Why did eBay pay so much for Skype ?

While many people are still struggling to figure out exactly why online auctioneer eBay Inc. was ready to shell out billions of dollars to buy Internet telephony provider Skype, the company, and many industry watchers, see a wealth of potential in the deal. According to eBay officials, the addition of Skype's technology and its 54 million subscribers was an easy way for the auction provider to create a catalog of new revenue opportunities. In framing the $2.6 billion deal on Monday, eBay Chief Executive Meg Whitman said the acquisition will help drive larger numbers of transactions through the auctioneer's core businesses and will immediately add Skype's $60 million in projected 2005 revenue to her company's bottom line. Beyond the immediate opportunities for the two companies to integrate their products, allowing eBay's auction customers to communicate via phone, experts say that the e-commerce specialist also joined the ranks of powerful online firms that will use VOIP (voice over IP) technology to launch a new generation of consumer services. If those experts' theories prove correct, the auctioneer will follow market leaders such as Google Inc., Microsoft Corp. and Yahoo Inc., who have all made significant investments in VOIP and entertain similar long-term aspirations.  "What we're seeing here is that voice has grown from a discrete service into an application that can be embedded as part of anything people do online," said Maribel Lopez, analyst with Forrester Research. "If you're using an auction site, playing games, shopping or looking for customer care, voice will be a part of that, and it will also play an increasingly larger role in other emerging services."
According to Lopez, eBay and other online companies that already lay claim to ranks of loyal users will increasingly use VOIP-enabled applications to place themselves at the center of a consumer's online universe. Much like the portal approach favored by Yahoo and others, she said, eBay will use VOIP to extend the reach of its existing services and make itself the focal point of people's Web-based interactions. Further, the analyst predicts that by adding the ability for people to make low-cost phone calls via VOIP, a variety of Web sites will someday become even more important to their users.
"With all these online companies supplying voice, people could move toward more affinity-based Web access," Lopez said. "It might be ESPN or Apple or a music download site or whatever sites you use and identify with the most that will become the center of your online world; VOIP is just something that will be a part of all those services."
Other experts agreed that a more portallike business model could very well lie in eBay's future, based on the Skype deal. Will Stofega, an analyst with IDC, said VOIP opens up so many opportunities for companies like eBay to expand their range of services that it will be hard for business leaders to resist the urge to branch out.
"There really are a limitless number of applications that can be imagined by combining VOIP with other tools, and we are really just at the beginning," he said. "The idea of having some virtual portal in cyber-space where you go to access many valuable services is finally becoming a viable model, and things will get even more interesting once we get past this nascent stage with voice and instant messaging."
Among the applications that experts consider will likely benefit from the addition of voice technology are everything from the VOIP-enabled instant messaging technologies already being developed by companies such as Google and Yahoo to new online gaming forums, customer service systems and e-commerce tools.
According to Yahoo representatives, VOIP is the glue that will help link many of its online tools together to make them even more useful to consumers. For instance, someone using Yahoo's local search engine will someday be able to make a dinner reservation simply by clicking on a VOIP link in a restaurant listing on its site, said Terrell Karsten, a spokesman for the company.
"Yahoo views voice as a platform, an omnipresent capability across all experiences we offer," Karsten said. "By integrating voice with all our other services, things like search, games or music—essentially any place where there are communities that want to be connected—the services we already offer will become more valuable."
eBay spokesman Hani Durzy denied that his firm has portal aspirations, and pointed out that some industry watchers once incorrectly assumed that the company's buyout of PayPal, its successful online payment processing division, was proof that it wanted to become a banking firm. He said that Skype will primarily serve as a catalyst to increasing business on sections of eBay that have struggled to generate volume, such as with auctions for new cars, industrial equipment and real estate.
Durzy said that eBay believes VOIP will have a "huge and rapidly accelerating" impact on its growth, allowing the site's members to communicate more effectively than ever before. For auctions of unique items such as valuable art pieces or vintage automobiles, eBay traders will be able to fill in the blanks that e-mail correspondence could never address, he said.
"This is not about us moving into the Internet telephony space just like PayPal wasn't about moving into banking. It's about doing something that our community wants and needs to further e-commerce," said Durzy. "Our goal is not to become a portal; we're focused on e-commerce and community building."
Despite eBay's ardent claims, a majority of industry watchers appear to remain convinced that there is more at play with the Skype deal than simply facilitating more online auctions. Joe Laszlo, analyst with Jupiter Research, pointed out that it will take a massive number of auction deals to rationalize Skype's $2.6 billion asking price.
The analyst said that one of the most important aspects of adding VOIP technology to existing products and services will be that it helps move eBay and other companies closer to providing video capabilities to users, along with offering the new calling options. He believes that all the major online players will continue to build out their VOIP capabilities in order to push their future services offerings.
"It's an unsurprising trend," said Laszlo. "What this deal helps illustrate is the renaissance of voice efforts from the major portal providers, and it's interesting to see that some new entrants like eBay are trying to get into the market."