Skype underperforms; EBay admits to mistakes

The timesonline reported yesterday that eBay has admitted to massively overpaying for Skype. Back in 2005 eBay bought Skype for a whopping $2.6 billion; now they have warned shareholders that they will have to take an impairment charge of $900 million!

In 2005 eBay put a limit of $1.7 billion on earn-out bonuses which would be based on performance targets; yesterday it announced that they would pay only (!!!) $530 million of bonuses to the Skype founders. Putting on a brave face, an eBay spokesman said, "Skype has not performed as well as we would have hoped. And we are disappointed about the impairment charge. But we still believe Skype to be an extremely valuable asset."

I wonder if eBay had any understanding of what they were buying back in 2005? Skype's only means of generating income is through the sale of additional services like SkypeIn, SkypeOut and call forwarding. While some users will find these services useful, the majority simply want to use Skype to make free computer-to-computer calls, which generates no income for the company.

Will we see more impairment charges from firms who have overvalued their hyped dot-com acquisitions? Is Facebook really worth $10 billion? Maybe people throwing that kind of money around should take less notice of the hype and learn a little more about what they are taking on. I personally think that just like any other social networking site, Facebook may be hot today, but tomorrow people will find something else and move on. There have been so many of these Web sites and after the initial flurry of activity, they tend to fade away until nobody gives them a second thought. One day you're hot, the next you're not.

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