Monday, October 17, 2005

eBay and Skype logic

Why did eBay pay billions for Skype? Because it was a great deal. Here's why:

The most expensive elements of putting together a telecommunications network are 1) capital investment for infrastructure 2) customer acquisition costs and 3) a billing system. Now let's consider each of these elements for Skype under the eBay umbrella:

Skype customers use their own computer an internet connection to make calls, so there is essentially zero capital investment required to create the network. Nice. eBay is great at identifying projects with high return on very little capital.

Skype ID's look a lot like eBay ID's --in fact they are essentailly the same. If you have an eBay ID, you already entered the data you essentially need to have a Skype account--thus, eBay is one mass emailing away from establishing the largest telecom network in the world---at NO COST to eBay. Very nice.

Skype users can use Paypal for their bill payment. Convenient that eBay owns Paypal--maybe thats how eBay became aware of Skype in the first place--the guys at the paypal division gave Meg a call, and said, "Check out the guys at Skype, because their Paypal billings are going through the roof". Now that they are one big family, Paypal becomes the deFacto billing system for this new global telecommunications service---at ZERO COST since it has already been built and integrated. Does it get any better than this?

In fact it does, because aside from the value of the business itself, eBay gets the derivative benefit of now connecting it's users for free via voice. Voice communications build trust more easily than email. Trust it the basis for the eBay economy. Skype will further enhance the value of the eBay network and increase already impenetrable barriers to entry. They already have Skype Me buttons you can add to your website--or your eBay listing.