Thoughts and Riches

.....a blog about personal finance, motivational stories, deals, and special offers

Books

Web Domain Registration

Wednesday, October 03, 2007

eBay/Skype - a failed combination?

This week, eBay announced that it will take a $1.4b write-down for its acquisition of Skype which it had purchased in 2005 for about $2.6b. As mentioned in one of my previous posts, I am a big fan of Skype and like its phone service. Earlier this year, we paid about $30 for the entire year of unlimited long-distance calls within US and Canada. Not surprisingly, my parents also love Skype since now I call them daily without disconnecting half-way through the conversation to save money.

However, from the business perspective, I found Skype’s price down right cheap, especially since most of its competitors charge $20+ per month. So it didn’t come as a surprise to read that eBay was having problems monetizing Skype successfully which ultimately, resulted in this whopping write-off.

Based on what I have seen so far, most M&A don’t pan out for a variety of reasons, chief among them being that most acquiring firms overpay the premium for the acquisition of the target firm (which of course, is great for the shareholders of the target firm!). They often overestimate the potential synergies from the combination of the two firms but in most cases, the estimated cost savings or revenue increases fall short of what is expected. In addition, the departure of key executives and employees of the target firm, differences in the cultures of the two firms, problems with integration, and other such factors also contribute to the failure of many M&As. In eBay’s case, another problem was that the business models of eBay and Skype were quite different even though both companies operated in the internet technology segment. Comparatively, Microsoft’s acquisitions of Great Plains, and Oracle’s acquisition of Peoplesoft seem to be going fine so far (at least that's what appears to me), as the target companies complemented the business models of both Microsoft and Oracle.

Anyways, from personal perspective, it will be interesting to see what changes eBay makes to Skype. Will eBay try to increase the rates for Skype or will it try to divests itself of Skype? Also, will be interesting to see eBay's approach towards Craigslist which like Skype is very popular with its users yet the platform is free for most postings.

For related articles, see:

CNNMoney.com: Can't anyone make Internet phones pay?

Yahoo.com: Skype's Missed Call

Bookmark: del.icio.us Digg reddit Furl NewsVine Spurl

Download Skype and up to 10 minutes of free call anywhere in the world

posted by Ruby @ 7:41 AM

0 Comments:

Post a Comment

<< Home

See important Disclosure and Disclaimer

Favorite Quote

"If you look at what you have in life, you will always have more. If you look at what you do not have in life, you will never have enough".
- Author Unknown

Disclosure

This site uses cookies from companies like Google and others to enable the companies to deliver their services, personalize their ads and product offerings, and for traffic analysis. Information about your use of this site is shared with these companies. By using this site, you agree to its use of cookies. Additionally, this site, including blog posts, may contain reviews, links, banners, text and other forms of advertisements for products, services, courses, and so forth of companies of which we may be an affiliate member or for which we may get paid for referrals. This site may also contain blog posts for which we are paid, as well as blog posts regarding products or services of companies from which we may have received complimentary products or services.

Reward Surveys/Panels/Shopping/Contests