September 08, 2005
The Conglomeration of eBay
Posted by Gordon Smith

What was your first thought when you read this: "Ebay Inc. is in talks to acquire Internet-telephony company Skype Technologies SA for $2 billion to $3 billion"? Here is mine.

EBay has been a company worth admiring, partly because it has remained focused. Its most adventurous move to date has been the acquisition of PayPal in 2002, but at that time, PayPal was closely identified with eBay's auction site and enhanced the experience of using that site. The same cannot be said for Skype. In my view, this move -- if it happens -- is a signal that eBay is out of ideas. The corporate equivalent of jumping the shark.

Oh yeah, and did you notice the price range? $2 billion to $3 billion? That's a pretty broad range ... and any price within that range seems wildly high for a company whose product is a piece of software that (probably?) could be replicated by another company for a lot less than $2 billion.

UPDATE: Looks like I was not the only person who had a negative reaction to this deal. EBay's stock price dove, though at least one analyst likes the deal. Scott Devitt of Legg Mason Wood Walker Inc. said, "There's absolutely no reason why EBay can't participate [in the voice communication business] if Yahoo!, Google and Microsoft can. And Skype is the killer application in the sector. The way I view the sector is Amazon, EBay, Google and Yahoo! are in the same business going after the same opportunities. So from my standpoint, strategically this makes a lot of sense."

UPDATE II: Obviously, the use of "conglomeration" in the title of this post was not intended to flatter eBay. Some firms can get away with conglomeration --- for example, this blog, GE, and Berkshire Hathaway -- but for most firms, it makes sense to stick fairly closely to their knitting.

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