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Skype-eBay Deal Draws Mixed Reaction

Skype-eBay Deal Draws Mixed Reaction

"What's interesting about it is that, all of a sudden, it makes eBay a competitor in the portal space, competing with Google, Yahoo and Microsoft," said Jacob Guedalia, CEO of iSkoot. "That's because they now own a lot of time that their customers spend doing stuff other than looking for stuff to buy at an auction."

By John P. Mello Jr.
09/12/05 11:57 AM PT

In a deal harking back to the days of dot-com euphoria, online e-commerce powerhouse eBay announced a US$2.6 billion deal to acquire Luxembourg-based Skype, a pioneer in free Voice over IP (VoIP) services on the Internet.

The mega-sale drew fire from some quarters and praise from others.

"I think this is too expensive a move for eBay to spend $2.6 billion for this company," Vamsi M. Sistla, director of broadband and digital media for ABI Research in Oyster Bay, New York, told The E-Commerce Times.

Better for Less

According to a statement from eBay, the deal would total $2.6 billion -- $1.3 billion in cash and the rest based on the value of 32.4 million shares of eBay stock, which would be subjected to restrictions on resale. In early afternoon trading today, eBay was selling for $39.22, up 60 cents a share, or 1.55 percent.

There are also provisions for a future pay-out based on performance of the combined companies. The price tag on those provisions is $1.5 billion, which would be paid out in cash or stock, at the discretion of eBay, in the 2008-2009 time period. Shareholders representing 60 percent of the privately-held Skype's stock chose the pay-out option in exchange for reduced up-front cash and stock payments.

Sistla maintained that eBay's move will add value to the company's existing services, but at a very high price.

"My biggest qualm with this is they could have done far better by spending far less," he said.

New Risks

He argued that VoIP technology is still in its infancy and its market environs is far from stable. "The quality of service is still an issue," he noted, "and regulators could jump in at any time and start charging tariffs."

He argued that the deal opens eBay up to risks that have never been part of their business.

He added, "At the end of the day, it could still be a good deal for eBay in the long run, but immediately it will hurt it's stock price and its revenue growth."

Great Standalone Business

Hani Durzy, a spokesman for eBay, countered that the company paid a "fair and appropriate price" for Skype.

By many traditional valuation methods, the deal passes muster, he noted.

"In two years, Skype has attracted 54 million registered users with no marketing whatsoever," he told The E-Commerce Times.

"Skype is a great standalone business and it has tremendous momentum," he added.

Ditching Friction

According to the eBay statement, Skype generated $7 million in 2004, expects to garner $60 million this year and $200 million in 2006.

Durzy explained that the Skype deal is all about removing friction from e-commerce.

"Much like PayPal did," he said, "the acquisition of Skype can remove a key friction point in e-commerce, namely, communications.

"Communications can be a friction point in e-commerce and prevent transactions from taking place," he contended, "just like payments was a friction point. The acquisition of PayPal in 2002 was all about removing that friction point."

Pay-Per-Call

Moreover, he maintained that Skype's technology will give eBay a new way to monetize e-commerce. It can accelerate sales, he explained, especially in "high-involvement" items, such as used cars, business and industrial equipment, and high-end collectibles.

It may also open the door for pay-per-call services. "We may be able to provide a lead-generation capability for sellers," he said. "If we apply a pay-per-call model to lead-generation, then we've figured out a way to monetize that lead generation."

While eBay is framing the deal in a neat synergistic package, there are those who see it as a classic case of diversification.

Portal Play

"They're a $500 billion market cap company, and they need to diversify," Jacob Guedalia, CEO of iSkoot, a VoIP to mobile-phone company in Cambridge, Mass., told The E-Commerce Times. "General Electric, for instance, went from electricity to refrigerators to mortgages.

"What's interesting about it is that, all of a sudden, it makes eBay a competitor in the portal space, competing with Google, Yahoo and Microsoft," he concluded. "That's because they now own a lot of time that their customers spend doing stuff other than looking for stuff to buy at an auction."

Durzy, though, played down the portal angle. "We are not a portal," he said. "We are an e-commerce player. We don't think that this deal puts us into the portal space."


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