71 thoughts on “SkypeBay done for $4.1 Billion.”

  1. If this is Skype….

    Did someone call Mark Cuban in for some deal making? Who else could sell a company with hardly any assets or revenue for multiple billions? I just typed broadcast.com into FireFox and what did I see? A redirect to Yahoo.com. There is nothing left.

    I think that goes down as the most expensive redirect ever–$5.7 billion.

  2. Look we may quibble about the actual price, but the fact is that skype does indeed have a VERY, VERY, VERY valuable asset.

    Secondly, an Ebay purchase makes helluva alot more sense than Yahoo, Murdoch or even Google.

    If the above is not intuitively obvious, allow me a few more hints.

    Who does eBay do business with? Who does their PayPal product do business with? Thousands and thousands of sellers, and millions of buyers. That my friends means super low CPGA and churn, and greater levels of integration/service for all eBay partners. Plus, to paraphrase ZZ-Top, skype is world-wide.

    The deal to buy skype, if that is indeed what the CC is about, is no-doubt predicated on three things:
    1) The actual NPV of skype sometime into the (near?) future, which is much less than $4B.
    2) The tie-in benefits, etc. with its core auction business.
    3) The tie-in benefits with Paypal.

    Ebay already has an internal ARPU figure for each tier of major repeat sellers. Question is what’s the NPV of boosting just that eBay ARPU another $5-10/mo in cashflow and greater lock-in, or as Buffett would say a wider moat. Whats the value of grabbing a some subscribers from the millions of buyers…

    PS. This is most definitely a STOCK deal, no way Meg’s board will allow her to dump $4B of cash, so that alone is a huge mitigating term.

    The only question I have is: Why isn’t Bezo’s in on this action? Think of the recent explosion of used book sellers who piggyback on top of amazon.com.

    Is Amazon asleep at the wheel? Jeff wake up, buddy.

  3. Om,

    I just though of a new valuation metric:
    $$$/download (hey its 3am and I’m abit punchy, vbg)

    I just now read the article and price as reported is $2.6B, half cash (which is pretty bold).

    So at 50m downloads, thats ~$52/download, or ~$26 CASH/download.

    The thing is, Skype was always designed from the get-go with voice being just another software application, but what’s different with Vonage/SunRocket/Comcast/Verizon/etc is the open API and the vision that subscribers would buy a bundle of software services, not merely different commodity pipes.

    Compare this vision with the RBOC/MSO’s triple/quad-play strategy which basically bundles different pipes, all of which just push bits in the end.

  4. This is strategic and defensive.

    They can’t afford to let YHOO or GOOG dominate a segment of the internet that they might need to leverage in the future. The specifics of those needs don’t need to be fully thought out by eBay. They just know that they can’t afford to miss the boat.

    And, for that, eBay will pay billions for Skype. If they don’t, they will end up losing billions in the future.

    God forbid that eBay miss the VOIP boat and have to rely on Yahoo or Google as a partner to provide VOIP service/integration.

  5. Now that we know it’s eBay, could we say that the Skype founders have ridden piracy to billions of dollars of profit? Skype became popular not because it was an original idea (regular IM clients do voice-chat and Net2Phone did PC-to-Phone calling years before Skype was a dream) but because it was decent software being promoted by the Kazaa folks. What better way to pimp software than by promoting it with one of the most downloaded software packages ever?

    Kazaa was only popular because of the piracy, people even stuck with the spyware because of all the free copyrighted content. And since I believe Skype only got popular because of Kazaa, Niklas Zennström and Janus Friis have ridden piracy to billions in profit. Not bad!

  6. No, we can’t say that. I don’t know of many people who associate Skype with Kazaa when they need to call someone and save money. Could we say that Gips had a big factor in the success of Skype? Yes, as you said, Voip has been around for years. But it wasn’t until Skype took the Gips technology and created a monster with it.

  7. Ever heard of Webex/NetMeeting? Skype can be the WebEx like meeting & conferencing platform for Ebay sellers and buyers. If I am a Ebay seller, a WebEx like platform is difficult to afford. Ebay can sell this technology to its users to demonstrate the products, provide support and direct marketing across the world. It can even position them as B2B and not just B2C. This service doesn’t have to be free as many are speculating.

