EBay Inc. has agreed to spend at least $2.6 billion in cash and stock to acquire Internet startup Skype International S.A.
The online auction company said it will pay $1.3 billion in cash and an equal amount in stock for Skype, a 2-year-old Voice over Internet Protocol service provider. EBay may shell out another $1.5 billion during the next several years depending on Skype’s financial performance.
EBay, which boasts a community of more than 150 million buyers and sellers, said it will use Skype’s technology to provide an added dimension to its online auctions. “Communications is at the heart of e-commerce and community,” said Meg Whitman, eBay’s president and chief executive officer. “By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”
The move ends weeks of speculation and rumors surrounding potential Skype suitors. Internet giants Google and Yahoo! were said to be eyeing Skype earlier this year before launching their own Internet voice services, and Rupert Murdoch’s News Corp. also was considered a suitor.
But some observers believe the takeover rumors increased Skype’s price tag more than the company’s financial performance warranted. EBay shares fell 4 percent last week on speculation the company was overpaying for Skype, and investors remained tepid Monday morning as the stock languished. Shares of eBay were trading at $38.97 mid-day on the Nasdaq, up 35 cents from the opening bell.
“Skype will be just one of thousands of providers offering cheap voice services competing against cable operators, Internet portals like Google, as well as telephone,” noted Maribel D. Lopez of Forrester Research. “Even if Skype does gain traction in long distance, increased competition will dramatically reduce the revenue and profits Skype can make in voice.”
The Internet voice playground has become white-hot as online search portals and instant-messaging providers look to add voice services to their wares. Microsoft Corp. was the latest behemoth to join the stampede earlier this month, buying an undisclosed stake in Teleo Inc.
The privately held Luxembourg-based startup, has gained significant traction in the Internet voice arena, attracting 52 million users. But the company’s 2004 revenue was just $7 million, and while estimates vary substantially, analysts say Skype will generate between $10 million and $60 million this year.
Skype’s intentions in mobile are far from clear, but the company has made interesting moves toward the segment in recent weeks. It inked its first wireless partnership earlier this month with German operator E-Plus, which said it will bundle Skype’s software with its wireless service, allowing subscribers to use Skype’s offerings through laptop data cards. And it recently teamed with China-focused wireless Internet portal Tom Online Inc. on an effort to develop and market a stripped-down Chinese version of Skype’s service. The move builds on an existing relationship that has seen 3.4 million Tom Online users register for Skype’s service.
But the E-Plus agreement underscores the obvious hurdle Skype must clear in wireless. E-Plus subscribers can’t use Skype to make VoIP calls from their handsets, which would eat into the carrier’s revenues. T-Mobile already has said it won’t allow handsets that support Skype, and other carriers are sure to follow. Further, VoIP doesn’t work on GPRS networks, and users say Skype calls on 3G networks lack quality to the point of being unusable.
But newer technologies such as HSDPA may address such networking issues, and many believe the sheer inexpensiveness of VoIP calls will force carriers to embrace the technology eventually.
