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eBay unhappy with Skype, as CEO goes

Co-founder Zennstrom stands down at VoIP firm

Skype's co-founder Niklas Zennstrom has handed over his CEO title to become non-executive chairman of the board of directors of eBay.

Michael van Swaaij, eBay's chief strategy officer, is stepping in as interim CEO until a permanent replacement is hired, eBay announced yesterday.

Also out is Henry Gomez, who has been with eBay since 2000 and joined Skype about two years ago. After serving as general manager of Skype North America and later Skype chief marketing officer, he was named its president in December 2006. Gomez will return to the eBay fold as a senior vice president for corporate affairs.

eBay acquired VoIP provider Skype in October 2005 for approximately $2.6bn, plus an optional amount dependent on the achievement of certain goals.

From the start, many have questioned the logic behind the acquisition, suggesting that eBay would have a difficult time recouping its investment and using Skype to boost interactions eBay among buyers and sellers.

In the second quarter, which ended on June 30, Skype's net revenue hit $90m, up 103 percent compared with the same quarter in 2006. Meanwhile, registered user accounts grew 94 percent to 220 million.

However, eBay CEO and president Meg Whitman, discussing the second quarter's financial results in a conference call in July, said that, despite its revenue and user growth, Skype hasn't achieved the desired level of "user activity".

In August, Skype suffered a widely publicised and embarrassing outage that lasted about two days and left millions of users fuming worldwide and many openly questioning the stability of Skype's technical platform.

The Skype management changes aren't due to the unit's financial performance, said eBay spokesman Hani Durzy. Zennstrom decided to step down as CEO of his own accord in order to focus on other projects. As non-executive chairman of Skype, he will serve mostly in an advisory role, Durzy said.

Gomez, meanwhile, was asked by Whitman to return to eBay and take on his new role, which will involve high-level communications and government relations tasks, Durzy said.

Durzy acknowledged that eBay is disappointed that Skype hasn't performed as well as expected in the short term in the areas of user activity and monetization, but the company believes Skype is still a very valuable asset.

Skype will try to boost its monetisation capabilities by exploring broader e-commerce options, possibly within services like SkypeFind, in which businesses are listed and recommended, and SkypePrime, a service for selling advise and expertise.

On Monday, eBay also announced that it has paid €375m to settle "all of its future obligations" under an agreement signed with certain Skype shareholders as part of the acquisition.

The "earn-out" agreement called for payments of up to approximately €1.2bn based upon specific active user, revenue and gross profit targets to be achieved in 2008 and the first half of 2009.

"eBay believes that the €375m payment is reasonable given the progress and anticipated rapid growth of Skype's active user base," eBay said.

By advancing this payment ahead of the original date, eBay has settled all of its obligations related to additional payments tied to the Skype acquisition, Durzy said.

The payment, together with an additional amount of €630m will be taken as an impairment charge to be recorded as part of eBay's third quarter financial results, the company said. The €630m isn't being paid to anyone, but rather is considered an impairment charge, Durzy said.


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