Voices not Eyeballs: Ebay Buys Skype

Ian Fogg | September 12, 2005, 12:19 PM

Confirmed: Ebay is buying Skype for between $2.6 and $4.1bn (the range depends on Skype performance).

The purchase price to earnings multiplier is astonishing: either 371 on 2004 revenues, or 43 on 2005 forecast revenues, in both cases this assumes the lower purchase price. Ebay is not buying Skype for current revenues. Skype made $7m in 2004 and expects to earn $60m in 2005, although Skype's paid SkypeOut service has been available for about a year.

Skype is bringing two elements to Ebay: technology that Ebay hopes will boost auction sales and generate a per call lead-based business. Skype also brings new users -- voices not eyeballs -- with a claimed 54 million registered users and over 2 million paying users.

For the VoIP market the effect is uncertain.

Telecoms firms may breath a sigh of relief that this deal is final confirmation that Skype is not a telephony business and therefore not a threat. The thinking would go as follows: the Ebay acquisition will deflect Skype from a straight voice communication and telephony play. Skype's roadmap focus will change to value added features that support Ebay's model rather than a feature set evolution that impinges on traditional telephony.

That would be a risky bet for traditional telecoms firms to make.

1. There are plenty of other Internet VoIP players in the wings if Skype does not continue to challenge.

2. Ebay has the scale to accelerate Skype's development roadmap towards auction-related features without damaging telephony feature plans. Ebay is a very profitable company with deep pockets: it made $379m in q2 on turnover of over a billion. If Skype's telephony features do continue to improve, Ebay's size will also boost Skype's marketing, as Skype's benefits are evangelised to Ebay's 157 million registered users.

Nevertheless this is a courageous move by Ebay. With Paypal it acquired wallets. Its auction business captivates numerous eyeballs. Now it's acquiring users' voices. What next?