eBay to acquire Skype

To increase its worldwide presence, Internet auctioneer eBay has agreed to pay up to a whopping $US4.1 billion ($5.3 billion) for Internet phone provider, Skype Technologies. Embracing Voice over Internet Protocol (VoIP) technology, eBay is also positioning itself as a competitive force amongst a myriad of companies ranging from Microsoft to small local phone providers.

VoIP is a somewhat new, efficient and cheap way to make phone calls. The technology works by sending voice information in discrete digital data packets that get routed via the Internet rather than in the traditional telephone network. VoIP's main selling point is that it eludes regular telephone charges.

In Australia the major VoIP providers are Engin, MyNetFone, Freshtel and BroadBand Phone. But on the international market Skype is leading the charge, causing much rumbling in the telecommunications industry.

Founded by the Luxembourg-based creators of Kazaa, a well-known free music sharing program, Skype offers free software that lets people talk over the internet using only a PC, Internet connection and microphone. Since its inception in 2003, the free software has been downloaded 164 million times, with 53 million registered users worldwide.

Local phone companies are worried about Skype stealing their business as online powerhouses such as AOL, Yahoo and Google are scrambling to get a piece of the action. Through the Skype acquisition, eBay hopes to create an unparalleled e-commerce and communications engine for people worldwide.

Currently, eBay's 157 million buyers and sellers communicate through email before completing a transaction. The auctioneer anticipates that by offering free phone calls as an instantaneous and private way to communicate, more people will be attracted to the site and transactions numbers will rise.

If that's not enough, Skype has significant presence in areas where eBay just isn't that popular. Only an eighth of Skype's users are in North America where the majority of eBay customers reside. By leveraging Skype's presence in countries such as Japan, eBay hopes to attract more customers from such places.

Industry analysts fear that eBay's acquisition of Skype is a bit of a stretch, suggesting that the phone provider offers no sustainable advantage to eBay customers.

Consumers can be fickle and there is no guarantee that Skype users will stay with the service or be attracted to eBay because it owns Skype. Analysts suggest that Skype will face some serious competition in coming months from internet monoliths Google, MSN and Yahoo as they begin to combine content with communications like voice and email.

Will the strategy work for eBay? Looks like only time will tell.



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