Add eBay to the List of Rumored Skype Bidders

Sep. 9–Skype, the 2-year-old peer-to-peer service that allows people to make phone calls over the Internet has become a cultural phenomenon by offering free and easy calling. And now, it seems, the upstart company itself may be the hottest acquisition target in the tech world.

EBay is in talks to acquire the Luxembourg company for as much as $3 billion, the Wall Street Journal and New York Times reported Thursday. It’s the latest in a string of buy-out rumors — involving Google, Yahoo and Rupert Murdoch’s News Corp. — that have kept tech-watchers buzzing about Skype for months.

Yet some analysts were also deeply skeptical about why e-commerce powerhouse eBay would pursue a company seemingly far afield of its online auction and trading business. The stock of San Jose-based eBay slumped 3.4 percent Thursday following the reports.

Andy Abramson, who authors a blog on the Internet phone industry (http://andyabramson.blogs.com/voipwatch/), was one of several people Thursday who questioned whether Skype was somehow intentionally trying to feed media frenzy.

“I think there’s some manipulation of the media to get them to make this into a biggger story,” Abramson said. “They’re master marketers. They understand viral marketing.”

EBay declined to comment on the rumor, as did a Skype spokeswoman.

“We’re focused on building a successful company,” said Skype spokeswoman Kelly Larabee. “We’ve always not responded to rumors, and have been focused on building a company to last.”

Internet phone calling based on Voice over Internet Protocol technology, or VoIP, has become an increasingly competitive industry with dozens of players, including Vonage, SBC, AT&T and Internet giants Google, Yahoo, AOL and Microsoft.

But Skype — founded by the creators of the controversial Kazaa file-sharing software — stands out as a unique success story.

Skype’s pricing — free PC-to-PC calls worldwide and low-cost calls to regular phones — has endeared it to millions of college students, technology early adopters and “digerati.” The generally high quality of the voice calls, its stature as an anti-establishment start-up, and the social networking aspect of the service has also contributed to its success.

When Jennie Rutledge discovered last year that Skype would let her call her overseas boyfriend — as well as her friends nearby — for free, she was hooked.

“Free is very cool,” said Rutledge, now a marketing intern in San Francisco. “And it works really well.”

“There’s a lot of cachet to saying ‘I’ll Skype you’ or having your Skype address in your e-mail signature,” said Charlene Li, an analyst with Forrester Research. “It’s all about Big Media, and not being tied to a big brand.”

How many people regularly use Skype — whose free software includes instant messaging capabilities — is not clear. Its software has been downloaded 162 million times, and the company claims 53.5 million “unique registered users.” But Skype won’t say how many of those are regular users.

Details about the private company’s revenues are also sketchy, though guesses have ranged in the tens of millions a year. The company, with about 200 employees scattered around the world, will say only that about 2 million of its users pay for premium services.

The reportedly hefty price tag for Skype — the $3 billion figure was bandied about in past acquisition rumors, too — has left many analysts scratching their heads.

“There’s a lot of hype and hysteria around Skype,” said Michael Paxton, a senior analyst with In-Stat. “This is not a company that generates a lot of revenues. I would be very surprised if a company paid billions for them.”

Indeed, analysts were divided over whether Skype is a good fit for eBay, which has not strayed too far from its e-commerce roots.

Speculation centered around eBay integrating Skype into its auction and online selling platform. Others wondered whether eBay was exploring growth opportunities outside its core trading business, which is maturing in some markets. EBay executives have said in the past that they like to move into large, fragmented marketplaces with lots of inefficiencies.

David Edwards, an analyst with American Technology Research, said he talked with high-volume eBay sellers — known as Power Sellers — who liked the idea of being able to communicate with their buyers via voice or instant message.

“The reaction seemed to be, if it could help me close deals faster, it’s a good thing,” said Edwards.

Abramson agreed, saying he can envision scenarios where eBay would allow buyers to instantly see whether sellers are available to chat, instead of having to slog through sometimes slow e-mail exchanges. “If eBay buys it and it helps bring more people in to their service, it makes sense,” he said.

Internet telephony expert Daniel Berninger said that “of all the rumors I’ve heard, eBay is the most plausible to me,” if only because the San Jose company has the financial wherewithal.

But others were less sure. Paxton said eBay is typically more judicious about its acquisitions.

“It’s kind of a head-scratcher that eBay, which is such a careful company, would be floating numbers like this,” he said.

Edwards, of American Technology Research, was also puzzled that Skype would be a target. “From my point of view, I don’t see why it would be necessary to acquire Skype just to allow customers to have a voice channel,” he said.

Not surprisingly, some Skype users were less than thrilled at the thought of their service being swallowed up the world’s largest online auction company.

“Now that would be very unfortunate,” one user wrote in the company’s user forums. “I was starting to think the ‘do all the evil you can’ business model was on its way out.” The user warned of “restrictions galore” if Skype is taken over by eBay. “Sorry Skype management, but I hope this transaction falls through.”

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