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John "Z-Bo"

My friends asked for my thoughts on this acquisition because they were puzzled. I said there could be a services integration somewhere down the line, but did not see one. Being from that school of thought, I told them that this is a good move simply because it diversifies eBay's assets. If someone comes along and builds a better auction service and eBay experiences massive customer loss, they still have a huge source of revenue in Skype.

Similarly, there is a company I can think of that makes domestic animal food and also runs a hotel chain, although at the moment the name escapes me.

However, I have to say, I like the way you framed the acquisition better. You not only pin my point well, but put it in perspective with eBay's online competition. Very insightful and not something I would have thought up on my own.

John "Z-Bo" Zabroski

One other thing I forgot to mention... in the San Francisco Bay Area, Craigslist.com is pretty much a one-to-one competitor with eBay.com. So, it is not impossible to see someone eventually dethroning eBay as the auction king, so diversifying their assets seems like a good move to protect against another auction site taking over.

Mark Sigal

Hi John,

Thanks for the comments. To your last point, eBay acquired 25% of Craigslist through a backdoor transaction (basically, they bought out a shareholder's interest - not Craig's - versus an investment/financing event), specifically so they could get better proximity to what makes Craiglist tick.

For what it's worth, I don't buy the diversification spin that others have made. eBay is early enough in its life and business that pure diversification doesn't make sense for a number of reasons, including the fact that Skype is hardly a proven defensible business relative to the price and Skype does not offer the bowling pin adjacency to their core business that PayPal does.

Bill Davenport

When the Ebay / Skype deal was announced I thought about it a few ways. 1.) From a user standpoint, I've bought and sold stuff on Ebay and never needed or wanted voice access. 2.) From a financial standpoint the deal looked crazy as many observers / analysts have pointed out, thus 3.) there must therefore be some other reason for the deal.

As far as #3 goes, the other reason that came to mind was a defensive one for ebay, protecting their core revenue streams from auctions and paypal fees. Although I'm not a hard core techie and don't know the innards of building any peer to peer services, it seems to me that an enterprising peer to peer company could build a peer to peer auction service effectively, thus bypassing a central listing agent like Ebay. Doing some web searches turns up some information on that, for example from IBM's site.

Nov 200 (http://www-128.ibm.com/developerworks/webservices/library/ws-peer1.html)

"Looking beyond the straightforward uses of Web services, there are many exciting applications of this technology in the world of peer-to-peer (P2P) computing. For example, imagine a P2P version of eBay where consumers install a simple auction Web service onto their home computer or smart phone. Once you've told your auction service what you want to sell and what you want to buy, it contacts other auction services around the world to hook you up with appropriate buyers and sellers. Transactions occur directly between consumer devices, and no servers are required."

Skype, with its huge, rapidly growing installed base, fits the description offered by IBM above.

Thus, while the upside of the phone business is certainly there, the deal may well have had a big defensive benefit to Ebay as well.

Mark Sigal

Personally, I would reframe your defensive comments by saying that it was an offensive move (no pun intended).

Taking it to the desktop, which is one of the key net effects of the deal, gives eBay a platform with persistency and mindshare from which they can continue to build out some pretty valuable and defensible real estate.

So I guess I agree with the defense reference but less from a technology perspective (peer to peer).

Two completely different posts that I have written on the topics of Web 2.0 and client applications that frame this one somewhat are:

When client applications matter:
http://www.oreillynet.com/pub/wlg/3819

Web 2.0: heads or (long) tails:
http://thenetworkgarden.blogs.com/weblog/2005/10/web_20_heads_or.html

Thanks for your excellent comments.

Mark

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