EBay plan for 2010: End Skype connection
Taking the first steps to unwind its awkward 2005 marriage, EBay Inc. said Tuesday that it planned to spin off Internet phone service Skype through an initial public offering in 2010.
The San Jose company said the divorce would allow it to focus on its core e-commerce business, which has struggled in the last year. It announced plans Monday to sell another acquisition, recommendation search engine StumbleUpon, back to its founders.
Skype, a software application, allows consumers to make domestic and international phone calls over the Internet. Calling another person on Skype is free, while using a landline or mobile phone costs cents per minutes, depending on the country.
EBay bought Skype for $2.6 billion despite investors’ protests that the two companies didn’t fit well together. Then-Chief Executive Meg Whitman said at the time that an Internet calling service would help buyers and sellers work out details of an auction, and that the service would be especially popular in countries such as India and China, where EBay was expanding.
By the end of 2008, Skype had 405 million users, up nearly 50% from 2007. It made $551 million in 2008, and EBay last month projected that Skype would be a billion-dollar company by 2011.
“Skype is a great stand-alone business with strong fundamentals and accelerating momentum,” EBay President and CEO John Donahoe said in a statement.
But observers say Skype has been a distraction for management, and that EBay buyers and sellers prefer to communicate by e-mail.
“EBay has no synergies with Skype, and it’s a big drain on management’s time,” said Jeffrey Lindsay, a senior analyst at Sanford C. Bernstein & Co.
Some Skype users weren’t happy with the partnership either.
“I was sad when EBay took over,” said Bjarne Winkler, a Napa businessman who uses Skype to keep in touch with family and friends in his homeland of Denmark. “The innovation definitely stopped, and it became commercialized.”
Senior executives have conceded recently that EBay and Skype don’t fit well together. In 2007, EBay said it would take a $900-million impairment write-down against the value of Skype, an admission that it had overpaid.
But until Tuesday, EBay hadn’t revealed any formal plans to separate the two companies. News emerged last weekend that Skype’s founders, Scandinavian entrepreneurs Niklas Zennstrom and Janus Friis, had tried to buy back the business but could not raise enough money.
Some analysts believe that the IPO is a way for EBay to shop Skype around without formally putting it up for sale.
But EBay spokesman Alan Marks said the company was not soliciting bids for the voice communications service. He said the company was planning an IPO because “we think that’s what is going to maximize value for Skype and for EBay.” The announcements come as EBay struggles to regain its footing in the e-commerce marketplace as rival Amazon Inc. gains market share. EBay stock, which closed at $14.38 Tuesday, is down 54% over the last year, compared with 29% for the Nasdaq.
“This is a way to prove to investors that they’re serious about getting back to their core business,” said Larry Witt, an analyst with Morningstar.
While acquiring companies such as Skype, StumbleUpon and apartment search service Rent.com, EBay lost focus of the fact that it wasn’t serving its customers as well, Witt said. Part of the problem was that EBay continued to focus on auctioning goods, even as consumers eschewed bidding for items in favor of fixed-price sales on Amazon.
In the last three years, Seattle-based Amazon has become a less expensive and complicated venue to sell goods than EBay, said Scot Wingo, chief of ChannelAdvisor Corp., which helps merchants sell on online marketplaces. His clients have increased their business on Amazon by 45% while decreasing EBay business by 7% in the last year, he said.
“EBay is going from a channel of first resort to a channel of last resort,” he said.
Also on Tuesday, EBay announced a series of changes in an attempt to improve customer experience on its site. EBay said it would become more actively involved in managing disputes between buyers and sellers, and that it would add a feature called Smart FAQs to answer frequent questions from buyers.
But it will probably take a while for EBay to claw back, Wingo said.
“They’ve been trying since last year,” he said. “But there’s no silver bullet.”
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Dan Fost in San Francisco contributed to this report.
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