EBay/Skype: A Non-Friction Play

Skype investor explains how Skype's functionality is designed to eliminate a key 'point of friction' in eBay's auctions

September 13, 2005

4 Min Read
EBay/Skype: A Non-Friction Play

EBay Inc.'s (Nasdaq: EBAY) most important use of Skype Technologies SA will be to improve communications between buyers and sellers, especially in the waning hours and moments of auctions at the site, sources say (see EBay Buys Skype for $2.6B).

EBay says it hopes Skype’s IM and voice services will attract more buyers and sellers to the site by removing a “key point of friction” in its auctions: communications.

Rob Stavis of Bessemer Venture Partners, who has been involved with Skype since Bessemer led the startup's A round of funding back in 2003, tells Light Reading that this "friction" -- which potentially slows a deal -- is most apparent during the final two hours of eBay auctions, especially when high-value or complex merchandise (jewelry, autos) is involved.

As the auction clock ticks down, the pace of communications between buyers and sellers often picks up (just like at Sotheby’s), and the content of the communication becomes more detailed.

As it works now, eBay buyers use email as their primary means of communication with sellers during auctions. In fact, they generate about 5 million emails per day, according to the company.

“Maybe that mode of communication doesn’t work with an hour to go,” Stavis says. “If the buyer is saying ‘Gee I really like this car but I need to find out if it has a 6-disk changer,’ he might send an email and not get an answer back until it’s already too late to bid,” Stavis says.

That's where Skype’s combo of IM, "presence," and voice functionality would be especially effective, says Stavis. Through Skype, the seller can show himself “present” to answer questions so that more bidders get the information they need and actually place bids.

"I’ll give you the perfect example: Niklas Zennström rings me on Skype and I can’t pick up so I can say in real time, 'I’m not picking up, Niklas -- what do you want?’ " Stavis says he could then either exchange a quick Q&A with Niklas or schedule another time to talk.

"That's what we thought was so amazing about Skype when we decided to invest. That, to us, was higher-value than what the existing chat network or the existing phone network let us have." Stavis believes the eBay team had a moment of clarity on Skype in the above scenario, and that's what compelled them to buy.

But can that alone justify the high cost of the Skype acquisition? If eBay was merely aiming to improve communications among its users, did it need to shell out megabucks for a marquee name like Skype? EBay could have purchased a smaller player, or built its own SIP voice and IM application. Right?

In the immediate afterglow of the eBay/Skype deal Monday, many in the investment community struggled to see the synergy of the pairing (see Readers Didn't See Skype Deal). News of the acquisition initally sent eBay stock down (see Skype's EBubble).

After eBay held a Webcast first thing Monday morning to explain its motivations, investors seemed to be somewhat soothed. By market close Monday, eBay’s stock had recovered from its tumble and then some, closing at $38.94.

Other folks seem skeptical of the "friction" explanation. They say eBay must have plans for, or at least the idea of cashing in on, access to the 54 million registered Skype users. Ebay’s initial payment of $2.6 billion values each of those registered users at just more than $48 each.

Allied Telesyn International Inc. CTO Dick Wilson tells Light Reading he believes companies like Google (Nasdaq: GOOG)and eBay are tomorrow's service providers, the services being an ever-growing menu of IP applications (see Poll: Google's Shooting for Skype). In the Skype deal, he says, eBay is simply buying a list of prospective purchasers of IP applications and services.

Another possible reason for the jaw-dropping $2.6 billion Skype pricetag is the possibility that eBay could open a Google-style “pay-per-call” revenue model (see Google Talks the Talk).

Here’s how it would work: A small business owner selling vacation packages (or wigs, for that matter) could pay eBay every time it generates a sales lead through a Skype. It’s a lead generation model that might be even more attractive to sellers at eBay’s sister sites such as Shopping.com, Rent.com, and others.

But Skype is apparently not selling the "pay-per-call" idea as a near-term revenue generator, and at least one observer doubts the concept's real-world appeal, should it ever try.

"I don’t think anybody makes money by staying on the phone selling a service,” says Bart Schachter, a partner at Blueprint Ventures. “That’s why Web-based travel does so well; and that’s why United charges you five bucks when you call them -- they don’t like to be on the phone.

"Will this help them, that they can make this phone call free? I don’t think so."

Skype spokeswoman Kelly Larabee says the two companies had been in discussions for three months. She said Skype was not commenting on eBay’s immediate plans for its peer-to-peer voice product.

— Mark Sullivan, Reporter, Light Reading

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