eBay and Skype?

First of all, let me say that I love Skype.

Now that I've gotten rid of AIM and Yahoo Messenger, I have only two IM clients on my desktop, Trillian and Skype.  If everyone had a Skype account, I'd have only one and it would be Skype.

As Lucinda said in her comment to my Goodbye AIM post yesterday:

the ability to go to talking instantly and to conference is great. and the quality is better than on my vonage line.

Yes, Skype is awesome and everyone should get it. Skype is also a great way to do a group podcast over a long distance.

But why does eBay want to own Skype?

Forget for a second the rumored price of $2bn to $3bn.

What's in it for eBay?

This quote is from the Wall Street Journal's story on the rumored deal:

Skype offers the Internet auctioneer a thriving e-commerce business that benefits from so-called network effect, which is a good or service that has value to a potential customer based on the number of customers who already own that good or use that service, said this person familiar with the matter.

Yeah, so what?  I still don't see the synergy in the deal for eBay.

Back to the purchase price.  I think Skype is a bargain at $2bn to $3bn.  I think everyone should use Skype and I think it will be on every kind of communication device over time - cellphones, PDAs, etc.

I think Skype could be the ultimate phone company of the 21st century.

So owning Skype makes sense.  But I am not sure why it makes more sense to eBay than Verizon or BellSouth.  If Skype went public, I'd certainly want to own some shares.

Maybe some of my readers get this.  If so, help me out.  Let me know why you think eBay should own Skype.

Comments

[Abby]

I'm pulling this out of my butt, but could it facilitate communication among sellers? That didn't convince me either.

[billg]

Fred -- think of eBay as the 'Yellow Pages'. Then this starts making sense.

[oliver]

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.

[Andrew]

If Oliver is right - and he may be - then it's a silly move for ebay. Let's see... we don't expect to perform well in the business we know how to run, so let's buy some businesses we don't know how to run...

[Justin Lilly]

I think its a smart move for ebay (devil's advocate). Ebay has made itsself a leader in peer to peer sales. What on earth would a peer to peer seller want a telephone for? How about the offering of services rather than products? I could see it happening. Especially with a name like Ebay that already has the audience of people who would like nothing more than to be able to do everything via ebay (my mom).

[Carlos N Velez]

I think Oliver, Abby, and billg are the right track. My guess is that eBay is taking a page out of the Jack Welch playbook and redefining their market to fuel growth. Combine Skype, PayPal, and eBay, and now you have a way to drive auctions and other transactions. The Skype UI is plain right now, but it's easy to envision it looking more like a Yahoo Messenger window, with eBay auction alerts popping up, a PayPal button to buy Skype minutes and ring tones, etc., etc. Now you can offer buyers and sellers to talk for free after an auction is completed.

Some people won't like a cluttered Skype window. But if they do it right, it can be a good conduit for all sorts of content flow to eBay/Skype/PayPal customers..."Yellow Pages" is a good example of this.

[billg]

Taking the 'Yellow Pages' concept one step farther:

Combine eBay's concept of 'trusted referrals' (buyers reviewing sellers) with Skype's 'buddy list'. With this in place, its possible for me to link purchases I'm contemplating with people I know. That's a powerful concept.

[Robert Young]

eBay can use Skype to get into the pay-per-call biz for their community of buyers and sellers.

[Arul Sundaram]

Actually, the other thing to mention about Skype is their potential P2P payment system. Sype Pay ( http://www.connectotel.com/skype/skypepaymentapi.pdf ) is a potentially powerful application when combined with PayPal.

Additionally, eBay's community focus - seen not just in their core product, but even in their choice of comparison shopping engine (which brought them ePinions), does seem to lend some credence to the eBay-Skype rumor.

All that being said, I'm still not sure I understand the deal enough to believe the talk is serious.

[Rob]

I think ebay will use Skype to enable distributed commerce, the way www.jittery.com is using Blogpoint.

[David Gibbons]

simple:

- ebay is a P2P transaction platform - not in the technical sense, but in the "P2P production" sense.

- skype is a P2P collaboration platform that is working towards becoming a global P2P payment gateway

- the marriage allows ebay to move transactions off their infrastructure and onto a free infrastructure

- the functionality takes the conversation in the marketplace off text and into the real-time voice realm

Looks like a home-run to me ...

[David Gibbons]

FYI - here's a proposal that illustrates how easily skype will move into the P2P payment space ...

http://www.connectotel.com/skype/skypepaymentapi.pdf

[nash]

Online, real-time auctions? I know some horse auctions allow people to watch and bid online. I guess you could do the same with cars, artwork, or other properties.

