White eKnight

Fred Wilson doesn’t get why eBay is looking to buy Skype. Drat. I figured he’d explain it to me because I didn’t get it either. My ignorant theory: Just as eBay was seen as a benign investor when some Craigslit equity was out there looking for a home, I wonder whether eBay with its Omidyar roots is seen as less venal than other potential acquirers of Skype. Phone companies would buy it to destroy it. eBay would understand letting the customers rule. Still, Fred’s right: I don’t see what’s in it for eBay.

  • Hi Jeff;

    Cnet, back in April, pointed out an interesting synergy between eBay and Skype:

    Here’s a quote:

    “… in the works are Skype-based advice lines selling legal and medical information, astrology forecasts and other services. Paypal-style payment services for Skype have already been developed to handle micropayments involved in such transactions, potentially turning Skype into a sort of eBay for advice and dating services…”

    ~ ted

  • When companies come to dominate their market they have few options to expand their business. Because of the misleading way financial reports are written it is possible to show that a company is growing when it acquires another business.
    The old reports that compared revenue on a pro forma (both before or both after merger) basis are no longer used. Pro forma is now a synonym for “we’re making up the numbers”.

    Wall Street likes to see “growth”. Old line companies that just make money year after year are in disfavor and the stocks do poorly. Just track beverages or the soap industries, for example.

    So when a company is a cash cow and is dominating their sector the sharks demand they expand into areas with more “potential”.
    The best example is the Time, Warner Brothers, Netscape, AOL fiasco.
    Not one of those mergers did anything that made sense from a business stand point.

  • Oliver

    as I also posted on Fred’s site:

    On the surface the deal makes no sense – its an admission by EBAY mgmt that their core biz (auctions) is under major competitive threat and that they dont believe the moodel is sustainable on its own going forward. its kind of like ORCL to me – ORCL said they dont see organic growth continuing, so they took all their cash and bought a bunch of different co’s in similar space and now trying to bunch it. EBAY/Skype isnt as clean as ORCL, and EBAY stock should get hit near term, but it sounds like this is just beginning of move for EBAY to start using their cash to make acquisitions so that in 3-5-7yrs EBAY will be a different company with multiple business lines. Also, Skype is a service, not a business. So I think this is just the start for EBAY – welcome to the M+A game.

  • They are a natural fit. First, because each is a great marketing platform for the other. More importantly, both businesses are predicated on network effects: the more people use it, the more other people HAVE to use it too. (Something Google still doesn’t have BTW.)

  • I’m no expert, but I see it like this: eBay, Amazon, and Google are engaged in this delicate 3-way dance, each one converging on the others’ business models: Amazon is getting into the search engine business (A9), Google offering shopping comparison and search (Froogle).

    Maybe eBay bought Skype to counter GoogleTalk?

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  • What follows is my Business 1.0 explanation, replete with archaic buzzwords…

    EBay is in the business of creating markets. Communication, information, are the most important components of a functional market. Voice communication could up the level of confidence between participants. They could add a “call seller” button to auctions. This also seems like a good fit for Skype conferencing seeing as how bay-bots are shifting a once level playing field. I’m guessing there are still lots of people that like to hear a voice before plunking down their cash.

  • john schuske

    maybe e-bay would try to use skype in their bidding process………on-line, live talk auctions……….going once…..

  • I think EBAY is trying to keep Skype away from Google. It certainly looks like they are rushing to get it ahead of GOOG’s secondary offering.

    And Skype has been rumored as a prize for GOOG more than a few times prior.

  • ROb

    Simple reason: $$$

  • ronbo

    I think Mr. Feinman overstates the case a little – Wall Street has learned the hard way to respect and value organic growth – but he is clearly correct that EBay needs to do something with its cash. Since EBay can’t really invest in its core business, its choices are to return the money to shareholders (through dividends or repurchase) or make acquisitions.

    Companies can and do make strategic acquisitions, and they can be useful in overcoming the limitations of a saturated, maturing or commodifying market. But opportunistic acquisitions of non-core businesses reflect a shell-game mentatlity, and can rightly get management into trouble. Perhaps Skype is a good fit; I don’t know enough to comment. But EBay owes it to its investors to describe the strategic basis for the acquisition.

  • I think it could be more to do with extending Paypal – as I have written here:

  • Reputation is all-important to eBay’ers, and direct voice-to-voice communication could really, really help build trust in the relationships between buyers and sellers.

    I also think Ted Holmes has it exactly right in his earlier comment of selling services over Skype like astrology, tarot readings, coaching, consulting, tech-help, etc. That all fits in with eBay’s model. More appropriately, it fits in with the idea of where eBay could go next.

  • I don’t think Skype is looking for a particularly benign investor. Remember, these are the same guys who developed Kazaa and then sold it to Sharman Networks (who loaded it up with spyware) after they ran into legal troubles.

  • actually, it’s pretty straightforward. for any large portal with existing monetization, more free services = more user visits = more advertising / transactions = more revenue.

    Skype works on many levels for eBay:
    – increase page views / advertising for eBay products & services
    – enable better buyer-seller communication
    – add to viral growth of eBay buyers/sellers via Skype’s own viral growth

    there are plenty of other reasons why it works. whether or not the txn price for Skype is reasonable or not, i’m not sure there… haven’t done the math. but it’s certainly a logical possibility to consider.

    (full disclosure: i used to work at PayPal, part of eBay)

    – dave mcclure

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