eBay to sell off Skype via IPO

eBay plans to spin off Skype via an initial public offering (IPO) because the internet telephony unit doesn't mesh with the company's two other businesses - e-commerce and online payments.

eBay expects to complete Skype's IPO in the first half of next year, it announced on Tuesday. When exactly that happens will depend on market conditions.

"Skype is a great standalone business with strong fundamentals and accelerating momentum," eBay CEO John Donahoe said. "But it's clear that Skype has limited synergies with eBay and PayPal."

The plan is yet another acknowledgement that eBay's $2.6bn acquisition of Skype in October 2005 was a costly blunder.

Skype was supposed to significantly enhance communications between merchants and buyers in eBay's online marketplace, but that never happened. Two years after the acquisition, eBay wrote down Skype's value by $1.4bn.

Operating Skype as a separate, publicly traded company is the right thing to do for the internet telephony player and eBay, Donahoe said. It will give Skype the necessary "focus and resources" and allow eBay to concentrate on e-commerce and online payments, he said.

Donahoe made the decision after giving himself a year to evaluate Skype's performance and its potential synergies with eBay and its other websites and services, eBay said.

Skype had revenue of $551m in 2008, a 44 percent increase compared with 2007. It had 405 million registered users at the end of last year, a 47 percent jump from the year before. eBay expects Skype's revenue to exceed $1bn in 2011, it said.

eBay itself is struggling to jump-start growth in its online marketplace, as it faces increased competition from Amazon.com and other rivals. In 2008's fourth quarter, the revenue from its Marketplaces unit declined 16 percent from the same quarter in 2007, while gross merchandise volume declined 12 percent. Unique monthly users also dropped year over year.

Saying eBay hadn't kept up with key trends in e-commerce, Donahoe outlined a three-year plan for growth last month. "The [eBay] marketplace hasn't kept up with competition, nor customer needs," he told financial analysts at eBay's San Jose, California, headquarters.

eBay has been a victim of its success, which made it hard for it to make changes that would position itself for the future. "We were trying to protect our past," he said then.

On Monday, eBay announced the sale of StumbleUpon, another company it acquired in 2007, saying that it too lacks "synergies" with eBay's core business.

On Tuesday, eBay said it will begin taking a more hands-on approach to solving disputes between merchants and sellers, a departure from its laissez-faire philosophy.

Starting around mid-June, eBay will sometimes issue refunds at its own expense to buyers who don't receive an item they bought or receive a different product. eBay said it will do this even if it determines the seller wasn't at fault.

It will also steer buyers to take their complaints to eBay for resolution, as opposed to reporting them to its PayPal online payment unit.

The steps are part of an attempt to make eBay more attractive to a broader audience of shoppers who consider the buying experience today too risky and chaotic.