  8. Rick: After Skype was launched it was marketed as the new thing “From the Kazaa team” and it was how many many earlier adopters found out about it. I found out about it the day of launch because of its association with Kazaa. There is actually a big synergy between the two usergroups (free PC-to-PC VoIP and P2P). I wonder what percentage of Skype users have never downloaded Kazaa… I bet only a small share (like yourself and other VoIP gurus).

  9. You are correct. They got a lot of Kazaa coattail, but they created Skype on its own merits, not on Kazaa. We got to give them credit for the good job they did. They did things that others didn’t. For one, they took Gips and ran with it. MS, AOL, Google are following. Skype led.

  10. so does this mean ebay powersellers will have to hire their own call centers to answer their new volumes of skype calls?

    speaking on skype w/a seller isn’t going to prevent them from lying to you. (unless we come up with skype-lie detector plugins 😉 ). I mean people lie to each other’s faces all the time. although if the guy speaking to you over skype claims his name is john smith from utah, and he can barely speak english, that might be your tip-off that he’s a crook…

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  12. This deal reeks of the bubble. Like ebay’s other stupid purchase, shopping.com for 690 million, this is a way way overvalued deal. That’s a metric ass load of cash they put on the table for skype. What’s the justification?

    Ebay will look to introduce skype to paypal, ebay and its related services as time goes on. So why are investors worried? Competition is tough in the US VOIP market and to introduce skype to its emerging markets, it will have to mess around with the murky politics and state owned long distance telephone operators. For eg, in India, skype, vonage,xyz are not legal. How will ebay be introduce this in India legally? Any answers?

  13. http://www.tmcnet.com/usubmit/2005/sep/1181000.htm
    Maybe they should have purchased Xten, a public softphone maker, who they could have had for a few tens of millions. Heck they could have paid double that company’s market cap and still received a good deal. Partner with a service provider, and take a penny or two off the traffic generated with eBay’s universe and voila!

  14. Maybe eBay overpaid. Maybe not. What matters more is the potential ROI and I think it’s huge.

    eBay skims pennies. I’m betting offering the option of voice access between buyers and sellers is going to become a part of those pesky little fees eBay are masters at applying. And I’m also betting that there are other revenue opportunites we can’t see at the minute that eBay understands clearly. They aren’t buying Skype only to offer a more convenient service to their existing user base. They’re doing it to make money and believe they can.

  15. Huge assumption that Yahoo and Google “passed on it”. I am not quite sure that was the way the story played out here…

  16. I dont understand why people are speculating that ebay bought skype to just add voice cababilities to auctions .If they wanted to do it they could have developed the technology inhouse or heck buy some small voip company for a few millions.

    I think eBay paid mainly for the brand and the network skype brings… Is 4.1 billion a bit too much ?, i dont know only time can tell

  17. Ab:

    Can you please tell me on what basis do you say that Skype, Vonage et al are illegal? The recommendation put out by TRAI makes it clear that end-to-end VoIP and interconnecting to PSTN outside the country by any one are legal. Even interconnecting to Indian PSTN can be done under a license. So it will be useful if you can provide legitimate reference to your claim.

  18. Basically nitpicking, but Skype has been downloaded 150+ million times. Skype has 50+ million registered users. So eBay is paying 52 dollars per registered user, or more likely circa 100 dollars per active user.

  19. i think what skype said, that got turned back
    into registered users again, is that they had
    50+ million names registered. (the caveat
    is how many distinct parties)

  20. I think Charlie Sierra is absolutely correct. By bunding Skype eBay further sets itself apart from anyone wishing to encroach on its core business. The cost of entry to get into the online auction business has just increased, as you now have to offer something as good as Skype to compete on a level playing field with eBay. That factor alone significantly increases eBay’s NPV. In addition, tight integration between the Skype client and eBay’s auctions may lead to an increased usage of both services. For example, what if the Skype client had tracker functionality for any auctions the user were participating in? A good reason to always have Skype running if you are already an eBay user and a way to get more out of eBay if you are already a Skype user. If one is a heavy eBay user, he will get a lot of exposure to using Skype and this will be better marketing than what Vonage has spends hundreds of millions on anually.

