --

    Can I get an AMEN?


    reply to this | link to this | view in thread ]

  9. identicon
    anon, 2 Oct 2007 @ 8:33am

    Did anyone ever confirm how serious Google's interest was, if at all?

    reply to this | link to this | view in thread ]

  10. identicon
    whenwego, 2 Oct 2007 @ 5:25pm

    Any connection between the Draper Fund that owned

    Or someone in managment? That would be a doozy.

    reply to this | link to this | view in thread ]

  11. identicon
    No Overlord, 12 Oct 2007 @ 9:26pm

    Skype money support

    If Skype were such a great company you would have to ask yourself why the lack of customer support, put simply, it does not exist. A quick look at the forums of displeased and basically ignored pleads for refunds due performance issues or overcharges to users is hard to believe.
    I have tried in vain to get a reply to a request for a refund since the beginning of August 2007, the best interface you can hope to receive is through a Skype Forum Moderator that will contact you at their leisure only to ask you to submit information that they will then use to contact customer support. I began a "Support Ticket" from the very beginning and not one reply from anyone but a Moderator after I did post my tale of woe. http://forum.skype.com/index.php?showforum=24
    To say "Yes I am working with Customer Support on this now" is about the only positive I ever got. It is basic lip service to a what must be the worst excuse of the term service. They do service like a Bull services a Cow.
    I get the distinct impression that the Skype Forum IS customer support.
    I am out of vomit over this gut wrenching experience

    reply to this | link to this | view in thread ]

  12. identicon
    phyza17, 18 Feb 2008 @ 1:50pm

    ebay alternative online auction site

    It is a new ebay alternative online auction site for sellers who are tired of paying huge fees. We only charge 15cents per listing and no closing fees. Unique custom built website is unlike any other auction site. http://www.elfingo.com

    reply to this | link to this | view in thread ]

  13. identicon
    Online Auction Guy, 25 Nov 2008 @ 10:43am

    Ebay Alternative

    There are many great alternatives to ebay, its up to us to get them to the top. Ebay will fall its only a matter of time, and whatever site happens to be there at the time ... will benefit in huge ways. So support your favorite ebay alternative ... this is the only way to turn things around.

    reply to this | link to this | view in thread ]

  14. icon
    sprearson81 (profile), 8 Jun 2012 @ 6:09pm

    You can get an Amen from me!

    reply to this | link to this | view in thread ]

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