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Are eBay and Skype a good fit?

Hardly a marriage made in heaven

Why would an online auction company be interested in buying an internet telephone company?

Numerous industry experts are trying to answer that question after learning yesterday that eBay - the undisputed leader in online auction services - is reportedly in talks to acquire one of the world's largest providers of free VoIP (voice over IP) services.

The head-scratching was prompted by a report in The Wall Street Journal that claimed eBay is considering paying between $2bn and $3bn to acquire Skype. The report quoted unnamed sources familiar with the talks.

Skype, which has held talks with other potential suitors, is tightlipped. "We don't comment on rumours," said Skype spokeswoman Kat James, in an email.

EBay could not be immediately reached for comment.

That Skype is talking to another prospective buyer shouldn't surprise anyone. The Luxembourg-based VoIP service provider has already held negotiations with a number of interested buyers, including Microsoft and Yahoo, but none of these talks have led to deals.

And that eBay is snooping around the market for a good buy should equally come as no big surprise. As its core online auction business matures, the company has been looking to expand into new product areas and international markets.

Analysts, however, have mixed opinions on whether a hook-up between the two internet companies is a good or bad thing for their business development - and their customers.

"I'm not sure if eBay really needs to buy a company like Skype to add another form of communications to its service," said Ian Fogt, senior analyst at Juniper Research. "You don't need to own an email company to encourage users to use this form of communication. A partnership would suffice."

Nor was Fogt convinced about the deal if it is primarily intended to help eBay diversify into new markets. "It would be a courageous move for eBay to expand into this new area; it wouldn't be necessarily wrong, but certainly high risk," he said.

Jeff Kagen, an independent analyst and an authority on telephone services, agrees. "I do not see [eBay-Skype] becoming anything more than one of the small players in the phone business," he commented.

Kagen argues that over the next five to 10 years, most phone customers will remain with traditional telephone and the cable television companies because of their bundled telephone, cable, internet and wireless offers.

These companies will account for roughly 80 percent of the telephone market, including VoIP services, while the smaller, niche players such as eBay-Skype will have the remaining 20 percent.

But Charles Abrams, research director at Gartner, sees opportunities for internet companies such as eBay and Skype, especially in the area of web services.

For both companies to be successful in the long term, he said, they will need to enable customers to develop their own types of applications using web services on a platform provided by eBay, Skype or the two companies together that offers “a competitive, differential advantage”.


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