When online auctioneer eBay announced its intentions last week to buy Internet communications services provider Skype in a potential $4.1 billion deal that will consolidate three of the biggest Internet brands -- eBay, PayPal and Skype -- under one roof and eliminate e-commerce "friction," the questions began.
What, people are asking, is the rationale behind the acquisition, and isn't $4.1 billion a bit steep? After all, it takes some imagination to see how eBay's e-commerce activities -- auctions and payment systems -- will be combined with Skype, a Voice over Internet Protocol (VoIP) and PC-to-PC calling company that has signed up 54 million users globally in a little more than two years.
Under the terms of the deal, eBay will pay $2.6 billion in stock and cash plus "potential performance-based consideration" that could make the deal worth $4.1 billion over time. The acquisition of Skype is eBay's largest ever (PayPal is the second largest at $1.5 billion). With Skype, eBay gets a way to enter the voice communications business, integrate Skype with its auctions and payment systems, and deliver sales growth. Skype gets the resources to compete with rivals ranging from Google, Microsoft and Yahoo to Verizon, Vonage and SBC.
"We have evolved over the years and our goal is to grow faster than [the rate] of e-commerce," said eBay CEO Meg Whitman on a September 12 conference call with financial analysts.
While that goal sounds fine, Wharton professors are struggling to nail down the reasoning behind the deal. "I understand it from the Skype perspective," says marketing professor Xavier Dreze. "Skype gets money and more visibility. It's less clear for eBay." Business and public policy professor Gerald Faulhaber was more direct. "I don't understand it at all," he says.
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