eBay agrees to buy Skype, but why?

It was only a couple of weeks I wrote of Skype's need to 'get on with it':

"ZDNet and WSJ are reporting that the VoIP firm Vonage is planing an IPO to raise $600m, after having raised $400m with VC cash.

If this is true and works out, Skype will need to make its move soon. Either by its own IPO or by acquisition. What seems odd to me in all this is how the Telcos have stood around and watched this players move in on their turf. Of all the possible suitors mentioned for Skype (usual suspects include Google and News Corp) I never hear the likes of BT or AT&T making their play. I don't get it."

Well, turns out it wasn't any of the telcos or the 'usual suspects' that would become Skype's suitor but a complete outsider - it is eBay that has agreed to buy Skype for $2.6bn.
But why does eBay want Skype?

The speculation can end now regarding how much revenue Skype was making. According to PC Pro Skype financials showed revenues of $7 million for 2004 and expects $60 million for this year - the first full year of its paid-for services. Its guidance for 2006 is riding at $200 million revenues. That's healthy growth...so eBay have roughly valued Skype at 10 times next year's revenue...BBC reports Skype has 53 million registered users and says more than two million people are using its software at any given moment.

eBay and Skype CEO's are spinning their yarn...From the BBC report,

""Communications is at the heart of e-commerce and community," said eBay chief executive Meg Whitman.

"By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in internet voice communications, we will create an extraordinarily powerful environment for business on the net."

The company said the move would "strengthen eBay's global marketplace and payments platform, while opening several new lines of business".

Skype chief executive Niklas Zennstrom, who will join eBay's senior management team, said the deal would help "revolutionise the ease with which people can communicate through the internet".

The analysts have mixed reactions. One low opinion of the news at TheStreet.com:

""If eBay was considering whether to make this move, it would be a not-so-subtle admission that growth is slowing," Hoefer & Arnett analyst Marty Pyykkonen said Thusday. He has a reduce rating on eBay.

After a decade of rapid growth, eBay has stagnated. Now, with a $2 billion pile of cash and short-term investments, the San Jose Net auctioneer seems to be looking for some new direction."

Another article, also at TheStreet is more bullish about the deal:


"eBay's last major acquisition, its purchase of PayPal, directly facilitated the service it offers on its auction site. Although companies often pay lip service to the word "synergy" when making an acquisition, it's hard to think of a more synergistic play than an auction site buying a company that makes purchasing easier.

Buying Skype, however, would be the first purchase by eBay that opens up an entirely new revenue stream -- pay-per-call Internet telephony. Similarly, Microsoft last week bought Teleo, a small player in VoIP, and Google with its new Google Talk service, allows a degree of telephony, albeit only at the computer-to-computer level right now. With Google and Microsoft, however, there are more synergies through which people can use their phone to conduct searches, play games and use other services offered by both companies."

It will be interesting to see how all this play out...

Updates Sept 05:

Update I Om Malik provides his take.

Update II Simplicity blogger shared his views on the matter in 'Why ebay bought Skype'