eBay bids for VoIP success with Skype acquisition

13 Sep 2005

eBay has announced its intention to buy the internet phone provider Skype Technologies for US$2.6bn and has said it plans to integrate the company’s voice technology into its online marketplace.

Skype’s telephony software uses voice over IP (VoIP) technology that allows people to make free phone calls over the internet between PCs. Its service also offers low-cost calls from PCs to landline phones, often for as little as two cent per minute.

The privately held company, based in Luxembourg, was founded in 2002 and is now the world’s leading VoIP provider. It has 54 million registered users worldwide and its traffic accounts for more than 46pc of all internet telephony calls made in North America.

In a statement on eBay’s website, CEO Meg Whitman said: “Over time, we intend to make voice communications a part of the eBay marketplace – a huge step forward in making transactions faster and easier, as well as bringing even more interactivity and humanity to the eBay community.”

The online auctions company claimed the addition of Skype would “streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace”. It said Skype can increase the speed of trade on eBay, particularly in categories that require more involved communications such as business and industrial equipment, used cars or high-end collectibles.

It’s envisaged the deal will also open up new business opportunities for both parties. For example, eBay currently takes a fee per transaction through its website, but in future, communications for e-commerce could be charged on a pay-per-call basis through Skype.
The acquisition price may ultimately rise as the agreement includes a provision for a further performance-based payment of around US$1.5bn, which would be due in 2008 or 2009. Skype generated close to US$7m in revenue last year and is anticipated to earn US$60m for the current calendar year. This figure is forecast to grow to US$200m by 2006.

Competition in the growing VoIP market has intensified lately, with many of the largest players on the web making acquisitions in this space. Yahoo! recently bought DialPad, a company specialising in PC-to-PC and PC-to-phone services to consumers. Google introduced Google Talk, a free service for Google webmail users. Late last month Microsoft bought the start-up company Teleo, whose technology allows phone calls to be made from PCs to landlines, although this hadn’t been available as a commercial product.

By Gordon Smith