New Partnership
EBay Inc. agreed to acquire Skype Technologies SA, an Internet phone company, for about $2.6 billion.
New Partnership

EBay to Acquire Internet Phone Leader

EBay chief executive Margaret C. Whitman discussed the merger with Skype co-founder Niklas Zennstrom.
EBay chief executive Margaret C. Whitman discussed the merger with Skype co-founder Niklas Zennstrom. (By Sergio Dionisio -- Associated Press)
By Jonathan Krim
Washington Post Staff Writer
Tuesday, September 13, 2005

Online auction giant eBay Inc. announced a deal yesterday to become one of the world's largest telecommunications companies, buying Internet phone-service leader Skype Technologies SA.

Although Luxembourg-based Skype is relatively unknown in the United States, it has amassed 54 million global customers in less than three years by offering free calls between those who use its software.

EBay became a commerce powerhouse by hosting everything from auctions of grandma's collectibles to retail sales of new furniture and electronics, but its growth has stagnated, and analysts said the Skype deal is an effort to inject new life. The company said it sees Skype's technology as a vital tool for letting buyers and sellers talk to each other, exchange information and close sales more rapidly.

The deal would vault eBay ahead of other technology titans such as Microsoft Corp., Google Inc. and Yahoo Inc. in developing services to make voice calling an additional feature of using personal computers, akin to e-mail or instant messaging. EBay said it would pay $2.6 billion in cash and stock for Skype, along with future payments that could total an additional $1.5 billion.

Founded by business partners who developed the Kazaa file-sharing service for online music and videos, Skype quickly dwarfed other Internet-based phone companies such as Vonage Holdings Corp., which recently celebrated its 1 millionth customer.

Large cable and telephone firms, such as AT&T Corp., Verizon Communications Inc. and Comcast Corp., also are starting to offer online phone service. They typically charge $20 to $35 per month for unlimited calling in the United States, including free add-ons such as voice mail and call forwarding, and consumers use regular telephone handsets attached to special computer modems that handle the voice calls.

Skype's service and technology differ dramatically from those offerings. Making a Skype call is more like sending an instant message from a personal computer; all that is required is an Internet connection, a microphone for talking, and speakers or a headset for listening.

Skype charges nothing for its software but makes money by charging small fees for making calls to non-Skype users and for talking to people on regular phone networks. Voice mail also is extra.

"By combining the two leading e-commerce franchises, eBay and [online payment service] PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net," eBay chief executive Margaret C. Whitman said in a statement.

In addition to boosting sales, which would earn eBay more commissions, company officials envision Skype accelerating types of electronic commerce that depend heavily on voice conversation, such as personal services, real estate and new cars.

Skype would continue to operate as a separate business, with founders Niklas Zennstrom of Sweden and Janus Friis of Denmark remaining at the helm. The deal would make rich men of the pair, who had been considered outlaws by the U.S. entertainment industry for developing Kazaa, which they sold in 2002.

Zennstrom remains a target of some U.S. litigation accusing Kazaa of facilitating piracy of copyrighted music, videos and software. Skype makes use of the same, underlying "peer-to-peer" technology as Kazaa but carries none of the legal issues.

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