eBay bought Skype so strangers could phone each other

eBay has written down its Skype purchase by one and a half billion dollars and the founder has left. The company paid around two and a half billion in 2005, so most of that is now formally acknowledged as gone.

The thesis at the time was that buyers and sellers would want to talk to each other, and that voice would make transactions easier and disputes rarer. It was explained patiently to anyone who asked.

Nobody appears to have asked whether people buying a second-hand camera lens from a stranger want a phone call with that stranger.

They emphatically do not, and the reason is the whole point of the platform. The value of an auction site is that it lets you transact with someone you have no relationship with and never speak to. The feedback score exists precisely so you do not have to form a judgment about a person. Adding a voice call to that is not a feature, it is a reintroduction of the friction the site was invented to remove.

So the write-down is not a valuation correction. It is eBay conceding that the reason it bought the company was wrong.

What is easy to miss underneath the number is that Skype itself is doing fine. Tens of millions of people use it, the quality is better than the phone network on a decent connection, and it is the default way a large number of people now speak to family abroad. As a product it works.

As a business it has a structural awkwardness that predates eBay and that eBay could not have fixed.

Nearly all the usage is free. Skype to Skype costs the company bandwidth and returns nothing. The revenue comes from calls out to ordinary telephone numbers, priced below what a carrier charges, and that is a real business today. It is also a business whose addressable market shrinks every year, because every person who moves a contact from the phone network onto Skype removes a reason to make a paid call.

The product succeeding is what erodes the way it earns. That is a difficult thing to build a plan around, and it explains why the pricing has stayed conservative while the user numbers climbed.

My expectation is that Skype outlasts the strategy that acquired it, gets sold on within a few years to somebody with a clearer use for a communications network, and is worth more to that buyer than it ever was to an auction site. The asset was never wrong. The reasoning about what it was for was wrong, and reasoning is the expensive part.