skype and eBay: a losing proposition?

from the wsj deal book blog

Ebay’s 2005 acquisition of Skype was hatched when the telecom-over-the-Internet craze was in full bloom. The company was on the front of magazines (which reminds us of a certain social-networking site, by the way) and seemed destined to shake-up the world of communications.

There is little denying Skype has done that. But that didn’t make it worth the $3.1 billion eBay CEO Meg Whitman paid for it. Last quarter the unit produced more than $90 million in revenue, according to this WSJ article. But not enough profit to help offset the purchase price.

My dad and I were exchanging e-mails about this.  My position is that the WSJ blog post his is almost an indictment of economies of scope achieved by acquisition.  That angst is misplaced. EBay's acquisition of Paypal was arguably a way better idea than trying to pick off every auction site with an acquisition.

We could probably have anticipated this (eBay's "we made a booboo" charge)  based on Skype's limited pricing power in VoIP (indeed all voice telecom products pretty much have this problem).

In talking to my dad, I said "I'm not intimately familiar with the structure of that deal but I wonder about the impact of cheap debt markets as of the acquisition date-would it have been approved by eBay's board if corporate paper and bonds hadn't been so cheap?"  eBay doesn't appear to have had much if any debt dating back to 2005 or so, so that probbaly didn;t have an impact.

From what I recall from examining their fee structures and anti-fraud measures, this company is a cash machine- ut seems like a valid question to ask if they foresaw gaining more than a billion dollars or so in goodwill, less Skype's revenue bcontribution.

I need to look at the WSJ piece but I wouldn't dismiss this from strategic behavior, especially of the "strategic options" variety.