Web Marketing Strategy Update

Full story from Reuters
EBay Paying Up to $4 Bln for Web Phone Co. Skype

AN FRANCISCO/LONDON (Reuters) - EBay Inc. has agreed to buy Internet phone-calling phenomenon Skype for up to $4.1 billion.

EBay said on Monday it will pay $1.3 billion in cash and $1.3 billion in stock for explosively growing Skype, which will allow eBay to add free Web telephone calls to its online auctions. It will make a further payout of up to $1.5 billion if certain financial targets are met.

Skype already leads the booming voice-over-Internet (VoIP) market, which is being aggressively targeted by online powerhouses such as AOL, Yahoo and Google.

Microsoft for instance, last month moved to build its presence in the Internet telephony market with the purchase of Teleo, while Yahoo bought Dialpad earlier in 2005.

But eBay Chief Executive Meg Whitman said that Skype had a considerable head start.

“We think Skype has an enormous lead — 150,000 new users a day — and technology that is generations ahead of where the new entrants are,” she said. “And when people are using your brand name as a verb, that is incredibly powerful.”

Skype expects revenue of $60 million this year and more than $200 million in 2006, but has yet to turn a profit. In two years, Skype has attracted 54 million members to its free and low-cost Internet-based voice service and is on track to roughly double in size within a year.

EBay is looking to create a new triad of e-commerce, joining buyers and sellers on eBay, with its PayPal online payment system, and the ability to complete transactions via Web phone calls using Skype software, analysts said.

EBay said its merchants would be able to use Skype software to allow buyers with last-minute sales questions to “click to talk” to a merchant’s customer service agent.

“Once we integrate communications into e-commerce, we think that Skype is going to remove considerable friction” from the buying and selling process, Dutta told Reuters by telephone.

Nearly half of Skype’s users live in Europe, a quarter are in Asia, and an eighth are in North America, providing eBay with a large audience as it seeks to expand outside of its core North American market.

The deal provides a major payout for Skype founders Niklas Zennstrom and Janus Friis, who also created the controversial file-trading network Kazaa that allows music fans to share music for free. The co-founders plan to stay at Skype.