Ever since eBay (EBAY) spent big bucks last September to buy the Internet phone service Skype, the $2.6 billion-plus question on many skeptics' lips: Huh? Some analysts wondered why eBay would pay so much for a money-losing company with less than $100 million in revenue and a slew of rivals, especially when Skype's connection to the eBay marketplace business seemed tenuous.
Now, eBay and Skype, which claims nearly 95 million registered users and expects revenue of at least $200 million this year, are finally providing a few answers—but at this point, only a few. Whether they will satisfy shareholders and analysts dubious about the deal, let alone fend off increasing competition in the hotly contested Internet voice market, remains far from certain.
At its annual eBay Live! member conference on June 13, eBay announced that it is taking the first steps to integrate Skype with eBay. Starting June 19, sellers in 14 selected categories will be able to add a free "Skype Me" button to their listings. Potential buyers who want more information right away can then communicate with the seller using voice, text chat, or both.
STARTING SLOW. For now, it's a pilot program intended to test the impact on categories for which instant communications are likely to help close sales. They include high-ticket items like diamond rings and real estate, bulky items requiring local delivery such as cars and beds, and collectibles that have an extremely knowledgeable community of buyers, such as NBA basketball cards and Lost in Space items. "It's going to give us a whole lot of learning," says Bill Cobb, president of eBay North America. "But it is not the last of what we're doing."
Indeed, the Skype announcement was remarkable mostly for its limited scope. That's understandable, says Phil Wolff, editor in chief of online news magazine Skype Journal. He thinks rushing more Skype features onto eBay might be a mistake when most of its users, especially those in the U.S. where Skype isn't widely used, don't even know what Skype is. "Skype is something completely new to these eBay sellers," he says.
Some merchants are openly skeptical of how useful Skype would be for them. Jay Senese, one of eBay's top sellers, says he can't afford to take the time to talk to potential buyers of his CDs and DVDs. Just a few minutes of time on the phone, he notes, would wipe out his profit even if he clinches the sale.
COMMUNICATIONS MANAGER. A lot of buyers in the U.S. aren't familiar with Skype either—and that could mean eBay has to play catchup with a few established rivals. eStara Inc. has been offering so-called click-to-call services since 1999, including the ability for buyers to get an instant call back on a landline phone. "A lot of consumers still aren't comfortable talking through their PCs," notes eStara CEO John Federman. "The use of landline is really important to make it approachable to consumers."
In the runup to the conference, eBay executives hinted at more sweeping possibilities for Skype. During a weekend eBay gathering for software and services developers that preceded eBay Live!, eBay founder and Chairman Pierre S. Omidyar revealed the key reason why eBay bought Skype: "It does have the potential to be the place to manage your communications" of all kinds, he said. That's a crucial service for any business, online or off, he noted.
But the specifics could take a while to roll out. For one, Skype aims to expand communications services that now include voicemail and the ability to make calls to regular phone numbers. "We need to build sustaining businesses off that," Skype Senior Vice-President Alex Kazim said during the conference for software and services developers. "We're really just scratching the surface."
MORE DIVERSE MARKET. Another opportunity: Skype is aiming to cozy up further with PayPal, eBay's online payments unit. Kazim said one possibility is to make it easy for Skype users to pay anyone on their contact list—presumably friends and business partners they know well—using PayPal.
eBay also is looking at the potential to charge some kinds of merchants for leads that are generated by buyers clicking on Skype to find out more about an item they want to buy. That would complement other so-called pay-per-lead businesses that eBay has been developing, such as the online comparison-shopping service Shopping.com, which eBay bought last year. Skype could also help eBay expand beyond being a marketplace for just products into one that can broker services, which require more communication with potential customers.
The key issue for Skype is how quickly it can get at those opportunities. Just eight months after the acquisition, eBay is still busy improving Skype's internal operations and software code. "This company was run like a rock band that had grown into a marching band," Wolff says. Promising as Skype possibilities are, it could take a while for Skype to get everything in tune.