  21. i’m really not much of business guy, so bear this in mind as a big fat grain of salt with what follows.

    I’m trying to understand why eBay would buy Skype as a “platform”? I can see why eBay would be attracted to the myriad of Skype users. But the platform itself? Come-on.

    If eBay was interested in building out a VoIP conferencing platform for its members, it might as well have built out its own SIP-based platform, it really isn’t all that hard, or bought out one the emerging SIP-based players, such as Robertson’s Gizmo Project. As a technology investment looking out for the future, SIP is far more elegant *and* promising with viral interoperability, than Skype’s hodge-podge of proprietary technologies, to which it happens to expose an API. You don’t need an API when you deal with open protocols. SIP is an open protocol and works with a set of open protocols. The Skype API is the result of their realizing late in the game that they needed to interoperate to stay alive. They do have a huge critical mass of users. They’ve got a very good *product* that works insanely (for some level of insanely well) well within the confines of its ecosystem. But do they really have a compelling *platform*? Is eBay really going to be able to build anything useful *on top* of Skype?

  22. i do buy other arguments made regarding “desktop presence” (Mik) and integrating eBay listings and notifications into Skype (Jesse).

    But this to me points again to the strength of the large established Skype user base, rather than Skype as a compelling platform. Skype happens to be this “thing” that sits on many users’ desktops, and that alone is valuable, more so than “Skype as a VoIP platform”.

    I’m just wondering how well Skype is going to keep doing, when most everybody else has migrated to SIP-based alternatives?

  23. Forget the price tag; it just doesn’t make sense. Ironically, EBay must not like shopping around. They should have checked their own website for alternatives before blowing billions.

    The synergies are enormous. Voip is not just POTS anymore. It’s all about communicating anywhere, anytime over anything about anything anyone wants to sell to anyone else.

    Total paradigm shift for telecom anals. Telecom is no longer; it’s now Anycom.

    Jesus is still Lord.
    And the days are still short.
    Believe and be saved.

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  25. Aswath: If you have wsj access, see the this article in the asian section: Online Phone Services
    Spur Backlash in China (sep 12)

    State Telecom Giant Blocks
    Users From PC Calling
    Offered by Skype, Others

    Skype Technologies SA and other Internet-telephony companies could face difficulties in one of their most promising markets, as a Chinese state-owned phone company appears to be moving to bar Chinese users from some of the companies’ services.
    Chinese government regulations classify Internet telephony as “basic telecommunications” businesses, which its rules dictate can be offered only by China’s six major telecom carriers. The operator in China Telecom’s Shenzhen office said the company’s policy was implemented because Internet phone service has “disturbed the telecom market order.” She said customers who violate the policy have their service cut off and can’t have it restored unless they sign a pledge not to use it again.”

    I hope I’ve clarified the point. This problem is pretty similar to what it will face when it enters India in a organized way.

  26. It’s a Paypal Injection Mechanism-
    Skype will be used to catalyze the real opportunity for Ebay which is the bundling of Paypal merchant services into Skype. At EBay Developer’s conference a few weeks back Jeff Jordan talked about Paypal’s opportunities- both on and off-ebay. He estimated the off-Ebay opportunity as an addressable market for merchant services of $300 BILLION in 56 countries. Any Skype user will be getting not only voice capability but also essentially banking/merchant services bundled in. With only 1% overlap in current users of Skype and Ebay/Paypal that sounds like a decent way to get new folks onto both platforms. Capturing an annuity stream of transactions via Paypal makes those users worth a bit more than some people think (though I have no idea how to quantify it).

  27. Maybe they should have purchased Xten, a public softphone maker, who they could have had for a few tens of millions. Heck they could have paid double that company’s market cap and still received a good deal. Partner with a service provider, and take a penny or two off the traffic generated with eBay’s universe and voila!


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