eBay's Skype Conundrum

skype.pngNow that eBay’s Skype write-down has caused it to take a $936 million loss last quarter and founder Niklas Zennstrom is out, the question is what will eBay do with Skype. According to one source, the remaining Skype/eBay management team is holing up in London this week to try to figure out how to actually make money from Skype. (While the business is on track to pull in just over $400 million in revenues this year, expectations were higher).

The problem with the $3.1 billion Skype acquisition from the start is that it never really made much sense for eBay. Unlike Paypal, which accounted for about 15 percent of payments on eBay when it was purchased five years ago, nobody uses Skype to close deals on eBay. In fact, one of the original justifications of the deal was that it would help “increase the velocity” of transactions on eBay by allowing buyers and sellers to actually speak to one another for bigger items where more communication might be necessary. But Skype has yet to be implemented on eBay itself (someone please correct me if I’m wrong). The reason for that is because if buyers and sellers could call each other, that would effectively allow them to go around the eBay marketplace. You and I could close a deal on an old camera or bicycle without paying eBay its cut.

Meg Whitman, who just left the stage at the Web 2.0 conference, admits: “We weren’t quite dead-on with the strategy that we thought was the strategy.” Yet she says she remains bullish on Skype’s potential, and defends the acquisition, reasoning that, “In this business the cost of inaction is far greater than the cost of making a mistake.”

The best bet for Skype right now is to expand into other areas of voice communications like mobile, and make more deals to embed Skype into big Websites like MySpace. Just don’t expect to see a lot of integration into eBay itself.

(A bit off topic, Whitman also hinted on-stage that eBay is thinking about how to blow out Paypal into a full-fledged identity and reputation system that you can take with you all across the Web. The Web needs a reputation system and a way to authenticate people’s true identities. This is right in eBay’s sweet spot. People already trust PayPal.)