SkypeBay done for $4.1 Billion.


Update: So the deed is done – $4.1 billion. EBay will pay $1.3 billion in cash and $1.3 billion in stock for the online communications company. It will make a further payout of up to $1.5 billion if certain financial targets are met, Reuters reports. Charlie Sierra calculates: “So at 50m downloads, that’s $52/download, or $26 In CASH per download.” Downloads, are the new “Pageviews” it seems! ;-) Also that works out to about $20 million/Skype employee – which is ten times what Cisco paid at the top of the bubble when it bought companies.

A few quick thoughts before I get to a long analysis. It is a tactical admission that the fraud on eBay is so huge, that the company had to spend considerable amount of dollars to do something about it. I don’t think, Skype will be the white knight for eBay – which has been facing executive exodus and general loss of market momentum. I mean, if you can put up a website, and buy Google adwords, you are taking eBay out of the equation. Will SKype help prevent that shift? Not sure, it will.

A few months ago, I wrote, Mr. Metcalfe Meet Market Reality – a piece that highlighted that eBay’s natural growth days might be over. This is proof the company, which is floundering a bit, is looking for new markets. I don’t think this is as much about voice as it is a quest to get a new set of users. Also what does it say about eBay – the company that buys Skype after Yahoo, Google and others had passed on it?

Stock Markets don’t like the fact that the deal will slice a “cent per share” off eBay’s earnings about a cent per share until the end of 2006, adds Reuters. Stocks down 1.81 percent to $37.93 after skidding 4% last week when the rumors first emerged. Still big up to Skype investors – Mangrove Capital Partners, Draper Fisher Jurvetson, Bessemer Venture Partners and Index Ventures – especially DFJ who have hit a “Barry Bonds” style homerun with this sale.

Here is Andy, Jeff Pulver, Jon Arnold and Mark Evans take on this. James Enck’s succinct summary is a must read.

Business Week reports that EBay is hosting an investor call at 5 am pacific time tomorrow morning – which they call unusual. Is this the eBay-Skype announcement? FT has a story saying the deal is in the works for $4 billion or change. “Honestly, I still don’t see the logic at anything near that price, but it could be we’ll find out shortly what eBay has up its sleeve,” writes BusinessWeek’s Rob Hoff. Me neither – it is a strange acquisition, if that indeed is the case. Yet another proof, in SV there is a sucker on every exit! More of my opinion, and what others think!


chris holland

i’m really not much of business guy, so bear this in mind as a big fat grain of salt with what follows.

I’m trying to understand why eBay would buy Skype as a “platform”? I can see why eBay would be attracted to the myriad of Skype users. But the platform itself? Come-on.

If eBay was interested in building out a VoIP conferencing platform for its members, it might as well have built out its own SIP-based platform, it really isn’t all that hard, or bought out one the emerging SIP-based players, such as Robertson’s Gizmo Project. As a technology investment looking out for the future, SIP is far more elegant *and* promising with viral interoperability, than Skype’s hodge-podge of proprietary technologies, to which it happens to expose an API. You don’t need an API when you deal with open protocols. SIP is an open protocol and works with a set of open protocols. The Skype API is the result of their realizing late in the game that they needed to interoperate to stay alive. They do have a huge critical mass of users. They’ve got a very good *product* that works insanely (for some level of insanely well) well within the confines of its ecosystem. But do they really have a compelling *platform*? Is eBay really going to be able to build anything useful *on top* of Skype?

Jesse Kopelman

I think Charlie Sierra is absolutely correct. By bunding Skype eBay further sets itself apart from anyone wishing to encroach on its core business. The cost of entry to get into the online auction business has just increased, as you now have to offer something as good as Skype to compete on a level playing field with eBay. That factor alone significantly increases eBay’s NPV. In addition, tight integration between the Skype client and eBay’s auctions may lead to an increased usage of both services. For example, what if the Skype client had tracker functionality for any auctions the user were participating in? A good reason to always have Skype running if you are already an eBay user and a way to get more out of eBay if you are already a Skype user. If one is a heavy eBay user, he will get a lot of exposure to using Skype and this will be better marketing than what Vonage has spends hundreds of millions on anually.


i think what skype said, that got turned back
into registered users again, is that they had
50+ million names registered. (the caveat
is how many distinct parties)


its not the voip nor just the users. its the desktop presence. ebay is the only mega internet player without one.

