Ready, Fire, Aim! - Mihail's Public Blog: Skype me -- eBay gets it!

Monday, September 12, 2005

Skype me -- eBay gets it!

So while most technology pundits are "scratching their heads" and going on and on about how eBay has made a huge $4.1B mistake (uh, guys, first of all it is a $2.6B purchase...with additional payments only in 2008 or 2009 (3 to 4 years after today!).

And the earnout is only if Skype meets certain performance goals. Well you know what, if the Skype guys are meeting those goals then that means Skype is meeting its potential and generating significant revenue and/or benefits for eBay. So fine they'll be getting more of the money they've helped eBay make. How is that a bad thing? Good for eBay to put some incentive in there. Since when was capitalism a bad thing?

So all of you who're punditing about this deal, please go get a Peet's latte and then try to get a grip on your narrow perceptions of Skype and eBay and think about how strategic and smart this is.

Just because eBay is not giving tours of the "factory" and doling out beach towels or something, suddenly all we hear about is how its business is maturing and the end is near. And then when they go out and do something big on the scale of the Paypal acquisition that too becomes proof that their business is maturing and the end is near. Sheesh. I'm wondering if these pundits the same guys who didn't get the Paypal acquisition at $1.5B?

If I remember correctly, eBay was supposed to have overpaid for that one as well. But do you guys think that today? Paypal now has almost 79M accounts. When it was bought by eBay it was barely making money, I believe, and under investigation with only 17.8M accounts in the quarter that ended just before the acquisition (according to Paypal's SEC filing). So eBay paid approx. $80 per user for Paypal.

From the July 8, 2002 eBay press release about the Paypal acquisition:

“eBay and PayPal have complementary missions. We both empower people to buy and sell online,” said Meg Whitman, President and CEO of eBay. “Together we can improve the user experience and make online trading more compelling. We can also capture greater value from the e-commerce opportunities occurring both on and off our site.”

eBay is a marketplace. Selling and buying requires communication between people: the buyers and sellers (have any of you even sold something on eBay or Amazon ever?). Skype brings very, very cool technology that enables that very effectively. It enables cross-border communication -- its software is available in 27 languages (including translation, ability to send documents, voicemail etc.). It brings a significant complimentary business that can go beyond eBay (in fact, already does). And it brings new users into the eBay and Paypal folds.

According to Skype, it has 54M registered users and over 46% of the North American Internet telephony traffic. That comes to an acquisition cost of less than $50 per registered user. Right now as I'm writing this there are over 3.5M users online on Skype. Here's what eBay had to say in its announcement this morning:

"Communications is at the heart of ecommerce and community," said Meg Whitman, President and Chief Executive Officer of eBay. "By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net."

Welcome to a new world. And make sure you go drink that latte. Here's a link to the eBay presentation of what it means to put eBay, Paypal and Skype together. Enjoy!

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