eBay's Acquisition of Skype - Will the Gamble Work?
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Case Code: BSTR226 Case Length: 18 Pages Period: 2003-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: eBay Inc. Industry: Internet & e-Commerce Countries: USA, Europe Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
"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."
-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."
Scott Kessler, Standard & Poor's Equity Research, in September 2005.
eBAY's $2.6 Billion Gamble
If you were a Britney Spears fan and wanted to purchase some memorabilia of hers like an autographed photo, you would be most likely to find them at www.ebay.com, the world's largest online marketplace. With around 200 million registered users (as of June 2006), and goods worth over US$ 1,381 being traded every second, 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). eBay was not just a favorite marketplace for individuals looking for a bargain deal. Even large companies like The Walt Disney Company (Disney) and IBM 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.
eBay was not the only company seeking to dominate the Internet space. Yahoo! Inc. (Yahoo!), Google Inc. (Google), AOL LLC (AOL), and software giant Microsoft Corporation (Microsoft) were also actively trying to expand their influence over the Internet economy. By end 2004, Voice over Internet Protocol (VoIP) was emerging as the hottest new business opportunity for Internet companies. Analysts noted that the main factor driving the growth in VoIP was the increased penetration of broadband. At the global level, almost 24.5 million broadband connections were added in the first half of 2005, taking the total registered broadband connections to 176 million as on June 30, 2005.
Thus, VoIP was touted as the 'next big thing' that would be driven by the popularity of broadband Internet services. VoIP companies with large subscriber bases were prime takeover targets for these Internet companies and there were numerous media reports about potential deals. The buzz on eBay's moves was finally laid to rest in September 2005, when it announced that it would buy Skype Technologies SA (Skype), a growing Internet communications company, for US$ 2.6 billion (US$ 1.3 billion in cash and US$ 1.3 billion in stock)...
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