The plans to purchase Skype Technologies announced by eBay yesterday make some strategic sense to analysts as more consumers embrace broadband...
CHICAGO — The plans to purchase Skype Technologies announced by eBay yesterday make some 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.
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, America Online (AOL) and Microsoft, said Andrew Belt, a senior vice president at Adventis, a Boston-based technology consultant.
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“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.”
eBay will pay $2.6 billion in cash and stock for the Luxembourg company, and could add $1.5 billion more in cash and stock if Skype’s growth meets certain future goals.
“Those numbers certainly give you pause,” Belt said.
Chief Executive Meg Whitman, said that providing voice communications will make it easier for eBay users to buy goods online.
But there may be a downside to the enhanced communications, said Paul White, chief financial officer of Deltathree, 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,” White said.
Whitman believes Skype will help eBay’s buyers and sellers increase their levels of trust, according to The Associated Press. Moreover, privately held Skype has attracted a broad international following that eBay hopes to leverage, especially in countries where eBay has little or no presence.
Technology that enables voice conversations online, often called Voice over Internet Protocol (VoIP), has already seduced Yahoo, Google and Microsoft. In recent months, each has bought into the VoIP space, although at prices far lower than what eBay paid.
Last month, Microsoft acquired Teleo, a small startup whose Internet telephony software includes features that let users make a voice call by clicking on a phone number appearing on a Web page.
Skype has 53 million registered users, including more than 2 million who pay for its premium services. In 2004, the company generated about $7 million in revenue, which it projects will snowball to $60 million this year.
The general 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 it 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, a Boston-based firm that supplies VoIP equipment and services.
“VoIP is far more powerful than just a phone-service replacement,” he said.
Jacob Guedalia, head of iSkoot, which brings VoIP services to cellphones, 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, the multibillion-dollar price tag still seems high to many.
“They certainly paid a much higher multiple than they paid for PayPal,” said Tim Melton, a Chicago attorney, referring to eBay’s earlier purchase of an online payment service for $1.5 billion.
Information about Microsoft’s purchase of Teleo and about Skype’s number of users provided by The Associated Press.