Ebay’s Skype Purchase
Karen works as an attorney in San Francisco. One of her favorite
pastimes is to shop. Shop in the big stores off of Union Square, visit the
boutiques scattered throughout the city, and most importantly, shopping
online. Her passion is, like most women, clothes and shoes. Her love
of websites like Amazon.com and craigslist, is only surpassed by her
addiction to Ebay.
Ebay, is the competitive crack that many middle-aged Americans are
seeking in life. The competitive nature of bidding for an item you really
want is addicting. It gets the heart pumping and the euphoria you feel
when you win an auction is unsurpassed. I know, I use it too.
I like to think of E-bay as the world’s largest garage sale. I
remember as a kid browsing garage sales on Sunday mornings with my grandmother and great aunt, as they looked for special deals. I was always amazed at how effective they were at haggling for items . . . always making lowball offers and more times then naught, they got the item they wanted at a very good price.
In the corporate world, haggling and bidding for an item, like another
company can be fraught with danger and very expensive. This week, as
an example, our favorite online retailer Ebay announced its plans to
write off more than $1.4 billion dollars.
Poof . . .gone like that. $1.4 billion dollars disappeared.
It’s amazing, but this massive write-off is the result of a bad
shopping trip. But instead of buying clothes, the management team at Ebay bought a company.
Back 2 years ago, in October of 2005, Ebay plunked down approximately
$2.6 billion dollars for a little company called Skype. This telephone
over the internet company was supposed to take Ebay in new directions.
It was supposed to change the business. Skype only had revenue of
about $10 million a year, and if I remember right, it was far from
profitable. The potential is great is what we were told.
This week, management essentially admitted that it made a mistake; they
removed the founder of Skype, and have started the process of taking a
financial charge to the business. My observations are these: winning
a bidding war for a company, while fun on Ebay, can have a very
negative effect on a business, and while acquisitions can be a positive
thing, if it strays too far from a company’s core competency it will
undoubtedly prove disastrous.
Category: Stocks
