$2.6BN marriage of Ebay and Skype ended in divorce

Abstract

eBay acquired Skype for $2.6 billion in 2005, which was a very high price compared to Skypes revenues of only $7 million. The acquisition was meant to boost eBay’s revenues, by making it more convenient for buyers and sellers to communicate on the auction platform. Shared benefits were seen to increase the number of users for Skype and enhance the features available for eBay users within its platform. Unfortunately for eBay, their customers did not find any use for Skype’s technology, which was initially intended to connect sellers and buyers quicker and make communication easier. After years of trying, the acquisition led to a write-down of the value of Skype in eBay’s books and finally (and luckily for eBay) led to a sale to Microsoft. Microsoft acquired Skype and created its division within the company that reported directly to Microsoft’s CEO. The company has adopted a passive stance to materialize the synergies while being conservative of Skype strategy, brand, and user experience. Different independent sources categorize this deal as a success. Our analysis highlights the approach Microsoft took for the governance of the collaboration and how it was adapted to the sources of potential joint value and the major capabilities of Skype business model and competitive position.