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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"Communications is at the heart of e-commerce and community. 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." 1

-Meg Whitman, President and CEO, eBay Inc., in September 2005.

"Although we see substantial potential in Skype, we believe eBay paid too much for the company and do not think it is particularly strategic to eBay businesses." 2

- Scott Kessler, Standard & Poor's Equity Research, in September 2005.

eBAY's $2.6 Billion Gamble

If you were a Britney Spears fan and wanted to purchase some memorabilia of hers like an autographed photo, you would be most likely to find them at www.ebay.com, the world's largest online marketplace.

With around 200 million registered users (as of June 2006)3, and goods worth over US$ 1,381 being traded every second,4 eBay Inc. (eBay) was widely regarded as one of the few success stories of the dot-com economy.

What started out as a hobby turned into a worldwide phenomenon that showcased the spirit of entrepreneurship and the real potential of the Internet.

For eBay, the online business volumes were built up by a loyal group of users-referred to as the 'eBay community', who sold and bought goods from each other over the Internet. This was different from the traditional business model because it was these users and not the employees who worked to generate business for the company.

Thousands of people had given up their jobs to create their own full-time businesses by selling on eBay (in 2003, this number was estimated to be 150,000).5 eBay was not just a favorite marketplace for individuals looking for a bargain deal. Even large companies like The Walt Disney Company6 (Disney) and IBM7 started selling their products and merchandise through eBay.

In April 2005, a survey conducted by Envisional, a prominent Internet monitoring company, of 100 large brands and their coverage on the Internet, ranked eBay as the number one online brand in the Sentiment Index and sixth in the Prominence Index.

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1] "eBay to Acquire Skype," www.skype.com, September 12, 2005.

2] Peter Kafka, "Skype Seen as Overpriced and Non-strategic to eBay," www.forbes.com, September 14, 2005.

3] "eBay Signs up 200 Millionth Online Auction Member," http://today.reuters.com, June 13, 2006.

4] "eBay Facts At-A-Glance," http://investor.ebay.com, June 30, 2005.

5] "eBay's Bid for Success," www.cbsnews.com, January 5, 2005.

6] The Walt Disney Company headquartered in Burbank, California, USA, is one of the largest media and entertainment corporations in the world. Founded in 1923 by brothers Walt Disney and Roy Disney as a small animation studio, it is one of the largest Hollywood studios (as of July 2006) and also owns several theme parks and television networks, including the American Broadcasting Company.

7] International Business Machines Corporation or IBM, also referred to as 'Big Blue', is a technology company founded in 1888 in the US. IBM's businesses include manufacture and sale of hardware, software and consulting services.

 

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