For eBay, Is It Skype — or Jajah?
or Jajah? — Yesterday, eBay recorded a huge, $1.4 billion impairment charge related to its Web-calling subsidiary, Skype, to indicate that that business is no longer worth anywhere near $2.6 billion the auction giant paid for it back in 2005.
Context & Ripple Effects
eBay's Skype bet has been unraveling in public since 2006: the auction site's plans to weave web calling into its listings were dismissed as unconvincing that June, a Google partnership gamble followed in August, and by November analysts were still waiting for Skype to pay off. The October 2007 reckoning is blunt — a $1.43 billion impairment on the $2.6 billion eBay paid in 2005, paired with a CEO change at the subsidiary.
Business Week's headline frames the open question: whether eBay's web-calling strategy should still run through Skype or pivot toward rival Jajah — a comparison floated in coverage but not confirmed as any actual plan.
First-order effects
- eBay's balance sheet absorbs a $1.43 billion write-down, formally conceding that Skype is worth far less than the 2005 price, while Skype gets new leadership charged with proving the asset can be salvaged.
Second-order effects
- Rival low-cost calling services such as Jajah gain leverage from Skype's stumbles, and eBay faces pressure from investors to either find a working synergy with its core auctions or consider exiting the business it overpaid for.
Third-order effects
- The write-down becomes a case study in the era's pattern of large acquisitions of fast-growing but thinly monetized web services, where projected synergies fail to materialize and purchase prices get marked down within two years.
The trend: Web-era mega-acquisitions are increasingly meeting impairment charges as buyers concede that projected synergies between marketplaces and communications services never arrived.