E-Bay & Skype (Part I & II)

Even the thought that E-Bay is evaluating the possibility to buy Skype is somehow unsettling.

Given the discernible lack of complementarity between what E-Bay and Skype have been about, one is left wondering what the synergies might be? Or maybe E-Bay, after an extensive international expansion, is simply running out of steam as far as economies of scale are concerned. After acquiring Pay-Pal, one would expect further developments from E-Bay towards economies of scope--since the shopping experience there is far from perfect (e.g. trust or item return issues).

By comparison, one can see a much better rationale behind Amazon.com's A9 efforts. Often times, somebody searches something on the internet with the prospect/possibility of buying something.

... unless E-Bay's rationale is to counter what Yahoo! and Google have recently done in the VoIP area. Indeed, considering that these two are its direct competitors, E-Bay may fell it needs to mirror their actions. However, this would be a wrong move; check out historical precedents!



09/26/05 Addendum:

Following the completion of a project evaluating opportunities for other players in the telephony and data services sector, here are some considerations as they relate to the rationale behind the recent acquisition of Skype by E-Bay:

• "We believe that you should not have to pay for making phone-calls in future, just as you don't pay to send email." Niklas Zennström, Skype cofounder and CEO
• So far, Skype's cost of acquiring a customer has been $5, compared to $200-$400 for Vonage;
• Skype adds about 150,000 users a day to its member base of 54 million in 225 countries and territories. It does so without a dollar spent on equipment, or marketing--zero marginal cost.
• "We want to make as little money as possible per user, because we don't have any cost per user, but want a lot of them." Niklas Zennström
• VoIP is driving the price and cost of VOICE to zero;
• Cost sensitive customers are adopting Skype in droves. In short term, this increases average revenue per user (ARPU) for the providers of traditional telephone services. In the end, they would have to offer telephony services for free, and part of a larger data services package.
• "When Yahoo! and Microsoft buy companies, they typically disintegrate them." Niklas Zennström
• E-Bay plans to leave Skype alone, as a brand and business.
• Skype is one of the top brands on the internet. Its brand alone could be worth over $1Bn of the $2.6 E-Bay has paid for it.
• The rest of the purchase price (up to $1.6Bn) could also be justified by the "reduced friction" Skype will enable E-Bay's transactions with. Cross-pollination between the customers of the two entities, and "pay-per-call" (analogous to Google's pay-per-click), are further justifications.

Still not convinced Mrs.Whitman's spent well E-Bay's dollars? Consider this:

• On 31st of August 2005, PayPal announced the introduction of micropayments processing fees for digital goods.In other words, micropayments-enabled Skype could well become the number 1 telephone company in the world. There would be some obstacles, yet initial signs are good.

The picture on the minds of the EBay-Skype dealmakers becomes so much clearer now, and sense has been blown into it anew. This deal is a keeper.

Watch for major transformations in the telephony-services market; subscribers will become consumers!