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

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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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eBay's History

eBay was founded in Silicon Valley by Pierre Omidyar (Omidyar) in 1995. Omidyar, a young software programmer, got the idea of starting an online auction site when his fiancée told him of the problems she had faced when trying to collect Pez dispensers from the San Francisco Bay area. Omidyar used the vast potential of the Internet to develop an online marketplace that allowed person-to-person trading in the auction format.

He created a simple business model which allowed buyers and sellers to decide on the value of items and connect with each other, for a small commission for every item placed and sold on the site. Using this model, he started Auction Web (eBay's earlier name), which soon became a popular website. Omidyar wanted the power of the market to stay with individuals and not with companies. He felt that it was important to let users take the responsibility for building a community.

He encouraged users to communicate directly with him by email so that he could incorporate their suggestions and resolve the problems they faced on the site...

eBay's Growth Through Acquisitions

With this meteoric increase in the number of users, came the need for greater investment to support the company's rapid growth. In June 1997, Omidyar and Skoll approached Benchmark Capital (Benchmark), a leading venture capital firm in the US, for funds. Benchmark invested US$ 4.5 million in eBay and obtained a 22 percent stake in the company.

As the company was growing rapidly, the founders felt the need to bring in a person who could instill a customer-centric vision into the company and focus on marketing and brand building.

eBay was still a predominantly 'techie-driven' company and Omidyar and Skoll realized that what they needed was a person who had the ability to sustain eBay's meteoric growth in user base as well as the management expertise to deliver consistent growth in revenues and profits.

Benchmark delegated the responsibility of finding such a manager to David Beirne (Beirne), a well-known headhunter in Silicon Valley. Beirne convinced Meg Whitman (Whitman) to join eBay...

eBay's Growth Initiatives

In 2003 and 2004, eBay sought to strengthen its presence in growing overseas markets like China, Korea, and India through select acquisitions. eBay had entered China in 2002 by acquiring a 33 percent stake in EachNet, a leading Chinese auction site, for US$ 30 million. In 2003, it acquired the remaining 67 percent stake in EachNet, for US$ 150 million. In August 2004, eBay completed its acquisition of Baazee.com, an Indian auction website, for US$ 50 million...

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