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Last Updated: Monday, 12 September 2005, 15:23 GMT 16:23 UK
Portal bid drives eBay Skype deal
By Mark Ward
Technology Correspondent, BBC News website

CEO of eBay, Meg Whitman with Niklas Zennstrom, CEO and co-founder of Skype
The marriage of eBay and Skype has puzzled some
At first glance, auction giant eBay and net phone firm Skype seem to have little in common apart from the fact that both do almost all of their business online.

eBay is a giant marketplace used by more than 100 million people to buy and sell all manner of things to each other.

In comparison, Skype has about 53 million users who make cheap phone calls via the service that relies on the net to carry the conversations.

Certainly, many analysts have questioned why eBay splashed out $2.6bn (1.4bn) to buy Skype.

Good reasons

On Friday 9 September, and before the deal was made public, Goldman Sachs analyst Anthony Noto circulated a memo to clients saying that a purchase would do nothing that a licensing agreement could not accomplish.

He reasoned that by paying to use Skype's net communication technology, eBay could just as easily exploit the reach of the phone firm's core audience.

eBay has definitely overpaid for Skype
John Delaney, Ovum

Mr Noto wrote that he struggled to see the benefits eBay would gain from buying Skype.

What eBay does get for its money is access to an audience in places that it, so far, has not reached very well.

Almost half of the users of Skype live in Europe and a further quarter live in Asia. Only an eighth of them are in North America where eBay has its biggest chunk of users.

For its part, eBay said it was buying Skype for the same reasons that it bought Paypal and it saw the same kind of opportunity as with that company.

But the purchase of Paypal back in 2002 made more sense because many of the deals done with the net payment system were between eBay traders.

Costly call

The link-up between eBay and Skype was "unusual", said Mark Heath, research director at analysts Sound Partners, and author of a report into Voice over IP (VoIP).

While eBay might gain some opportunities to do more for its customers by making it easy for them to talk to each other or be involved in the closing stages of auctions, he said, the attractions for Skype users were less clear.

At the moment, most people use Skype to make cheap and easy phone calls via their computer and a broadband link.

Ebay headquarters, AP
Few are entirely convinced by eBay's purchase of Skype
"Changing this success formula could have disastrous consequences for customer numbers, particularly given emerging alternatives such as MSN Messenger and Google Talk," Mr Heath told the BBC News website.

John Delaney, principal consultant at analysts Ovum, added: "eBay has definitely overpaid for Skype."

There was no doubt, said Mr Delaney, that eBay had spent too much if all it was interested in was VoIP technology that Skype uses to help people call each other.

eBay could build or buy its own net communications infrastructure for less, he said.

The deal did make sense, he said, when one realises that most of the net's big portals, such as Google, MSN, AOL and eBay, made most of their revenue from third-parties.

Advertising was the biggest chunk of this third-party cash, said Mr Delaney.

"Very few people that use the services of these portals pay for them," he said.

It means portals have to offer an increasingly large portfolio of services to users in order to keep them coming back and therefore satisfying their advertisers.

"The most important types are communication services because they are habitual and users have to go back to the portal to use them," he said.

This is the reason Google launched GMail and Google Talk and why Microsoft bought PC phone firm Teleo.

But, said Mr Delaney, even accepting that eBay bought Skype so it could offer phone calls to customers and bulk out its range of services, it has done it very expensively.




BBC NEWS: VIDEO AND AUDIO
What eBay hopes to gain from the deal



SEE ALSO:
EBay to buy Skype in $2.6bn deal
12 Sep 05 |  Business
eBay's 10-year rise to world fame
02 Sep 05 |  Business
Over-35s drive eBay UK web hits
24 Aug 05 |  Technology
eBay users face fake e-mails risk
17 Jan 05 |  Business
Google sets tongues wagging with Talk
24 Aug 05 |  Technology
Microsoft plans telephone service
31 Aug 05 |  Business


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