The Simple Reason eBay Bought Skype

    September 12, 2005

In two hours, eBay is holding a conference call about buying Skype. I’m visiting the Skype guys in Tallinn a couple of hours later.

Lot’s of folks are scratching their heads. I have no inside information, nor really want it, but can offer a simple explanation that the market seems to be missing — that markets are conversations.

Pierre Omidyar once explained to me that one of the smartest things he did when starting eBay was to not constrain communication around his market — by publishing email addresses. He was suggesting to me that we open the Socialtext Customer Exchange, but the core insight is more valuable. Back when I was running a B2B exchange, this was considered a contrarian move. After all, it let buyers and sellers circumvent your transaction fees in some cases. But letting go of control fosters liquidity. Especially when you couldn’t possibly structure communications to fit all transactions. Today I would venture that most of the communication on eBay’s transactions are out-of-band. Other communities with emergent liquidity such as Craigslist succeed by enabling even further out-of-band communication.

Skype will provide eBay a communications platform for the other half of it’s market — the conversations. eBay will enhance the liquidity of it’s spot market, gains a business with great fundamentals, positioning for yellow pages business, further infrastructure for billing, payment and — identity.

UPDATE: it’s a deal at $2.6 billion in cash and stock with a potential 1.5b earnout. Skype earned $7m in revenue last year.

Reader Comments

Ross Mayfield is CEO and co-founder of Socialtext, an emerging provider of Enterprise Social Software that dramatically increases group productivity and develops a group memory.

He also writes Ross Mayfield’s Weblog which focuses on markets, technology and musings.