eBay buys Skype
There has been a lot of action in the IP phone business lately. It won't be long before that business explodes and somebody is going to become very rich. Unfortunately for owners of eBay I think the announcement that Skype has been purchased is an opportunity to dump your eBay stock. eBay has a great business. They have cornered the market on a very unique buisness and they have developed a dominant position. A study I saw last week showed the companies which get the most Internet traffic. Most were multi-business companies. For example, Microsoft was #1, but that included MSN, Microsoft.com, MSNBC, etc. Others were Time, Disney, etc. Others were the search engines. eBay stood out to me because it has only one business. Despite that, it still was in the top ten for traffic.
Unlike the excellent acquisition of Paypal, I see nothing in the current business of eBay that suggests there is any synergy between their Internet auction business and telephone services. It is likely one of these businesses, Skype or eBay, will go down the tubes as management splits their attention between two very different businesses. This looks to me like a classic case of a successful business with a lot of cash looking for a new opportunity to get richer and over-reaching into a business they have no special expertise in. In the worst case, the bad business will also bring the good one down. The management of eBay will likely talk about the advantages of diversifying into another business. My favoriate finance professor called this type of acquisition "diworsification." There simply is no track record for this type of purchase to work out well.