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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


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Download Skype and up to 10 minutes of free call anywhere in the world
posted by Ruby @ 7:41 AM  
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