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eBay to buy Skype? Huh?

Merger and buyout rumors always make for fun rumors. Remember Google buying Technorati? Yeah, so that hasn’t happened (yet!). Here’s another bit of internet company buzz: eBay is preparing to buy Skype for somewhere between $3 billion and $5 billion.

This immediately rends one reaction: huh?

This purchase wouldn’t be a Google buying a Technorati type of deal — it would make perfect sense for a search company to purchase a smaller search company that’s doing well within a niche. eBay bought PayPal a while back, which made sense — PayPal was used mostly for eBayers to pay other eBayers.

But eBay and Skype? Any attempts to rationalize some sort of synergy there (“Call the seller for free!”) are a stretch. It comes down to one thing: eBay has money and needs to spend it. They’re probably fearing future growth in their arena — they already have complete dominance of the market, so gains are going to level out. They’re going to be adding service to China soon, which will provide a boost, but there’s limits to how far this revenue stream will carry them. An article on market analyst site the Street quotes an analyst that sums it up well:

” ‘If eBay was considering whether to make this move, it would be a not-so-subtle admission that growth is slowing,’ says Hoefer & Arnett analyst Marty Pyykkonen, who has a reduce rating on eBay.”

So eBay has climbed the online auction mountain, planted their flag, and are looking for new mountains. Skype is a major player in the VoIP world — but the VoIP world is still a small one compared to tradational communication methods. Is eBay hoping to become a communications leader next?

Analysts have noted that it’s unusual for an internet company to look into a leap so far outside its market — and could be groundbreaking. Will Microsoft try to build bicycles? Will Google look into making guitar amplifiers? No, they probably won’t, but are those scenarios any more out-of-left-field than eBay and telecom?

Stockholders definitely worry — eBay stocks dropped well over a dollar on the news. But it looks like eBay is at least looking into taking some risks, and for that, deserve some level of praise. As long as it’s a calculated risk.

Thu September 8th, 2005 11:32 pm

Filed under Business, Web

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