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
Excerpts
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...
"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...
Exhibits
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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