Shouldn't have bought the Skype
Online auction site eBay admitted that buying Internet telephony company Skype was not a good investment. Doug Krizner talks to technology reporter Dawn Chmielewski about why they're so surprised about low profits for a free service.
Skype users on a video call using webcams (Richard A. Brooks/AFP/Getty Images)
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TEXT OF INTERVIEW
Doug Krizner: eBay was forced to grovel this week. The company admitted it had made a colossal mistake in purchasing Skype Technologies. eBay bought Skype two years ago for $2.6 billion, but the investment hasn't matched the hype. And now, eBay has been forced to take a charge of nearly $1.5 billion.
Let's bring in Dawn Chmielewski, She's technology reporter with the LA Times, Dawn, remind us about Skype.
Dawn Chmielewski: So what they did was something that had been tried, but this was a particularly elegant and easy to use solution. So it used the Internet to deliver phone calls -- initially between two computer users in much the same way that we converse via instant message and text, but this was voice. So you can I could have a conversation, and voice quality was quite good. And over time, they began to introduce other services that one might expect of telephone service, the ability to call someone on a phone.
Krizner: But this is eBay, which is an online auction site. I don't understand the connection.
Chmielewski: None of us could really figure out what eBay was thinking when they made this acquisition. Several analysts at the time had speculated that the reason that eBay made this acquisition was to add voice to the auction transactions. So the idea was that it would make easier for buyers and sellers to converse between computers and perhaps accelerate sales.
Krizner: So, what happened? Give me the short version of why this evolved the way that it did.
Chmielewski: So, the great irony here is that Skype works marvelously well. And it continues to grow -- it has over 200 million users worldwide. But here's the rub: it's free. And . . .
Krizner: Tough to drive revenue when you have a free service.
Chmielewski: So, Skype's business plan was to up-sell. You know, the classic sales pitch -- so, there's a free service, but for more features, for example the ability to call people who are on a traditional telephone, you have to pay for that. And soo, there were these sort of up-sell opportunities, the ability to add features, which of course, add cost. Well apparently, the growth didn't happen at the same rate that eBay had expected.
Krizner: Dawn Chmielewski is technology reporter with the LA Times. Thanks so much for speaking with us.
Chmielewski: Thank you, Doug.
