A possible vision behind Ebay’s acquisition of Skype?

skype.gifIt was announced in a big marketing splash: eBay will buy Skype. The business analysts were perplex, the Skype consumers surprised. Why in the world would an online auction company acquire an online communication service provider?
Market studies, social and behavior trends studies were certainly conducted by Ebay in order to make the move. The reporting of these findings did not make it in the media, maybe by choice from Ebay, to not release information to competitors.

Per Richard Waters and James Politi, from the Financial Times, Ebay, as a network that links many private buyers and sellers around the world, already acts as a giant communications company, handling millions of e-mails a day; though it does not have a real-time communications network to let its users contact each other to agree deals or settle disputes.
The auction company’s executives justify the purchase by saying that adding a voice calling feature to its existing online network will allow it to charge fees to merchants for generating sales leads. The $2 to $3 million price tag seems high, with this insufficient justification. Would there be another vision, based on possible social behavior scenarios?
People are already communicating over the internet with email, chat and conference capabilities. The penetration of PC/Macs at home in the Western world is about 75% and at work 98%. What if you would enable buyers and sellers to communicate live over the internet, and have them negotiate their deals? Would it increase the chance of closing transactions?
In the late 90’s, when the streaming media technology appeared on the market, we were all dreaming of its endless applications. We would envision free and on-demand view of any show for anybody, anywhere. We could broadcast a live concert and have, simultaneously, online fundraising for causes. We would bring together people to share knowledge and experience. Professionals in the industry also developed business plans for re-known auctioneers: we could broadcast live auctions, available by subscriptions over the internet, and have people make bids from all over the world. This business model never materialized because the cost of technology then was too high. In addition, the consumer market was not ready for broadband.
Today, e-commerce companies see their market maturing, technology is more affordable and high-speed connection has a broader coverage. Skype does not use video yet but only audio, which requires less broadband width. Ebay might be very reasonable with its plans: it is going one step at a time. In less time that we realize, it might bring video features in live auctions and for the sales of any good or service.
With that vision, we would go full circle. One would be navigating live, on a market. There would be deals between sellers and buyers, negotiating, bargaining. Do you have a sense of déjà vu, from your local farmers’ market (increasingly popular) or from visiting the market place of any rural village, the parking lot of used cars on Sunday or at the bazaar in Arabic countries? Ebay’s market might be open 24 hours a days, worldwide, accessible to all and alive!

2 responses

  1. I think the biggest issues with this purchase are:
    • The purchse price is ridiculously overpriced
    • It’s not clear that voice2voice interactions will aide auction sales
    The first is based on the fact that Skype currently doesn’t target (nor promote) buyer/seller interactions. So, while they have a lot of cutsomers, these are not the same customers that are, necessarily, valuable to Ebay. Next, this technology is simple and could be replicated by a small team (3-5) of developers quickly (3-6 months). Since Ebay could deploy it to their customers immediately, and the development and even promotion costs to themselves would be under $1M, spending $2.6B on Skype is both insane and reckless.
    Secondly, one of the things that has made Ebay successful is their ability to offer people all over the world (in all time zones) acces to locally available goods. They’ve shown no evidence that requiring or allowing time-synched communications will improve sales in any way. It may be plausible but they haven’t shown any evidence to support it.
    I understand your analogy, Maryline, to the live realtime market but I don’t think this translates well to telephony. As you’ve stated in our Communications class, telephony is a medium that restricts sharply non-verbal communication, something that is not only evident but a big part of face2face negotiations, whether in a market stall or on a trading floor. I don’t think that v2v is going to be enough to make this work across the world for Ebay buyers and sellers, especially with the current dismal state of VOIP communications (cheap but completely unreliable).

  2. I agree with you Nathan that a real time market does not translate well over an audio-medium. I also believe it is just a question of time before Skype/Ebay offers video capability. The technology is similar to the audio, you just need larger servers to carry more data and eventually, you will need more broadband spread in the general public. Companies like Akamai Technologies who I used to work for, or Real Networks do this very well for their BtoB customers. Personally –and I know many people who do the same- I launch my webcam via Yahoo or MSN, while using Skype for the audio and talk and see live my speakers. I feel pretty close to them. A couple years ago, we were broadcasting live auctions over the internet with a platform that would allow bidders to participate from distance. The business model was not profitable then but I believe that, with the spread of the technology, it will become a profit center in the near future. Take a look at what is happening in the online gambling business and games like pokers: a gold mine.
    Regarding paying too much money for Skype, I would imagine that its huge customer base (about 2 million people online at any given time) has a strong value even if, like you said, they might not currently be of the same value as Ebay customers. Skype is very strong in Europe so it might be a strategic move for Ebay to penetrate this market faster? The value of a company is also based on its potential for PR and promotion. In 1999, financial analysts said that Yahoo paid Mark Cuban’s company: broadcast.com too much money. They did not take into account the formidable promotional tool streaming media would become.

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