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eBay's $2.6 Billion Bet on Skype Doesn't Pay Off

Posted by: Rob Hof on October 1, 2007

eBay mystified me and many other people when it bought Skype, the Internet telephony startup eBay bought in late 2005 for $2.6 billion plus a potential $1.7 billion incentive payout. I never did quite figure out the connection to eBay’s main business, but I came to think that Skype could become a good business in its own right. Apparently not so much. At least under eBay.

Cofounder and CEO Niklas Zennstrom is out, though remaining as non-executive chairman, whatever that means. So is cofounder Janus Friis. No surprise there, since they were clearly spending a lot of time on their new startup, Internet TV service Joost, which actually launched today.

But in a stark admission that Skype hasn’t fulfilled eBay’s hopes, the online marketplace says it will take a $1.4 billion charge related to Skype. That’s a combination of a much-reduced $530 million payout to early Skype folks and a $900 million “impairment” charge. Both basically say Skype’s business hasn’t done as well as the original purchase price anticipated. It’s hard to deny that Skype just hasn’t done much for eBay.

What’s next? Given some talk about a partial spinoff of its PayPal online payments unit, which is much more integrated with eBay, it wouldn’t be surprising for eBay to spin off some or all of Skype. Maybe that’s why eBay shareholders don’t seem too worried about the news today.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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