From chicagotribune.com >> Technology
Auction giant seeks to gain ad revenues
By Jon Van, Tribune staff reporter. The Associated Press contributed
to this report.
The purchase of Skype Technologies SA by eBay Inc. on Monday
makes strategic sense to analysts as more consumers embrace broadband
services on the Internet.
But the price tag -- which could top $4 billion in cash and stock --
seems spectacularly high for an Internet telephony service that mostly
gives away its software. The software allows people to talk for free
over the Internet.
San Jose, Calif.-based eBay is positioning itself as a commercial
portal with a broad suite of services to attract users rather than
sticking to its origins as an online auction site. It wants to become
more competitive with the likes of Yahoo, Google, AOL and Microsoft,
said Andrew Belt, a senior vice president with Adventis, a
Boston-based technology consultant.
"This isn't about generating revenues from voice service," he
said. "It's about helping [eBay] tap into the advertising and
transaction revenue streams that Google and Yahoo enjoy."
To acquire the Swedish-based Skype, eBay will pay $2.6 billion in cash
and stock now and could add another $1.5 billion in cash and stock if
Skype's growth meets certain future goals.
"Those numbers certainly give you pause," said Belt.
Meg Whitman, eBay's chief executive, said that providing eBay's users
with voice communications will make it easier for them to buy goods
But there may be a downside to the enhanced communications, said Paul
White, chief financial officer of Deltathree Inc., a New York based
Internet phone service. "When buyers and sellers talk directly with
each other, you may see more of them going around the system and
making private deals that avoid paying eBay's commissions."
Technology that enables voice conversations online, often called voice
over Internet protocol, has already seduced Yahoo, Google and
Microsoft. In recent months, each of the online giants has bought into
the VoIP space, although at prices far lower than what eBay paid.
The public is still baffled by VoIP. A recent survey by Harris
Interactive commissioned by Verizon found that 87 percent of
respondents didn't know what VoIP was. Twenty percent thought it was a
European hybrid motorcar and 10 percent said it was a low-carb vodka.
Confusion may arise because people try to think of VoIP in terms of
traditional phone calls, when it is really more akin to a voice form
of e-mail or instant messaging, said Terry Manning, sales vice
president of Zoom Technologies Inc., a Boston-based firm that supplies
VoIP equipment and services.
"VoIP is far more powerful than just a phone service replacement," he
Jacob Guedalia, chief of iSkoot, a company that brings VoIP services
to cell phones, said "voice used to be an infrastructure service, but
now it's a software application. It's become a logical extension of
every Internet portal, whether it's Yahoo, Google, AOL or whatever."
Internet phone service is driving down the price of voice service,
said Raul Martynek, chief of Eureka Networks, a provider of telecom
services to businesses.
"We offer VoIP today," Martynek said. "It's part of a package of
services. Large carriers are offering voice in bundles at a point
where it's nearly free. It's happening right now."
But even granting the new technology's value and the branding power of
Skype, which had more than 30 million unique visitors to its Web site
in July according to comScore market research, the multibillion-dollar
price tag still seems high to many observers.
"They certainly paid a much higher multiple than they paid for
PayPal," said Tim Melton, a Chicago attorney with Jones Day, in a
reference to eBay's earlier purchase of an online payment service.
Whitman compared Skype with the 2002 purchase of PayPal, the online
payment company eBay bought for $1.5 billion. Before buying PayPal,
eBay unsuccessfully tried to compete against it with Billpoint, its
own payment company.
"We worked hard to build up Billpoint," Whitman said. "In the end,
PayPal had the technology lead, they had already built the
ecosystem. Skype is in the same position. It has a global footprint
and is already a well-known brand."
One analyst said he sees the value of value of voice capability and
the premium paid for Skype's brand, "but how this supports this price
isn't readily apparent, " said Ranjan Mishra, a principal with
The high price did please some people in the Internet phone business.
"I'm delighted by the valuation," said White. "My company is in the
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