Last updated: September 12, 2005 10:18 pm

Ebay, Skype deal challenges rivals

Ebay on Monday laid out plans to move beyond its core e-commerce business, potentially putting it on a collision course with Google and Yahoo, as it confirmed its acquisition of internet voice company Skype for up to $4.1bn.

The auction company's executives said that adding a voice calling feature to its existing online network would let it charge fees to merchants for generating sales leads the internet's fastest-growing business, currently dominated by the two biggest search engine companies. It could represent the most important in a series of recent initiatives by Ebay to extendinto new areas of online activity.

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However, the high price for the transaction and the young nature of Skype's business prompted scepticism among some telecommunications industry executives and analysts, who questioned Ebay's ability to generate significant revenues from its new acquisition.

“Ebay has no related presence in the online personal communications market (no instant messaging, chat or e-mail services) and we do not see immediate synergies from such a move,” said Mark Main, Senior Analyst with Ovum, the leading telecoms consultancy.

The online auction company said it would pay $2.6bn for Skype, half of it in cash and half in stock, with up to $1.5bn more to be paid if the company meets certain performance targets over the next three years.

Meg Whitman, Ebay's chief executive officer, said that by integrating Skype's voice calling technology into Ebay's markets, making it easier for buyers and sellers to communicate, the company would be able to lower the “friction” in online transactions and increase the overall value of its services.

She also laid out a plan for Ebay to charge fees for generating sales leads, with merchants paying every time a potential customer clicks on a link in an online listing to initiate a voice call.

Some advertisers might beprepared to pay between $2and $12 for each call, she added.

Ebay's millions of visitors could represent a valuable audience for such a service, said Youssef Squali, an analyst atJeffries, a New York investment firm, since they usually visitthe site intending to make a purchase.

Based on conventional measures of valuation, such as its current revenues, the Skype purchase looked expensive, analysts said. The company generated $7m of revenues last year, with $60m expected this year and more than $200m in 2006, eBay said.

Rajiv Dutta, Ebay's chief financial officer, said this represented a faster pick-up in revenues than either Ebay or PayPal, its online payments service, had experienced in their first years of charging for their services, suggesting that Skype would prove a valuable money-earner for the company.

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