EBay Struggles to Reinvigorate Growth

question 88

Essay

eBay Struggles to Reinvigorate Growth

Founded in September 1995, eBay views itself as the world’s online market place for the sale of goods and services to a diverse community of individuals and small businesses. Currently, eBay has sites in 24 different countries, and it offers a wide variety of tools, features, and services enabling members to buy and sell on its sites. The firm’s primary business is Markeplaces consisting of eBay, Shopping.com, and classified websites. In 2006, this business accounted for 90 percent of eBay’s sales and profits. Historically, acquisitions made by eBay have always been related to e-commerce. For example, concern about slowing growth in its core U.S. market caused eBay to acquire online payments provider, PayPal, in 2002. The firm achieved significant synergy between eBay and PayPal by facilitating payments between buyers and sellers.

In late 2005, eBay announced that it had acquired Skype International SA, a firm whose software enabled PC users to make calls over the internet, for $2.6 billion. Skype had revenue of $60 million in 2005, a tiny fraction of eBay’s $4.4 billion in 2005 sales, and it was unprofitable. Skype’s existing businesses include services that give people the ability to call landline phones for about 3 cents a minute, voicemail, and providing a traditional phone number for Skype accounts. Skype is facing new competition from Google, Yahoo!, and many startups.

eBay expects Skype to facilitate trade on their sites by increasing the ability of buyers and sellers to negotiate. In addition to paying eBay listing and completed-auction fees, sellers also could pay eBay a fee for getting an internet call, or lead, via Skype. eBay will also use Skype to facilitate entering new markets, such as new cars, travel, real estate, and personal and business services. Skype software gives eBay an advantage in China, Eastern Europe and Brazil, where online trust is not well-established and where haggling may be more a part of the culture.

The acquisition of a telephony company represented a marked departure for eBay, which had previously acquired companies directly related to e-commerce. eBay is venturing into new territory without any overt request from or support of its buyers and sellers. Historically, buyers and sellers guided eBay into new markets through their activities, such as embracing PayPal years before eBay acquired it, or by requesting new features. In the past when eBAy has gone off on its own, such as collaborating with Christy’s for live auctions, it has been unsuccessful. Only time will tell how well this acquisition will work.
-Do you believe this acquisition if related or unrelated to eBay's business? What are the implications of your answer..

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Definitions:

Salvage Value

Salvage Value is the estimated residual value of an asset at the end of its useful life, expected to be recovered once the asset is no longer useful in operations.

Straight-Line Method

A method of allocating the cost of an asset evenly across its useful life for accounting and depreciation purposes.

Completed-Contract Method

An accounting method where revenue and expenses are recorded only when a contract is completed, used primarily for long-term projects.

Percentage-Of-Completion Method

An accounting technique that recognizes revenue and expenses related to long-term projects as a percentage of the work completed during the period.