Commentary: eBay's scary Skype purchase

By Maribel Lopez and Christopher Charron

eBay has bought into Skype hype.

The acquisition of the Net phone service provides the online auctioneer with a real-time communications platform, a community of up to 54 million users and the potential to expand into the voice business. But these things don't add up to the $2.6 billion price tag (with the total value climbing to a potential of $4.1 billion). Skype provides no sustainable advantage in the communications or communities arena to eBay.

The acquisition provides eBay with three speculative benefits: access to Skype's global community of 54 million registered users in 225 countries, which may grease the wheels for better international trade; a platform that will add robust voice and data communications to eBay's online shopping experience; and the ability to sell voice services throughout the world. But these advantages won't amount to much.

		Related story eBay to nab Skype for $2.6 billion Auction site hopes to let consumers discuss transactions in real time. But analysts remain skeptical of the high-price deal.

• Skype has no unique value proposition to communities. While real-time communications could benefit auctions, it is not essential to eBay's business. Also, consumers are fickle, and there is no guarantee that Skype users will stay. Skype will be severely challenged by Google, MSN and Yahoo, as they combine content with communications like voice and e-mail. Just to stay in the game, Skype must continue developing features and functions that consumers find relevant, or they will simply switch to Google. Buried in eBay, Skype feature innovation will languish.

• Skype does not have a sustainable advantage in communications. The company pioneered the integration of voice, IM and long-distance calling, but the competition is growing daily, as America Online, Google, MSN and Yahoo have all announced voice services with instant messaging. Skype will be just one of thousands of providers offering cheap voice services competing against cable operators, Internet portals like Google, as well as telephone companies. Even if it does make gains in long-distance service, increased competition will dramatically reduce the revenue and profits Skype can make in voice.

• Skype users are coming at a steep premium. At $2.6 billion, the company is valuing Skype's 54 million users at roughly $48 a subscriber. The problem? It's not clear which portion of these subscribers is truly active and how much revenue they will generate in the future. If Skype's estimate of $60 million of revenue at the end of 2005 is accurate, each user is worth less than $2 of revenue per year today.

Hearing voices
The emergence of companies like Skype and the high price tag that eBay is willing to pay signify a change in the communications market, in which:

• Voice is an application that becomes a value-added component in services. Once thought of only as a discrete service, voice has evolved into an application that can be incorporated into other products and services. Consumers can now have voice functions embedded in their video games, in their online auctions and in their online customer service sessions.

• Any company can, and many will, offer voice. The telecommunications monopoly on voice is officially over. VoIP (voice over Internet Protocol) has eliminated any barriers to entry in the voice market. A move to VoIP means that consumers will be able to buy their voice services from a wide range of companies based on price or brand affinity. Music fans may buy voice from MTV, sports fans may choose ESPN, and others may select a portal like Yahoo. The long-term result will be a wide range of models in which today's high-price flat rate or per-minute models will be replaced with low monthly fees.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.