Thursday, September 08, 2005

It's a ridiculous number. But Skype+eBay makes sense.

$2 billion? Crazy. $5 billion? Insane. Rumors (sourced from Bloomberg via the Wall St. Journal) that eBay and Skype are in talks have the historical business punditocracy mouthing "don't get it." in various forms.

"Whenever a company may do something that's completely different than its historical focus, there is risk,'' said Norm Conley, who helps manage $950 million, including about 225,000 EBay shares, at St. Louis-based J.A. Glynn & Co. ``The potential they may acquire a real technology leader in a space that's growing as fast as voice-over-internet is intriguing.''

There's a real problem with the level of analysis here. The problem is that this guy hasn't spent a moment thinking about *why* people communicate on Skype. He hasn't spent a moment thinking *who* communicates on Skype. he's to be stuck in the old silo mentality of "telephony <> commerce". The old mentality of "telephony = pipes".

Wake up, everyone! People don't "communicate". That's a technical term. People have conversations. About topics. Extended Conversations. And one of the things that people talk about -- *a lot* is commerce. What to buy. Call a friend. Talk to the seller. Ask a question. Think that Skype might reduce friction and increase trust in eBay's core business, which is connecting geographically dispersed buyers and sellers? Hell yes -- reach out and build comfort with someone. Think that eBay would like to track "off marketplace" communications between buyers and sellers, and better understand the entire cycle of commerce around its transactions? Hell yes - and reduce fraud and ensure commission compliance at the same time. This is simply a step toward turning the purchase transaction into a buying process, and it sounds eminently sensible to me.

IM auction alerts are an obvious win -- a way to drive many more bids from people who used to forget, and miss the end of the auction. That alone could justify the purchase, and IM is a business that eBay has to be thinking about.

And then there's the geography angle. My friend Raj, who works for Cisco and sells in Asia a lot, personally takes credit for at least a million Skype users. As he tells the story, on one of his selling trips, he told a Chinese telecom company guy about it, and the guy wrote an article that was widely read, and Skpe has been growing like wildfire in China ever since. Most of the people I know on Skype are Europeans - high-cost telecom in places like Greece means that any wired guy there uses it for business whenever he can.

eBay has clearly been thinking iternational for a while. They're really interested in owning marketplaces in countries where they're not yet dominant - the lessson of Japan, where Yahoo! Auctions stole the country from them, must still weigh heavy in their minds. Skype is an international customer set that can be turned into marketplace customers in all sorts of interesting ways.

And then there's PayPal... telephony+payments is a marriage made in heaven. Mobile telephony is the most interesting facet of this marriage, but Skype will soon be a mobile telephony solution, or so I hear through the grapevine.

It's not worth $5 billion, but this is a very interesting match indeed. Stay tuned.

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