What does the $936 million loss means for eBay?

This is only the second time eBay is posting a loss. But the loss has been huge this quarter: $936 million. The loss is seen as a hangover of eBay’s purchase of Skype way back in 2005. Back then, eBay had purchased Skype for $2.6 billion and promised to pay over $1.7 billion in incentive payments. But not having gained the necessary mileage out of the purchase, eBay decided to write down the value of the deal by around $900 million as well as had to appease the shareholders with over $530 million for having pulling off the incentive payments.

This has resulted in the $936 million loss. But does this mean eBay has been losing steam? We will have to see this from the perspective of what eBay sees itself in a few years; their strategy for growth. I see eBay having a firm foothold for itself in the future with investing in two areas that are defining the present as well as the future: (1) Social networking and (2) Mobile phone technology

Social Networking

When eBay announced the launch of its social network ‘neighborhoods‘, many were quick to criticize that eBay is trying to be a me-too in the social networking space and that it was too late a launch. On the contrary, I see it as a perfect time for eBay to go social. The reason is that eBay could not have launched social networking any earlier. Prior to 2005, social networking had not taken roots, and going social was not the perfect strategy. When your audience do not understand social networking, you better not teach them. Let it to those who have social networking as a core competency. Going social back then would mean that eBay would have had to dilute their competency and strategy in being an auction-site. Since 2005, eBay has tried to diversify into other technologies and Skype has been a nice acquisition. As I would mention in the next section, eBay has a lot to get back from its Skype acquisition. So, during this time period, eBay has done well to concentrate on consolidating these two businesses. Post-2007, Social networking shall be too old a concept and with Facebook scaring even Google to an extent, eBay would do well to launch their own social network well before Facebook get their users to perform auctions as well.

Social networking provides a perfect platform for EBay users to form their communities. No doubt it was an essential platform from the day eBay got operational. But keeping in mind the reasons stated above, it looks like a great addition for the future growth of eBay.

Mobile Phone Technology

I have been a fan of all these companies who have taken to the mobile phones for the future growth. I find this as the segment as one that defines the future. The future of internet is outside US and in Asian economies, and here it’s the mobile phones that rule. With increasing mobility, calling your kin overseas is proving to be costly, and the Skype mobile phones could be making a mark here. Skype mobile phones shall help you make ‘free’ Skype calls charged on normal SkypeOut charges. Skype may not be a popular service as yet in many of these countries. But the company is making a right move by targeting customers in Europe, Asia and Australia with this service. With Apple and possibly Google entering mobile phone space, it is inevitable for eBay not to venture into this space as it has been at the forefront of internet based voice communications with Skype.

Nothing is certain about whether Skype shall prove successful in pushing sales of their mobile phones. But with the present scheme of things, that certainly looks to be one of the most strategic steps that shall drive its future growth.

2 thoughts on “What does the $936 million loss means for eBay?”

  1. To add to your contents, Skype is banned in the Middle East. Not really sure on why it is banned, but google with gtalk rocks its presence there as well. How is this possible?
    Moreover any social networking site is banned in the Middle-east. Mate – if you have answers for this do post it in any of your future blogs.

  2. Hi Srini

    Skype has had its problem the world over because their PC-to-landline service is not really liked by the telcos who see a huge loss in revenue because of their presence..So, anywhere the telecom companies have an influence, they try to block services like Skype. Skype was banned even by AT&T on their 3G wireless network in US until recently..

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