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Ministry of Innovation / Business of Technology

eBay’s Skype: what went wrong, and who can fix it

Skype has disappointed eBay and its investors on many levels. Bad luck, …

Freshly-anointed eBay CEO John Donahoe, answering questions on the company's earnings call last Thursday, dropped hints that it's time for Skype to show some value or else go away.

The next step

2008 will be a year of "testing synergies" between the online voice and video communications service and other eBay operations such as auctions and PayPal payments. Expanding on those comments to a Financial Times reporter, Donahoe explained that "If the synergies are strong, we'll keep [Skype] in our portfolio. If not, we'll reassess it," and possibly sell the unit.

That would be one way of reclaiming some of the capital—cash, intellectual, and street cred—that eBay has squandered on Skype so far. The acquisition ostensibly cost $2.6 billion back in 2005, but certain performance targets were not met, and the final tab ended up being $1.1 billion or thereabouts.

Skype founders Janus Friis and Niklas Zennström have moved on to video-streaming pastures in Joost. There went the creative force behind Skype, and the service itself looks eerily similar to the circa-2005 version. In other words, there's not much going on here.

What went wrong?

The original idea behind this ill-fated acquisition was that adding a leader in PC-based voice calls to online auctions would boost communication between curious buyers and nervous sellers, ultimately adding value to the company's core operations. More information begets more trust, which then leads to more completed transactions, goes the theory.

I suppose it could have worked, but that would have required an effort from the various management and engineering teams involved. Heck, call up the marketing department, too. Unfortunately, there never seemed to be a whole lot of that action going on. eBay seems to have bought Skype and set it on auto-pilot (destination: nowhere) almost immediately. 

Go to today and look around, and you'll find Skype getting equal billing to low-profile or low-profit luminaries like karmic micro-investment service MicroPlace and semi-social bookmarking application StumbleUpon. Those are hardly revenue or profit drivers for eBay in any meaningful way. Perhaps the Skype contact option would get more play if people actually knew about it, and if eBay spent any time promoting it while also considering Skype's flaws.

Likewise, you could spend hours on or the application itself and never know that eBay somehow stood behind it. Yes, you can send PayPal payments to Skype contacts, which is swell, but that option hardly smacks you in the face when exploring either one of the corporate cousins' sites and services. The message should be clear: eBay's leadership never saw fit to aggressively bring the two together. 

Even a couple of quasi-discreet "call me now" and "send a few bucks" icons in strategic locations could make a world of difference, at very little engineering effort or cash cost.

And for the love of money, could eBay please put some domestic marketing muscle behind Skype? Here in the States, I wouldn't call Skype a household name outside the usual geek circles, while everyone knows about eBay. In places like China and eastern Europe, the situation is reversed. My Luddite old mom back in Sweden uses Skype for all her long-distance calls, for example. eBay has squandered this opportunity in the US.

Who would buy this thing?

If eBay is unwilling to push the integration points with Skype much harder (I don't think that it's unable to do it), then it would make good sense to look for a buyer for this hunk of virtual deadwood. The service comes with solid technology and 309 million users worldwide that made a combined 15.9 billion minutes (30,200 years) worth of calls last year.

Facebook would clearly love a piece of that action, but could hardly afford it without a serious cash infusion from somewhere. MySpace, with the financial heft of News Corp., could buy it, but I'm not sure that the management team there appreciates the potential power of such a hookup. The social networking guys are focused on marketing right now.

Google has deep pockets and could link Skype into its Google Talk platform, which would be a serious upgrade to that user base. Microsoft has the cash, the rival chat-and-talk network, and the acquisitive history to make a credible buyer, but is also way too occupied with the Yahoo deal to make a move today. Yahoo itself could pick up Skype to build its corporate image a bit and thereby encourage a higher bid from a suitor like Microsoft, but should probably think bigger in that case and try a wholesale merger with eBay.

Barring any dark horses around the bend, then, Google sounds like a likely future Skype owner unless eBay CEO Donahoe does what Meg Whitman never did and turns the ugly duckling into a beautiful and valuable swan somehow. But given what eBay hasn't accomplished in the last couple of years, we won't be surprised to find Skype publicly on the block (privately, it already is in many ways).

In closing, recall that Google is well suited to run a VoIP company like Skype. Their current Android cellphone platform, coupled with their acquisition of GrandCentral, sets them up to make bold and interesting moves. But they can likely make those moves without Skype, and may be unwilling to pay much for it as a result. There's no doubt, however, that Google could fix many of Skype's woes

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