Even a few months later, the sheer size of the eBay-Skype deal still boggles the mind: $2.6-billion (U.S.) at a minimum, and as much as $4.1-billion if certain goals are met. All this for a company that hopes to have revenue of about $60-million this year, and (possibly) as much as $200-million next year.
The on-line auction site and its defenders say the price they have agreed to pay is justified because Skype is growing at triple-digit rates, both in terms of users and revenue. And they say the acquisition makes sense for eBay in two ways: Because Skype is a great brand, and because the company’s free voice-over-Internet service can be integrated with the auction provider’s existing business.
Those two pillars supporting the deal are not carved in stone, however. The first — the power of the Skype brand — is a very fickle thing, since it rests on a service that is not only free but one that can be duplicated relatively easily. Obviously, free services in a highly competitive market can succeed (Google is an obvious example, although it has proprietary search algorithms) but the risks are high, particularly in the on-line world, where the consumer’s allegiance can shift almost overnight.
And what about the second pillar — the idea that Skype could be integrated with eBay’s auctions to allow a “click to call” feature that would connect buyer and seller? That is still a question mark, and one which recently grew larger, after the head of a leading eBay “power sellers” group said that he and his members didn’t see any benefit to using Skype. Combine that with speculation about how eBay is taking over the VOIP company’s management, and that $4.1-billion bet the auction company made looks even larger.
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Update:
Rob Hyndman uses Skype’s travails to make a great point about some of the risks of starting new ventures when technology is so cheap and users are so fickle: he calls it “the best of times and the worst of times.”