Henrik Torstensson

Basically nitpicking, but Skype has been downloaded 150+ million times. Skype has 50+ million registered users. So eBay is paying 52 dollars per registered user, or more likely circa 100 dollars per active user.



Can you please tell me on what basis do you say that Skype, Vonage et al are illegal? The recommendation put out by TRAI makes it clear that end-to-end VoIP and interconnecting to PSTN outside the country by any one are legal. Even interconnecting to Indian PSTN can be done under a license. So it will be useful if you can provide legitimate reference to your claim.


I dont understand why people are speculating that ebay bought skype to just add voice cababilities to auctions .If they wanted to do it they could have developed the technology inhouse or heck buy some small voip company for a few millions.

I think eBay paid mainly for the brand and the network skype brings… Is 4.1 billion a bit too much ?, i dont know only time can tell


Huge assumption that Yahoo and Google “passed on it”. I am not quite sure that was the way the story played out here…

Noel Guinane

Maybe eBay overpaid. Maybe not. What matters more is the potential ROI and I think it’s huge.

eBay skims pennies. I’m betting offering the option of voice access between buyers and sellers is going to become a part of those pesky little fees eBay are masters at applying. And I’m also betting that there are other revenue opportunites we can’t see at the minute that eBay understands clearly. They aren’t buying Skype only to offer a more convenient service to their existing user base. They’re doing it to make money and believe they can.

Maybe they should have purchased Xten, a public softphone maker, who they could have had for a few tens of millions. Heck they could have paid double that company’s market cap and still received a good deal. Partner with a service provider, and take a penny or two off the traffic generated with eBay’s universe and voila!


This deal reeks of the bubble. Like ebay’s other stupid purchase, for 690 million, this is a way way overvalued deal. That’s a metric ass load of cash they put on the table for skype. What’s the justification?

Ebay will look to introduce skype to paypal, ebay and its related services as time goes on. So why are investors worried? Competition is tough in the US VOIP market and to introduce skype to its emerging markets, it will have to mess around with the murky politics and state owned long distance telephone operators. For eg, in India, skype, vonage,xyz are not legal. How will ebay be introduce this in India legally? Any answers?

Brian Breslin

so does this mean ebay powersellers will have to hire their own call centers to answer their new volumes of skype calls?

speaking on skype w/a seller isn’t going to prevent them from lying to you. (unless we come up with skype-lie detector plugins ;-) ). I mean people lie to each other’s faces all the time. although if the guy speaking to you over skype claims his name is john smith from utah, and he can barely speak english, that might be your tip-off that he’s a crook…


You are correct. They got a lot of Kazaa coattail, but they created Skype on its own merits, not on Kazaa. We got to give them credit for the good job they did. They did things that others didn’t. For one, they took Gips and ran with it. MS, AOL, Google are following. Skype led.

Jon Gales

Rick: After Skype was launched it was marketed as the new thing “From the Kazaa team” and it was how many many earlier adopters found out about it. I found out about it the day of launch because of its association with Kazaa. There is actually a big synergy between the two usergroups (free PC-to-PC VoIP and P2P). I wonder what percentage of Skype users have never downloaded Kazaa… I bet only a small share (like yourself and other VoIP gurus).


Ever heard of Webex/NetMeeting? Skype can be the WebEx like meeting & conferencing platform for Ebay sellers and buyers. If I am a Ebay seller, a WebEx like platform is difficult to afford. Ebay can sell this technology to its users to demonstrate the products, provide support and direct marketing across the world. It can even position them as B2B and not just B2C. This service doesn’t have to be free as many are speculating.


