Ebay is confused about Skype Future

Don’t call it a bust just yet, but it’s fair to say eBay executives aren’t thrilled with what they’re getting out of Skype, which the auction king bought for $2.6 billion two years ago.

On Monday, eBay said it would take a $900 million so-called impairment write-down against the value of Skype. This means that eBay has been forced to reassess the value of the Internet telephony company relative to its overall business today. By recording a charge, the company is essentially saying that it has taken a loss on its original investment.

In what looks like an attempt to shake things up at Skype and move the division in a new direction, eBay also said Monday that Skype co-founder and Chief Executive Niklas Zennstrom has stepped down.

His departure was expected. Zennstrom, who helped start Skype in 2003, has joined forces with Skype co-founder Janus Friis to start an Internet television service called Joost. And it has long been anticipated he would take more time to work on that endeavor.

From the time that the Skype acquisition was announced in September 2005, analysts and investors on Wall Street shook their heads wondering how the company could pay such a hefty premium on a company that essentially provided free or low-cost voice minutes in a market that is dominated by large incumbent telephone companies.

When the merger was announced, eBay, which owns and operates the most well known online auction service, said it saw great potential in using Skype’s peer-to-peer voice over Internet Protocol technology to connect buyers and sellers in the eBay marketplace. There were grand plans to integrate eBay’s PayPal payment system with Skype’s VoIP network.

But nearly two years after the acquisition closed, there is little integration between eBay’s auction Web site and the Skype voice service. Even though Skype has grown into the largest voice over IP provider on the planet, the bottom line is clear–it still hasn’t made enough money to justify the hefty $2.6 billion price tag.

“The Skype service has been tremendously popular as a free service,” said Jordan Rohan, managing director and Internet analyst at RBC Capital Markets. “But at some point, free doesn’t work anymore. It’s not a management problem. It’s a business model issue.”

That said, Skype has been a success story of sorts in the voice over IP arena. Its subscriber base has grown from 57 million registered users in 2005 to 220 million users at the end of June 2007. That’s an increase of more than 160 million registered users in less than two years. The division also recorded its second quarterly profit in a row on July 18 on revenue of $90 million.

But despite this success, eBay’s CEO Meg Whitman said when the results were released, she was still not happy with Skype’s usage levels.

The big question now is, what’s next for Skype?

Source : CNet News