Banking

eBay unhappy with Skype, writes off $1.43 billion

eBay, the San Jose-based online auction giant, announced that it was writing down the value of Skype, the service that allows users to make free PC-to-PC calls, by $1.43 billion due to non-achievement of desired level of "user activity."

eBay, the San Jose-based online auction giant, announced that it was writing down the value of Skype, the service that allows users to make free PC-to-PC calls, by $1.43 billion due to non-achievement of desired level of "user activity."

A quote from the article at PC World:

On Monday, eBay also announced that it has paid $375 million (US$530 million) to settle "all of its future obligations" under an agreement signed with certain Skype shareholders as part of the acquisition.

The "earn-out" agreement called for payments of up to approximately $1.2 billion based upon specific active user, revenue, and gross profit targets to be achieved in 2008 and the first half of 2009.

Also, the Skype management underwent a major reshuffle with the co-founder Niklas Zennstrom stepping down as CEO (VNUnet) and taking up an advisory role on the board. eBay's Chief Strategy Officer, Michael van Swaaij, will temporarily take over the executive responsibilities.

eBay's apparent disappointment with Skype stems from the growth figure, which is $90 million in revenue (second quarter), up 103% on the same quarter the year before. The rate had slowed compared to the revenue growth of the 123% rise in the first quarter of the year, and the 164% rise in the last quarter of 2006. (Times Online)

eBay acquired Skype for $2.6 billion in 2005. With a user base of more than 200 million (FT.com), Skype wasn't very successful in getting people to use more services that came through eBay. There was increased speculation at the time of Skype's purchase as to whether it could justify its large buyout amount vis-a-vis an online auction service.

Niklas Zenstrom is expected to now focus more on other ongoing projects at eBay (BBC). He and the other Skype founder, Janus Friis, founded Joost, an online video company, after the sale of Skype.

Skype had all of the features of a successful venture, but still failed to meet expectations. Is this an alarm bell for other major ventures that count on wide user base?

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