No, we can’t say that. I don’t know of many people who associate Skype with Kazaa when they need to call someone and save money. Could we say that Gips had a big factor in the success of Skype? Yes, as you said, Voip has been around for years. But it wasn’t until Skype took the Gips technology and created a monster with it.

Jon Gales

Now that we know it’s eBay, could we say that the Skype founders have ridden piracy to billions of dollars of profit? Skype became popular not because it was an original idea (regular IM clients do voice-chat and Net2Phone did PC-to-Phone calling years before Skype was a dream) but because it was decent software being promoted by the Kazaa folks. What better way to pimp software than by promoting it with one of the most downloaded software packages ever?

Kazaa was only popular because of the piracy, people even stuck with the spyware because of all the free copyrighted content. And since I believe Skype only got popular because of Kazaa, Niklas Zennström and Janus Friis have ridden piracy to billions in profit. Not bad!


How about $2.6B in cash and stock. Wow! What happens when an open source equivalent of Skype comes around?

Isaac Garcia

This is strategic and defensive.

They can’t afford to let YHOO or GOOG dominate a segment of the internet that they might need to leverage in the future. The specifics of those needs don’t need to be fully thought out by eBay. They just know that they can’t afford to miss the boat.

And, for that, eBay will pay billions for Skype. If they don’t, they will end up losing billions in the future.

God forbid that eBay miss the VOIP boat and have to rely on Yahoo or Google as a partner to provide VOIP service/integration.

Charlie Sierra


I just though of a new valuation metric:
$$$/download (hey its 3am and I’m abit punchy, vbg)

I just now read the article and price as reported is $2.6B, half cash (which is pretty bold).

So at 50m downloads, thats ~$52/download, or ~$26 CASH/download.

The thing is, Skype was always designed from the get-go with voice being just another software application, but what’s different with Vonage/SunRocket/Comcast/Verizon/etc is the open API and the vision that subscribers would buy a bundle of software services, not merely different commodity pipes.

Compare this vision with the RBOC/MSO’s triple/quad-play strategy which basically bundles different pipes, all of which just push bits in the end.

Charlie Sierra

Look we may quibble about the actual price, but the fact is that skype does indeed have a VERY, VERY, VERY valuable asset.

Secondly, an Ebay purchase makes helluva alot more sense than Yahoo, Murdoch or even Google.

If the above is not intuitively obvious, allow me a few more hints.

Who does eBay do business with? Who does their PayPal product do business with? Thousands and thousands of sellers, and millions of buyers. That my friends means super low CPGA and churn, and greater levels of integration/service for all eBay partners. Plus, to paraphrase ZZ-Top, skype is world-wide.

The deal to buy skype, if that is indeed what the CC is about, is no-doubt predicated on three things:
1) The actual NPV of skype sometime into the (near?) future, which is much less than $4B.
2) The tie-in benefits, etc. with its core auction business.
3) The tie-in benefits with Paypal.

Ebay already has an internal ARPU figure for each tier of major repeat sellers. Question is what’s the NPV of boosting just that eBay ARPU another $5-10/mo in cashflow and greater lock-in, or as Buffett would say a wider moat. Whats the value of grabbing a some subscribers from the millions of buyers…

PS. This is most definitely a STOCK deal, no way Meg’s board will allow her to dump $4B of cash, so that alone is a huge mitigating term.

The only question I have is: Why isn’t Bezo’s in on this action? Think of the recent explosion of used book sellers who piggyback on top of

Is Amazon asleep at the wheel? Jeff wake up, buddy.

Jon Gales

If this is Skype….

Did someone call Mark Cuban in for some deal making? Who else could sell a company with hardly any assets or revenue for multiple billions? I just typed into FireFox and what did I see? A redirect to There is nothing left.

I think that goes down as the most expensive redirect ever–$5.7 billion.

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