Waiting for Skype to pay off for eBay
BERLIN: The managers of eBay, the world's largest online auctioneer, had something else in mind in September 2005 when they decided to pay at least $2.6 billion to buy Skype, the pioneer in Internet telephone service then based in Luxembourg.
Context & Ripple Effects
Fourteen months after eBay agreed to pay at least $2.6 billion for Skype, the auctioneer still lacks a convincing answer to the question analysts raised when it first floated integration plans in June 2006 — that its latest tie-in proposals were no more convincing than earlier ones. The further Skype tie-ins eBay unveiled in its U.S. marketplace were meant to turn voice into a transaction tool; instead, skepticism from analysts has hardened into an open debate over whether the price can ever be recouped.
First-order effects
- eBay is carrying a multibillion-dollar acquisition on its balance sheet with no proven revenue model attached, forcing management to justify the deal on every earnings call to analysts like Credit Suisse First Boston's Heath Terry and Thomas Weisel's Christa Sober Quarles.
Second-order effects
- eBay has been pushed into an unusual defensive partnership with Google — announced in August 2006 in hopes of finding new ways to monetize Skype — even as it bans Google Checkout from its own Safe Payments policy, showing it will cooperate with Google on communications while fencing it off from payments.
Third-order effects
- The deal is becoming a test case for how large internet acquirers absorb pre-revenue communication platforms: if Skype cannot be welded into auctions profitably, the pressure grows for either a leadership change at the unit or a strategic retreat, with rivals watching which path eBay takes.
The trend: Mega-acquisitions of fast-growing but unmonetized consumer internet services are colliding with public-market patience, as eBay's Skype purchase shows the gap between strategic hype and earnings-call accountability.