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When I first heard this news, I was as surprised as most of you would have been. It was only 4 years back that eBay were vociferously defending their decision to take Skype on-board. The CEO back then, Meg Whitman ,took pains to explain how Skype fit into their traditionally e-commerce business.This was done  in order to pacify eBay’s shareholders and the baffled bystanders. That paints an entirely different picture if you take what the current CEO, John Donahoe, said about the rationale behind letting go of a major stake in the Skype pie.

THE  STORY THAT WAS:

• eBay struggles to convince shareholders on Skype acquisiton
• Equates the deal to the PayPal acquisiton in 2002
  
• Skype is projected to bring in $60 mn by 2006

Before we start dissecting the reason behind the potential sale of Skype, lets understand the rationale behind eBay’s acquisition of Skype. eBay has been among the top three players in the web space competing with the likes of Yahoo and Google. What were they competing for? Eye balls, Obviously! eBay sensed the heat building up when Yahoo and Google entered the online phone market with a bang.

There was a furore over why eBay chose to move out of their traditional e-commerce domain and enter the communication market, where they had very little expertise. This move even angered a few sellers on their site, who complained that providing a ’personal’ touch through voice service, would be an additional cost to them in terms of a resource who handles these calls.

The cost, $2.6 bn, was another deterrent in their attempt to downplay the controversy the acquisition was making. The reason given by EBAY was quite simple, to tap the growing markets in Eastern Europe and Asia. They believed that people in these countries preferred a more ‘hands-on’ approach to buying off the net than their western counterparts. Using Skype’s brilliance in web-based voice tools, they wanted to leverage this opportunity.

In addition to all of this, Meg Whitman constantly compared the Skype deal to the PayPal deal that they had made earlier. This obviously meant that eBay infact believed that Skype was as much a part of eBay as PayPal was. It is quite hard to understand how the two expansions can be equated considering how far off Skype, as a product, is from the e-commerce business.

To cut the long story short, despite all these difficulties eBay managed to add Skype to its kitty. Typical end to a heroic story. Now, after all the energy spent in fighting to keep Skype, what has suddenly changed in the eBay camp prompting them to give away their prized possession?

Lets look at some facts before we head to the ‘Why offload Skype?’  question

FACTS AND FIGURES :

Revenue Generated by Skype : 170 m $ *(25% increase from last quarter)

eBay’s total revenue – 2.1 bn $ * (5% decline from last quarter)

 

THE STORY AS IT STANDS TODAY:

• eBay sells 65% of its stake in Skype for $2.75 bn
  
• Blames lack of ‘Synergy’ for change-of-heart
• eBay’s revenue is on the way down

The figures are quite self-explanatory about how Skype did when eBay as a whole was on the decline. This for sure removes the foremost doubt in everyone’s mind about Skype’s profitability being the reason. That leaves us with one question hanging in the air, why would eBay want to get rid of a profitable portion of its business when its revenues are actually on the decline?  We can only speculate, unfortunately . Firstly, the reason being given by John Donahoe, that Skype doesnt ‘fit’ into the scheme of things at eBay is all farce. That is ,at the most, just a weak attempt to cover up for their misfortunes.

Secondly, a lot of buzz is around eBay being caught in a legal wrangle with the founders of Skype over the ownership of the technology behind it. eBay allegedly tampered with the underlying code and thus breached the agreement that had been reached upon by the two companies. Joltid, the company behind the backbone of Skype, waged a legal battle threatening to cancel the license for using Skype. Without this, Skype would be virtually useless to eBay. The only way out for eBay would be to build its own software to run Skype, which I believe is not something any e-commerce company, in its right mind, would be willing to do at the cost of an already flagging revenue.

Logically this seems to be one among the myriad of possible reasons behind a complete turn-over in eBay’s attitude towards Skype. As I write this, eBay has officially confirmed that they are selling Skype to an investment consortium.The terms of the deal haven’t been made public yet.

What does the future hold for eBay and Skype? Will eBay manage to turn its fortune around? What will this deal translate into for Skype? These are some of the questions bothering me as well, and as you go ahead and chew, swallow and digest my opinion, I do some crystal ball gazing to get you more grub on this.

Do watch this space for more!

* All figures mentioned are for the quarter ending June 30th 2009

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Tags: acquire, acquisition, buy, eBay, loss, offload, PayPal, profit, sell, share, shareholder, Skype, stake