eBay's Big Buy Leaves 'em Guessing

By Tim Gray | Sep 15, 2005 | Print this Page
http://www.enterprisenetworkingplanet.com/unified_communications/news/eBays-Big-Buy-Leaves-em-Guessing-3548771.htm

Before the ink could dry on Internet auction giant eBay's $2.6 billion deal to acquire VoIP titan Skype this week, industry analysts were delivering mixed reviews on the move.

"It is a higher premium they paid in relation to the benefit," Vamsi M. Sistla, director of broadband and digital media for New York-based ABI Research, told internetnews.com.

Sistla said eBay could have achieved the same consumer benefit for a much lower price tag.

"It is not that Skype isn't worth $2.6 billion," he said. But if the move was strictly for eBay users' benefit by allowing eBay's auction customers to communicate via phone, the San Jose, Calif.-based company could have found more bang for its buck elsewhere, he added.

However, if eBay allows the Luxembourg-based Skype to continue developing its VoIP business, the deal could mean significantly more across industries.

The deal calls for eBay to buy all the outstanding shares of the privately-held Skype for $2.1 billion. The sale includes $1.3 billion in cash and the value of 32.4 million shares of eBay stock.

The companies said the maximum amount potentially payable under the performance-based earn-out is approximately $1.2 billion, or approximately $1.5 billion, and would be payable in cash or eBay stock, at eBay's discretion. The expected payment date in 2008 or 2009.

David Smith, an analyst with the Gartner Group, said the acquisition will likely drive larger numbers of transactions to the auctioneer's core businesses, as well as add to Skype's $60 million in projected 2005 revenue, bottom line.

According to eBay, Skype generated $7 million in 2004, and estimates $60 million this year and $200 million in 2006.

Smith said Skype, already the leader in the surging VoIP market, possibly moves eBay in position to challenge America Online , Yahoo , Google and Microsoft for a share of the surging VoIP market.

"We are seeing the emergence of Internet platforms through convergence and acquisitions," he said.

Sistla agreed, and said beyond integrating products, the e-commerce specialist also is best served squaring off with the other online giants planning to use VoIP technology to launch consumer services.

Still, Sistla added, the payoff might not match the buying price.

"I think they could have done better by spending less," he said, arguing that quality of service for VoIP is in its infancy and its market environs are far from stable.

Last week Skype's service came under fire in a market that eBay, and just about everyone else, is hoping to tap in the near future: China.

China Telecom, the nation's largest fixed-line phone carrier, reportedly began blocking access to service in the southern province of Shenzhen, and is expected to expand the ban nationally, according to the Shanghai Daily online newspaper.

Regardless of potential roadblocks, Sistla noted that synergies of both companies are similar, and that Skype has done for VoIP what eBay has done in e-commerce space.

"Right from start Skype wanted to build platforms for others to build services with, just like eBay," he said.