eBay: ‘We Are Done Apologizing for Skype’

ebay, skype and paypal

eBay yesterday outlined a host of changes it’s undertaking to grow its business in spite of the bleak economy and the looming presence of its high-flying rival, Amazon.

But executives speaking during eBay’s annual analyst day also ‘fessed up on key missteps the company has made — such as overestimating the synergies between its core auction business and Skype, the VoIP and Web conferencing company it bought four years ago for $2.6 billion.

While he called Skype “one of the fastest growing businesses in history,” eBay (NASDAQ: EBAY) CEO John Donahoe admitted the company made a mistake in thinking Skype would help its core auction business.

“We thought Skype would enhance the connection between buyers and sellers, reduce friction … but we were wrong,” Donahoe said. “Its use is in connecting people, not buyers and sellers. That said, we are done apologizing for Skype. It is a great stand-alone business, there’s an enormous market and there are huge opportunities.”

There are also plenty of opportunities ahead for eBay’s other major business units, Donahoe and other company executives told analysts as they mapped out an ambitious growth strategy. That plan aims for nothing short of global dominance for its PayPal payment service and transforming the eBay marketplace into an online liquidation sales leader.

But it’s Skype — and eBay’s inability to sufficiently monetize it — that’s proven one of the company’s most vexing problem.

Saving Skype

And it’s also where the company has similarly lofty aspirations.

Skype President Josh Silverman laid out plans for making Skype the “leading communication software company,” a growth trajectory that will see the unit more than double its revenue over the next three years.

The unit earned $550 million in revenue last year, with
currently has 400 million registered users and Skype calls accounted for more than eight percent of global international call minutes, Silverman said, adding that it. Additionally, he said calling minutes per active user are up 72 percent year-over-year for Q4 2008.

Doubling that hinges on bolstering advertising and paid services promotions, leveraging mobile platforms and partnerships, tapping into the enterprise market, and by expanding Skype into hardware devices, he said.

Silverman said the first step is to boost Skype’s core business by marketing it similarly to Facebook, which encourages friends to recommend the service to others in their address books when they first try it out.

He also said Skype needs to better promote its paid products because users “have to hunt to find” the paid products because they’re buried on Skype.com, which he added would begin carrying more advertising.

But it’s in mobile where things could really heat up for Skype, Silverman said. For one thing, he said the company is positioned to capitalize on a paradigm shift in communications.

“We no longer communicate on phones. Now it’s on multipurpose devices, and communication is no longer just about voice,” he said. “Over time, hardware becomes commoditized. The opportunity for profit is at the software layer — that’s where you capture the profit.

“The opportunity is massive but the solution must be device-agnostic, it must be network-agnostic. We think the winner’s going to be a software company, a brand that stand for communication, and that’s us.”

Page 2: Moves in mobile and the enterprise

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That’s why the company sees it critical that Skype broaden its penetration into mobile devices and strike new partnerships with operators. Silverman said its service is already available for download to mobile phones on several platforms including Google Android, Java and Windows Mobile, the latter having had 12 million downloads by the end of 2008.

And citing the successful “Skype Phone” created with Hutchinson 3, Silverman said Skype will try to forge more partnerships with mobile carriers.

“The operator gets a higher profit margin on this phone,” he said. “Even though there’s a big Skype button there, they start to use the phone for Facebook, Google and then everything else because the engagement in the device goes up. If the customer wins, the entire ecosystem wins.”

Already, the company’s efforts are paying off: Silverman said that Nokia, the world’s largest phone maker, just announced it will release a phone later this year that has Skype built into it.

Next on Silverman’s agenda is tapping into the business market, starting with small ventures and eventually heading to enterprises. He said the company will build out a business channel that will include service and support that businesses will be willing to pay for.

Finally, he said the company will work to expand “Skype-certified devices,” such as Webcams made by Logitech that are optimized for its software.

Global dominance for PayPal

Naturally, Skype’s not the only area where eBay sees sweeping changes taking place.

Donahoe said the company plans to focus on growing its PayPal payment business internationally, with the goal being that “PayPal will be the online global payment network — there will be no paper, no plastic, just PayPal.”

PayPal president Scott Thompson backed up the claim by forecasting that the division will double total payment volume to between $100 billion and $120 billion by 2011. This will be done primarily by expanding market share overseas, which he slated would go from 58 percent now to between 73 percent and 78 percent by 2011.

Thompson also said the payment division will bolster its promotion of BillMeLater, and announced that later this year the online lay-a-way service will be fully integrated into the PayPal wallet system.

He said the company is uniquely positioned to become the leading online payment method because of its foothold in the industry, experience in fighting fraud and fact that it was built to bridge the Internet and the traditional financial networks.

“No other payment system is designed for the Internet from the ground up, PayPal bridges two worlds, the financial networks and the Internet,” he said. “You can’t ‘Internet’ your way into (online payments). Our model is unique.”

He want on to say that the company has a “closed-loop” direct relationship with both the buyer and seller, which also sets it apart from the competition.

“Amazon doesn’t have that; Google doesn’t have that,” he said. “Pay Pal is the only one who has this on the list of advantages.”

Finally, Thompson said opening the PayPal platform up to developers this year and a boost in mobile PayPal technology would position the company’s payment system for greater prominence.

eBay bids on the secondary market

On the e-commerce front, Lorrie Norrington, who heads the eBay marketplace division, said the company is increasing its focus on the “secondary market” — liquidation and wholesale sellers who can benefit from transitioning their businesses to eBay.

Norrington reiterated several times that eBay is not a retailer, and that its model would win thanks to a heavy focus on the secondary market — a comment that comes following criticism that the company had begun mimicking Amazon (NASDAQ: AMZN) to remain competitive.

In what some industry watchers had called the “Amazon-ification” of eBay, the company’s marketplace had been shifting in focus from online auctions to more fixed-price sales, and recently opened up a new seller system called Large Merchant Services for high-volume catalog sellers.

But Norrington said there is a “global opportunity” in not just sticking to its roots, but by tapping into the liquidation, outlet and wholesale markets. In that industry, sellers face a volatile supply chain and need to move large amounts of product quickly while testing price points — all of which are challenges in brick-and-mortar stores.

“By consolidating the process online, we can create a step in that supply chain,” she said.

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