Is eBay shooting itself in the foot by spinning off Skype?

15 Apr 2009

Online auctioneer eBay is to sell off iconic voice over Internet Protocol (VoIP) provider Skype as part of an initial public offering (IPO) in 2010. But could it be a case of eBay throwing the baby out with the bathwater, or is it more a stringent move born out of necessity?

It is a well-established belief in the technology world that eBay paid well over the odds for Skype in 2005, when it shelled out a massive US$3.1bn for the company.

The company believed at the time that a voice function would help close auction sales by making it easier for buyers and sellers to communicate. Unfortunately, that trend didn’t take off to the extent eBay hoped.

If anything, eBay has been struggling to make money out of Skype, and has admitted it has overpaid for the company.

Nevertheless, Skype is still a tremendous piece of online real estate and a real game changer in the telecoms space. It has some 405 million users and its low-cost VoIP service accounts for 8pc of the world’s international phone calls.

During peak hours, usage of Skype hits 14 million people simultaneously, and in recent weeks, a Skype application was unveiled for the Apple iPhone

Since eBay bought it, Skype’s database of users grew seven-fold, while revenues grew 44pc to US$551m last year.

But the real Achilles heel has been the inflated price that eBay paid for the company, and an evaluation of the unit has prompted the auction giant to push for an IPO.

However, it’s a risky strategy at a time when world markets are in a state of turmoil.

Is eBay hoping that by 2010 the fabled upturn will have arrived and the markets would be receptive to an IPO?

And will the IPO lead to a stream of similar technology IPOs by players such as Twitter or Facebook who may feel their time has come?

Or is eBay ridding itself of a core asset that will drive future growth in a converged future where the internet, TV and telecoms will become ever more intertwined?

Watch this space …

By John Kennedy