eBay: Skype wasn't all that after all

eBay confessed its Skype sins on Monday. The price tag: A $1.
Written by Larry Dignan, Contributor

eBay confessed its Skype sins on Monday. The price tag: A $1.4 billion asset impairment charge, a new Skype CEO and missed financial targets.

A little more than two years ago, eBay bought Skype (all resources) for $2.6 billion in up-front cash and stock and "potential performance-based consideration." Turns out Skype just didn't perform that well.

eBay said in a statement that it will pay $530 million to settle its obligations under an earn-out agreement. The earn-out agreement totaled $1.7 billion based on user, revenue and gross profit targets in 2008. eBay said the payment "is reasonable given the progress and anticipated rapid growth of Skype's active user base." Actually, that growth wasn't rapid enough or eBay would have paid more.

"The implication here is that Skype has not met up to its initial expectations, a point we believe the market has long since discounted into eBay shares," said Citigroup analyst Mark Mahaney in a research note.

Given Skype's results, eBay has revamped management. Out: Niklas Zennstrom as CEO of Skype. In: Michael van Swaaij, eBay's Chief Strategy Officer, as acting CEO until a permanent successor is found. Henry Gomez, Skype's president, will go back to being senior vice president for corporate affairs and report to eBay CEO Meg Whitman.

Update: Zennstrom has fired back at eBay in an interview with Thomas Crampton.

So what's next for eBay's Skype experiment?

Henry Blodget argues that eBay should sell Skype, an idea which makes some sense. Russell Shaw reckons that Skype may be operated more as an eBay division or spun off somehow. More clear is what isn't going to happen. Here's eBay's initial vision from the 2005 Skype announcement:

Online shopping depends on a number of factors to function well. Communications, like payments and shipping, is a critical part of this process. Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles.

The acquisition also enables eBay and Skype to pursue entirely new lines of business. For example, in addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype. Pay-per-call communications opens up new categories of ecommerce, especially for those sectors that depend on a lead-generation model such as personal and business services, travel, new cars, and real estate. eBay’s other shopping websites — Shopping.com, Rent.com, Marktplaats.nl and Kijiji – can also benefit from the integration of Skype.

That vision just didn't pan out.

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