10/2/07

Although not very related to any class topics, this article interested me for personal reasons. Being so far away from home for months at a time poses problems when it comes to communication with one's family. Skype, a free telephone service via one's computer, solves this problem. This service is so easy to use and allows me to keep in touch with loved ones I left behind at home. Despite its success and prosperity, the internet auction website eBay is now admitting that it paid too much for the company when it bought the business in September 2005.

Title: EBay says it paid almost $1bn too much for Skype
Source: The Guardian (10/2/07)

Paying approximately $2.6bn, eBay is now coming out with a statement that it paid $1.43bn too much for the internet telephone company Skype. Along with this debt, it also has to pay $530m to former shareholders, one of which being Niklas Zennstrom, the founder of Skype and former chief executive. While $530m is quite a lot of money, if Skype had hit its target for revenue, profits and user numbers, eBay would have had to pay shareholders $1.7bn.

eBay had bought Skype with the intention of integrating Skype's telephone services with its auction site so that buyers and sellers could use Skype to contact eBay customer services. This could have boosted Skype's sales in that more people would be using its services, but with the recent news of eBay's overpayment, it looks like it didn't.

I am frankly surprised by this news. I know many people who rely on Skype as their means of communication with family and friends, including myself, so I would have figured that eBay would have been getting Skype for a great deal by paying what they did. This is perhaps showing my ignorance in the principles of economics, but eBay's overpayment it just doesn't make sense to me. Despite their overpayment, at least eBay doesn't have to pay shareholders nearly $2bn like they would have if Skype had reached its target prices. Maybe that's the only good news eBay has right now.