eBay's Acquisition of Skype: Will the Gamble Work?

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Case Details:

Case Code: BSTR226
Case Length: 17 Pages
Period: 2003-2006
Organization: eBay Inc
Pub Date: 2006
Teaching Note :Not Available
Countries: USA, Europe
Industry: Internet & e-Commerce

To download eBay's Acquisition of Skype: Will the Gamble Work? case study (Case Code: BSTR226) click on the button below, and select the case from the list of available cases:

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Skype Me"- The Next Big Thing?

Skype, a freely downloadable software program that allowed the user to make free calls over the Internet to other Skype members, was founded by Niklas Zennström (Niklas) and Janus Friis (Janus) in 2003. Niklas and Janus were passionate evangelists of the power of Peer-to-Peer (P2P) computer networks.

They had earlier developed KaZaA, a free music downloading software. This software had created a lot of controversy in the music industry because people could share copyrighted songs amongst themselves. In 2003, it was estimated that the music industry had lost almost US$ 300 million in music sales due to free file-sharing services like KaZaA. Hence these music record companies and movie studios had filed several copyright infringement lawsuits against KaZaA.

With Skype, Niklas and Janus seemed to have taken on the telecom industry. Skype's popularity spread like a virus as satisfied customers convinced their friends and family to download Skype and enjoy free long distance calls over the Internet...

A Strategic Fit?

For eBay to tap into the VoIP opportunity, the company could either have started its own VoIP firm or partnered with a suitable VoIP company. eBay decided to pursue the second alternative and believed that Skype would fit into its overall value proposition. This buyout was expected to result in high revenue growth for eBay, as had happened after the acquisition of PayPal in 2002. On eBay, almost five million email messages were exchanged per day between buyers and sellers...

Future Outlook

In 2005, the VoIP market witnessed increased competition with Google, Yahoo!, AOL, and Microsoft targetting this segment. According to In-Stat, a leading market research firm specializing in the advanced communications industry, the market for VoIP calling was around US$ 230 million in 2004 and expected to increase to US$ 4.8 billion within four years. AOL announced an array of new price plans in April 2005 in an effort to retain its existing subscriber plans and strengthen its VoIP business. In June 2005, Yahoo! bought out Dialpad Communications, a growing IP telephony company. In August 2005, Google launched 'Google Talk', its own instant messaging service with VoIP capabilities, while Microsoft purchased Teleo Inc., a California-based VoIP software and services company for an undisclosed sum.


Exhibit I: Online Brand Rankings by Envisional.

Exhibit II: About VoIP and How It Works.

Exhibit III: Broadband Fever Grips the World.

Exhibit IV: eBay's Revenue Summary.

Exhibit V: eBAY's Income Statement.

Exhibit VI: Net Wars.

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