eBay to acquire Skype for $2.6 billion

Online auction site eBay Inc. has agreed to acquire Internet telephony company Skype Technologies SA for US$2.6 billion, the companies announced Monday.

The deal will help eBay move into new business areas while allowing Skype to expand the customer base for its VOIP (voice over Internet Protocol) services, the companies said.

For instance, in addition to its current transaction-based fees, eBay could allow deals to be monetized on a pay-per-call basis through Skype. And for its part, Skype could make it much easier for customers to pay for its fee-based services through PayPal Inc., the online payment service owned by eBay.

Skype currently has 54 million members in 225 countries and territories and is adding 150,000 new users each day.

The company was established around two years ago by Scandinavians Niklas Zennström and Janus Friis, who had made a name for themselves years earlier with the launch of the music file-sharing service Kazaa.

Last month, in an interview with IDG News Service, Friis said that he and fellow co-founder Zennström had “built [Skype] to be independent.” That comment came after the Luxembourg-based Internet telephone operator had already held acquisition talks with several companies, including News Corp., Microsoft Corp. and Yahoo Inc.

Microsoft has since acquired VOIP company Teleo Inc.

Both Zennström and Friis will assume positions within eBay’s executive team, said eBay President and Chief Executive Officer Meg Whitman, in a conference call.

By acquiring Skype, eBay hopes to improve communications between buyers and sellers by allowing them to speak with each other, according to a statement. Buyers will gain an easy and quick way to talk to sellers and receive the information they need to buy items. Sellers, too, will benefit by being able to build relationships with customers and closing deals, it said.

“We have already tried to reduce friction in e-commerce,” Whitman said, referring to the acquisition of PayPal as a means to make it easier and more safer for customers to pay for online purchases.

With Skype, eBay intends to reduce friction in online auction services even more by allowing people to talk through sales that would be too complex to communicate via e-mail or instant messaging, she said.

But some analysts warn that real-time communications could hinder rather than enhance online auction sales.

“Language skills could be an issue, especially in Europe.” said Ian Fogg, senior analyst at Jupiter Research, a unit of Jupitermedia Corp. “It’s one thing to express yourself in a foreign language, say English, via e-mail; but it’s something completely different when you’re on the phone speaking with someone real-time in a foreign language.”

Fogg also questioned whether eBay needs to own a VOIP company to encourage users to use this form of communication, suggesting that a partnership would suffice.

On another front, the Skype acquisition could complicate eBay’s plans to expand its business in China — where rival Yahoo recently purchased a 40-percent stake in online auction site operator Alibaba.com Corp.

China Telecom Corp. Ltd., one of China’s two principal carriers, last week began cracking down on Internet users in southern China who use Skype’s SkypeOut service to make international phone calls from their computers. Under existing regulations in China, only licensed carriers are allowed to offer VOIP services that link computers and telephones.

With the acquisition of Skype, eBay will now have to handle this issue and face the political ramifications of a China Telecom crackdown on SkypeOut. “It’s going to raise their profile in an unhelpful way,” said Duncan Clark, managing director of BDA China Ltd., a telecommunications consultancy in Beijing.

Whitman played down the Chinese incident as well as possible regulatory hurdles, such as the requirement to offer 911 emergency call service over VOIP in the U.S., and talk about taxing Internet phone calls.

Updated 8:45 AM 09/12/05: Added analysts comments, info on China, and other information.

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