eBay Buys Net Phone Provider Skype

Internet auction provider eBay agrees to buy Skype. eBay will pay $2.6 billion in cash and stock for the Internet calling service, in hopes that it will boost communication between buyers and sellers.

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RENEE MONTAGNE, host:

EBay has agreed to pay more than $2.6 billion to purchase Internet phone provider Skype. The Internet auction giant is hoping that Skype will boost its auction service by making it easier for users to communicate. NPR's Larry Abramson reports.

LARRY ABRAMSON reporting:

In buying Skype, eBay is hoping to grab a little buzz from an Internet phenom. Skype has attracted 54 million devoted customers worldwide, drawn by the prospect of free and easy phone service over the Internet. If you're wondering what any of this has to do with an Internet auction site, eBay says it's about monetizing e-commerce. EBay's Hani Durzi translates.

Mr. HANI DURZI (eBay): The integration of Skype into eBay may help buyers and sellers communicate directly with one another, which may in turn accelerate e-commerce on eBay.

ABRAMSON: Why not just talk on the phone now? In the future, eBay users might be able to reach Skype partners by simply clicking on a link. They could talk for free and remain anonymous behind their Skype user name. EBay says all of this would simplify big international purchases in particular. Asked what type of transactions the company has in mind, CEO Meg Whitman said, `Really big things.'

Ms. MEG WHITMAN (CEO, eBay): Buying a used bulldozer, for example, could take a high degree of involvement from both buyer and seller because it's expensive and complex. Doing this entirely through e-mail or IM could be difficult. Using Skype will be quicker and easier and very cost effective.

ABRAMSON: Bulldozer purchases aside, eBay is clearly interested in latching onto the customer loyalty that has helped Skype establish a fanatical fan base, users who've spread news of the free phone service primarily by word of mouth. The question, according to Maribel Lopez of Forrester Research, is: Will it last?

Ms. MARIBEL LOPEZ (Forrester Research): Just because you've purchased a community it doesn't mean the community is going to stay with you as technologies evolve.

ABRAMSON: Lopez says she's surprised to see eBay paying billions for a company that has few assets aside from a clever software design that other companies are already trying to imitate. It reminds her of the bloated prices many Internet companies attracted during the tech bubble of the 1990s. Lopez says eBay may have felt competitive pressures to enter the arena for Internet telephone services.

Ms. LOPEZ: The competition is steep, both in the voice arena and just in the arena for community at large. If you look at Google, Yahoo!, AOL, MSN; all these companies are really targeting the same set of users.

ABRAMSON: All these companies have launched their own online phone services, but none has anything approaching Skype's international user base. eBay says it has no immediate plans to change the way Skype works. Calls between Skype users are currently free. The company charges for calls that go to or from regular land line or wireless phones. Skype generated about $7 million in revenue in 2004. Compare that to $2 billion in eBay revenues for the first half of this year. Rudy Baca, a telecom analyst with Precursor, says eBay's high profile among US consumers should be good for Skype, which only gets about 10 percent of its users from the US.

Mr. RUDY BACA (Precursor): It marries Skype, which has penetrated into the technophiles' consciousness, with eBay, which is sort of the compelling consumer consciousness.

ABRAMSON: Analysts may disagree about whether the purchase of Skype is a clever pairing or another foolish attempt to merge companies from completely different parts of the economy, but the merger does put new energy behind the rush to Internet-based telephone services. Larry Abramson, NPR News, Washington.

MONTAGNE: This is NPR News.

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