EBay Pressured to Move on Skype

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eBay's Offerings

More promising are the possibilities of integrating Skype with other eBay properties. The auction site is expanding use of Skype Me! buttons in various auction categories. Limited data seems to show the feature helps clinch sales. Yet, sellers using Skype Me! buttons are "few and far between," because many sellers aren't interested in fielding phone calls, says Keung, who doesn't expect that attitude to change any time soon.

There's also wide latitude for integrating Skype with eBay's online payment service, PayPal. This year, PayPal will become the preferred payment method used on Skype worldwide. And, some time in 2007, Skype will enable users to send money to each other via PayPal, Albert says. That could increase eBay's share of the personal remittances business. Considering the size of Skype's user base (136 million users at the end of the third quarter), this move could hit money-transfer agents and banks hard and result in extra business for eBay.

All in all, though, telecommunications remains Skype's main focus. "We think there's a tremendous opportunity of capturing our consumers' telecom spending," Albert says. Indeed, while small today, the Web-calling business is expected to grow: Worldwide revenues from Voice over Internet Protocol (VoIP)—a fancy name for Web calling—will rise from $1.65 billion in 2006 to $19.1 billion in 2012, according to ABI Research. If Skype keeps its current 12% share of that money, its sales will reach nearly $2.3 billion by 2012. That would certainly be material for eBay, which booked $1.45 billion in the third quarter of 2006.

New Leader Needed?

All of which leaves some analysts wondering: What is taking you so long? "They need to do something soon," says Arden. "If [some big move] is not announced, Skype is going to be seen as a bad investment." Some wonder why eBay hasn't moved to combine its properties, including Skype, to, say, start an online brokerage firm, a social-networking site competing with News Corp.'s (NWS) MySpace, or a video-sharing site like YouTube. Others say eBay could have begun selling its Skype application to more large companies.

Some query whether Skype might do better under a visionary like News Corp.'s Rupert Murdoch, or under Virgin's Richard Branson, says Web-calling expert Jeff Pulver. "If they are not getting all they can out of it, the property is still valuable, they've grown it a lot," says David Prokupek, the founder of Geronimo Financial, which invested in eBay stock as the auction powerhouse's valuation slid. "We suspect Skype is more valuable today than when they purchased it. In this [mergers and acquisitions] market, maybe someone else could do more with it." A spokesperson says eBay has no plans to sell or spin off Skype.

Whatever it does, eBay needs to move soon. A slew of competitors are pushing into its market. Take, for instance, an outfit called Jajah, backed by powerful venture capital firm Sequoia Capital. The company allows for free calling between cell phones—a service that Skype users need to download additional software and to pay SkypeOut charges for (see BusinessWeek.com, 09/26/06, "Jajah's Mobile Ambitions"). It's just the kind of service eBay could make work. "They are pretty creative people," says Donald Yacktman, portfolio manager for the Yacktman Funds, which purchased eBay shares on price weakness last summer. It may just be a matter of putting that creative energy to work.

Kharif is a reporter for BusinessWeek.com in Portland, Ore.