EBay to acquire Internet communications company Skype

Monday, September 12th 2005, 9:42 am

By: News On 6

STOCKHOLM, Sweden (AP) _ Online auctioneer eBay Inc. agreed Monday to pay at least $2.6 billion for Internet-telephony company Skype Technologies SA, a deal that confounds many analysts not just for the lofty price tag but also for what some consider the companies' dubious compatibility.

The total value of the deal may climb to $4.1 billion based on whether Skype meets a series of performance targets over the next three years, San Jose, Calif.-based eBay said. It said the acquisition would create ``an unparalleled e-commerce and communications engine'' for Internet users worldwide.

Low-cost Internet phone providers like Skype are creating upheaval in the telecommunications industry. That's because Voice over Internet Protocol technology, or VoIP, breaks calls into data packets that get routed over the Internet, which is much more efficient and cheaper than the traditional circuit-switched phone system.

Skype gives away software, lets people talk for free over the Internet using computers and microphones. A paid version, SkypeOut, allows those calls to be connected to regular phones.

Some analysts have been skeptical about eBay's needs for a VoIP provider.

EBay buyers and sellers can communicate with each other via e-mail before a transaction is complete, and presumably Skype would give eBay a way to add voice to such chats. eBay traditionally has been guarded about such communications out of fears that deals might get taken offline to avoid fees.

EBay said Skype would ``strengthen eBay's global marketplace and payments platform, while opening several new lines of business.''

``Communications is at the heart of e-commerce and community,'' said eBay's chief executive, Meg Whitman, who had won praise for avoiding deals beyond eBay's core, marketplace-based strategy, especially during the late 1990s Internet craze. ``We will create an extraordinarily powerful environment for business on the Net.''

EBay shares dipped 73 cents, or 1.9 percent, to $37.89 in morning trading on the Nasdaq Stock Market.

Niklas Zennstrom, Skype's CEO and co-founder, will retain his position and will join eBay's senior executive team. He said the deal will help advance his company's goal to ``revolutionize the ease with which people can communicate through the Internet.''

Ovum analyst Mark Main said he considered the deal ``far-fetched'' and said eBay could have found cheaper ways to improve its Internet communication abilities.

``EBay could have developed its own sophisticated messaging and communications platform, or even bought one, for far less money than it is paying for Skype,'' Main said. ``And if eBay is mainly paying for Skype's user base and brand, that makes this a risky investment.''

Skype has 53 million registered users and the company says more than 2 million people use Skype at any given moment. Since it was introduced in 2003, the company's free software has been downloaded more than 164 million times.

In 2004, the company generated about $7 million in revenues, which it projects will snowball to $60 million this year and more than $200 million in 2006.

EBay recently trounced analysts' expectations by reporting it earned $291.6 million, or 21 cents per share, for the three months ended in June, a 53 percent increase from last year. Revenue totaled $1.09 billion, a 40 percent increase from last year's $773.4 million.

EBay's community spanned 157 million registered users, up 10 million from March. Its online payment service, PayPal, also is becoming more pervasive, with 78.9 million account holders who exchanged $6.5 billion during the quarter.

Bringing Skype into the fold is expected to cut eBay's earnings, at least in the short term. EBay