eBay buys Skype
Apparently eBay has worked out a deal with Skype to buy out the VoIP provider for $2.6 billion!
Company executives said Monday that eBay plans to pay $1.3 billion in cash and $1.3 billion in stock to the global communications company. It has agreed to hand over up to an extra $1.5 billion, for a total payout of more than $4 billion, if Skype meets certain financial targets by 2008, according to a presentation to investors on Monday morning.
$1.3 billion in cash? I don’t really understand the economics of this deal. For those who don’t know who Skype is, they are an increasingly popular VoIP (Voice over Internet Protocol) provider that allows subscribers to make free “phone calls” over the internet using their PC microphone/speakers. It also offers a for-pay service where users can tap into traditional telecommunications networks by making phone calls from their PC’s to ordinary telephones. It appears as though eBay sees incredibly profitable potential (at least $2.6 billion worth?) in integrating VoIP capabilities into their online auction services. Their argument is that allowing users to communicate via audio devices without the need to give out their telephone numbers could greatly expedite and simplify the eBay process. Perhaps there is merit in this idea.
However, I don’t see how they can quantify their return on investment in this deal. Clearly the Skype user base has some value, but I don’t see hoards of Skype subscribers flocking to eBay’s auctions simply because eBay owns the service. Additionally, users of eBay are by now very accustomed to using email as the primary form of communication. Not to say that VoIP integration wouldn’t be appreciated by some users, but I would imagine that many buyers and sellers enjoy the simplicity of not having to speak with anyone at all during transactions. In any case, to me it seems like an ill-advised purchase. I could probably think of many, many better things to do with $2.6 billion.
