EBay gets over identity crisis with Skype IPO

Analysts say online auction house finally cleaning house and getting business in order

Analysts today called Tuesday's announcement that eBay Inc. is looking to spin off Skype via an initial public offering a smart move by the online auction house as it tries to get its house back in order.

John Donahoe, CEO of eBay, said Tuesday that Skype's Internet telephony business doesn't mesh with eBay's other major businesses -- e-commerce and online payments. The online auction house expects to complete Skype's IPO in the first half of next year.

Gordon Haff, an analyst with Illuminata, said Skype has never meshed with eBay's business plans, and was acquired in 1995 as part of what was basically an identity crisis for eBay.

"For eBay, Skype was a really dumb idea in the first place," added Haff. "They said it was going to provide a way for sellers and buyers to talk to each other, but we had the telephone and no one wanted to talk to each other then. The justification never made any sense. And [eBay] never even made a serious attempt to integrate."

Both Haff and John Byrne, a senior analyst at Technology Business Research, said eBay, which has been drifting from its traditional flea market-style auction platform to more of a set-price retailer, has been in the midst of an identity crisis. And unloading Skype could be a sign that the company is getting its act together again.

Haff noted that eBay has issues that have nothing to do with Skype or how much money they sunk into acquiring it. It's the seemingly confused mindset that got them into the deal in the first place, he noted. That same identity confusion has moved the company away from what had always worked for it - online auctions - to encouraging more fixed-price sales, alienating a lot of customers, Haff added.

Byrne said the Skype IPO plans, along with a separate announcement last week that the founders of Web recommendation site StumbleUpon bought it back from eBay Inc. for an undisclosed sum, could be some smart spring cleaning that will help bring the online auction house's bnusiness into line.

"I think it's about keeping your eyes on the core product," said Byrne. "I think if it helps them clarify who they are as a company and helps them get some of their money back, it's good for them. And it's good for Skype not to be distracted by eBay."

He added that Skype is in a good position and this move shouldn't hurt them.

"Skype is doing very well on its own," said Byrne, adding that the company is attracting new subscribers and revenue. "It's still a disruptive force in the telecom industry."

Elroy Jopling, a research director at Gartner, Inc., said the IPO could be a positive move for Skype - if a buyer doesn't scoop the company up first.

"The final break-up of Skype by eBay may very well be an opportunity in disguise," said Jopling in an e-mail report. "Skype has the opportunity of a new start, but even this re-birth has questions as a possible initial public offering in 2010 would be at the worst of times and suitors seem to be few. Expect the new Skype to go back to basics, which is its core consumer business. Secondarily, Skype will emphasize its mobile and enterprise business opportunities. Both of these have not been easy going in the past, but the recent massive number of downloads of Skype to the Apple iPhone represents a significant achievement in the mobile space."

However, Jopling noted that Skype will still come out facing some massive competition and that won't make success come easy.

"The Skype story has only been partly told," he added, "and at this time whether it will be a tragedy or a good news story is far from known."

Juan Carlos Perez of the IDG News Service contributed to this article.

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Sharon Gaudin

Sharon Gaudin

Computerworld
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