eBay to buy Skype in $2.6bn deal via BBC News
This story has been doing the rounds on the rumour mills in the past few weeks, but now it’s official – eBay is going to buy Skype for £1.4bn, half in cash and half in stocks (with performance bonuses as a potential incentive later on).
Personally I’ve never used the Skype software and have never been overly interested in Voice over IP (except from a “that looks like a cool technology” viewpoint) given that most of my phone calls are included in my monthly bill anyway. However, most people I know who have used it have been impressed with the quality of the sound and the price tag, even though you can’t call normal phones without paying a fee.
The main question though is why do eBay want to spend so much money buying Skype? One reason that is being touted by most of the news sites is that it will enable potential bidders on eBay to call sellers to ask questions and (most importantly) see if they’re genuine rather than scam merchants. Whilst I think this is probably a good way to add some value to the existing eBay services, I doubt that it is worth paying £1.4bn for. eBay could easily add a field to user accounts allowing them to specify their Skype ID, just like you could pay by Paypal when they were a separate company. There’s no real tie-in with the two products – unlike the huge advantage of Paypal where you could bid and then pay all under one system – so what do eBay stand to gain from this?
In my opinion, the reason for the purchase is fairly simple: eBay has more or less cornered the auctions market and can probably afford to buy out any competitors who start getting a bit big for their boots. I would also hazard that new user registrations have slowed down significantly over the past few months as the market becomes saturated and most people who want an eBay account already have one. Trading volumes might increase over time, but eBay’s user base is unlikely to expand much and its market share may even start to dip slightly as smaller competitors offer better rates in niche markets (e.g. site specifically for the auction of computer goods). So, how can eBay as a company continue to grow and keep its shareholders happy? One way would be to buy out a relatively small but fast growing company which is expanding into an immature market. eBay has cash and stock reserves so can afford to buy Skype instead of investing time and money in the development of its own solution, and that’s what they’ve done.
Of course there may be many reasons for the buyout, and I’m not privy to eBay board meetings so I can’t tell you for sure what they are. All that I can say is that I’m fairly confident that a major factor behind the takeover is a desire for eBay to continue growing and in order to do so there is a necessity to expand into other markets which have not yet reached saturation point. If eBay plays its cards right and doesn’t try and profit too much from the service Skype offers (e.g. by hiking prices) then it could easily emerge as a leader in the VoIP market. However, companies like Google (with their recently launched Google Talk software) are already in on the game, and of course there’s always Microsoft who like to dominate all aspects of technology wherever possible and have the resources (mainly financial) to force their way in.
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