Like Gary mentioned over a month ago, eBay, Inc. (NASDAQ: EBAY) is probably having quite a few meetings trying to decide what to do with Skype. The internet telephony company was apparently worth over $3 billion many years ago when eBay bought it, but with the recent billion-dollar write-off, the investment did not come close to the payoff eBay execs (like CEO Meg Whitman) expected. Was buying Skype a bad decision? In a word, yes.Will eBay finally bow to critics and unload Skype? If so, longtime eBay investors will probably get their panties in a twist initially, but realize it is a good move. It's quite unsettling to think of how long it will take eBay to make its investment back from the Skype purchase, but it's not going to be any time soon based on the division's current financial performance levels. The funny thing is that Skype (to me) is a great product. I use it daily, while traveling and from other areas with hardly a problem. The rates are so cheap you'd think it was a free service. If that is so, why aren't more people using it and buying it's services? Beats me.
If customer minutes come in at lower levels than in 2006, then Skype will begin losing financial credibility fast. Sure, there are customer service issues that have been talked about loudly in the last few months, but all in all, Skype is more than adequate for the price it commands. It isn't a landline replacement (it's darn close, though), and reliability shouldn't be thought of as such.
A global VoIP company would be a great asset to many other global internet companies, and don't think for a second eBay has not shopped Skype around for that very purpose. The question remains, though: why didn't Skype turn out a success for eBay? Was it a mismatch from the start? Most likely, yes. An auction service buying a voice service sounds like a natural match, but it wasn't. But, if eBay sells it, some other suitor could probably land a great bargain on the back of eBay's misstep.
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Reader Comments (Page 1 of 1)
11-30-2007 @ 1:24AM
Dino said...
I agree, Skype is a great product. I use it all the time to call my home country. If it was own by a telecommunication company, it would probably be a big hit by now..
11-30-2007 @ 7:57AM
firemeg said...
The question remains, though: why didn't Skype turn out a success for eBay?
The question remains? I thought that question was answered very well at the time of purchase by the masses of regular eBay users and professional sellers. It wasn't their psychic ability, their concerns about the purchase were just common sense, and like so many things about eBay Inc., their concerns turned out to be true. If eBay hasn't deleted them, due to their age, you could go back to the community forums on eBay and find out the answers to your question - that were answered years ago.
For starters:
1) eBay paid too much money for Skype. Plain and simple.
2) It's basically free. Can't make money if you don't charge anything.
3) There are completely free competitors. It isn't like Skype is perfect, so those who are thrifty don't have much to lose by using a completely free service instead.
4) Meg's idea was just plain dumb. eBay sellers' reactions to the purchase showed just how stupid they thought the integration of Skype would be. Sellers and buyers already have many options to use to contact each other: land line phones, cell phones, email, IM, snail mail, smoke signals etc. Adding yet another way to be annoyed by fellow eBayers during dinner was not attractive from the beginning to eBay users.
Heck, even eBay doesn't use Skype to communicate with its users, what makes anyone think that the users want to use it to communicate with one another?
5) Animosity. Most eBay sellers are not getting filthy rich. So when eBay hikes up the fees and then uses that money to purchase something that the collective seller base feels is irrelevant, simply to boost the stock price and appease Wall Street, there is bound to be some disgruntled users who won't use it. Think that notion is silly? The proliferation of anti-eBay sites like mine is testament to the collective discontent of eBay users.
6) This wasn't an initial complaint of eBay users, but it came quickly after the purchase, and that is... eBay's failure to integrate Skype into eBay.com. Would Bloggingstocks spend a billion dollars on a new gadget for the site, only to not make it available site wide, and only to select users on select pages at select times? I would hope not, but then again, many blog authors and readers don't seem to be able to understand common sense.
12-01-2007 @ 12:27PM
BigPictureGuy said...
Yes, In the short-term the write down is admission of overpayment or failure to monetize it. IN THE SHORT TERM. Ebay has owned Skype for only 2 years!
The true test of the Skype investment payoff or loss will be judged when they decide to sell it or turn it around over a longer period of time.
If they do sell it I'm confident they can recoup their original investment if not more. They key is to continue build the massive active user base and potentially sell it off to another company who can potentially better monetize it or make it a better strategic fit to their business.
30-40 million activer users is not something to dismiss so quickly. Value is in the eye of the beholder.
12-05-2007 @ 12:06PM
Mozelle said...
I don't care how you slice or dice it, ebay has been, and will continue to be a loser for their long term stock-holders. ( 2005....split--118.00--59.00)
Now only33.00. OUCH!
Meg has lost it! Her and Skype both need to go out the window. EBay stock is worthless to an investor, it goes up a little, then down a lot, then it goes up a little ( all eBay insiders sell millions of shares) telling you this stock is headed for the toilet in the long run.
In 5 years this stock will be totally worthless...Pennies on the dollar...