[Isaac Garcia]

Its actually quite simple folks. The big players on the web are GOOG, YHOO and EBAY. GOOG and YHOO have voip services. Instead of building voip users organically, EBAY (in its own tradition) will acquire good technology and a very large user base (Skype).

It actually makes perfect sense to me.

Remember, its got a lot to do with eyeballs and traffic folks. Was it a logical extention of thought for EBAY to acquire Shopping.com? Not at first. But when you think about eyeballs and traffic, it does. AND, that Shopping.com has/had one of the best keyword/ad optimizing technology around.

This will happen folks. Mark my words.

[Ranjit Mathoda]

Ebay could use some sort of always on customer facing application other than the browser. Instant alerts about new auction bids, the opportunity to hear someone talk in audio about what they are selling, the opportunity to cheaply distribute video about what they are selling, could all be useful. What are the criteria for such a consumer facing application? It would be beneficial for it to have viral growth, and network effects, not just on the PC but on future versions of cell phones. You could easily imagine someone creating a P2P version of ebay, rather than being limited to just the website interface. Perhaps ebay wants to build that first, and realized cash is relatively cheap versus buying an established network. If there is one thing ebay should be in a position to respect, it must be a rapidly growing network with network effects.

[David Gibbons]

Coming back to this - I think eBay is buying Paypal's biggest potential competitor.

Isaac: eardrums <> eyeballs

[JD]

All the points are decent except for the rationale that Skype is the way to get in. Why not go SIPPhone for essentially $0.00? Skype, with it's closed and central architecture has clearly peaked and isn't worth remotely multi-billions.

[Raj Bala]

In my opinion, this borders on "style drift." I see the possible benefits, but it seems like a long-shot.

[steve]

skype = sky high + hype?

[Mike]

Given a different lense and way of looking at things, I think this would be a brilliant move by eBay. At its core, eBay is a person to person platform for:

- eCommerce (eBay)
- local commerce (craigslist / kijiji)
- payments (PayPal)

and in the future

- communications (Skype)
- services

it also gets them into new markets where communication is absolutely essential. Think pay-per-call vs. pay-per-click.

Skype has a brand, network effects, and is the leader. This is the single best strategic move eBay could have made. Brilliant but also extremely gutsy!

Mike

[TP]

It would be a mistake for Skype to sell out to ebay at this price - they definitely have better options. They have a revenue model ppl understand. they will go for an IPO.

[Scott]

I agree with TP. Skype has huge potential - especially when you think about skypepaymentapi that David Gibbons mentioned. Their earnings could be huge.

This makes me agree with Ranjit Mathoda. Ebay is buying paypal's biggest competitor.

However, I don't think Ebay is buying them simply to kill skype. They will incorporate paypal with Skype, as well as many other features to making the auctioning experience all the much better, more exciting, and more convenient.

However 2, I don't see Ebay pursuing the voip telephone service in terms of calls to other phones. I think they would turn it into a predominantly internal tool for their auctions. Competitors like Voip Buster are going to take the lead on calls to telephones.

[Steve Shu]

I dunno. Synergy in this case has to be driven by revenue increases to eBay or Skype. This doesn't look like a cost reduction play. I'm not sure how phone calls drive peer-to-peer sales of products. Surely supports the model, but seems like a low leverage point. As for peer-to-peer sales driving phone calls, that is probably a limited synergy too for the few million heads that Skype has. As for eBay getting some synergy with services markets and having the Skype market support that, that could be, but then eBay doesn't need Skype to get into the services market. I suppose synergy could be viewed slightly differently that the Skype becomes part of the fabric for a commerce and communication platform and that worse case is that you have two good companies with no real synergies. So long as one doesn't pay too much, that could be the play.

[Sean]

Well, in itself, it's not such a bad idea to buy skype, if it can be executed well. eBay's problem is that it's been marginalized by google and yahoo in terms of traffic, so it has to spend a lot of money on search engines to drive traffic, and it just gets more expensive going forward. having something like Skype to drive traffic is not bad, if the price is not too high. Internet is evolving still, so nobody can tell how significant VOIP will become in the future, speding 4-5% of market cap to hedge the risk is not too bad.

that being said, I think it's a lousy move by eBay. buying Skype will be a big divertion of management attention from the battle they have to win: China. I don't have data of Skype user base in China to tell whether it will help eBay win China market. I think eBay could benefit more by buying Tencent, which has a dominant IM application in China. It is a lot cheaper to buy as well.

[Rick Stratton]

A growing area for eBay is store fronts. I think Skype might offer a really nice way for buyers and sellers to communicate quickly about products thus allowing for more sales.