January 08, 2006

Skype and Ebay -It is not so bad!

I have been searching for for evidence as to why Ebay is my favorite long-term internet play and you should hope for weakness. Found some.

I want to offer my opinions on things, but as I learn to blog and link and surf amongst the smart minds also blogging, I have found that why recreate something so well though out.

Here I go again. Henry Blodget - famed Merrill Lynch amalyst - poster child for the internet bubble has a good blog.

Aptly named, internetoutsider, Blodget offers crisp, analysis of all things internet. On the Skype acquisition, Blodget writes:

Mossberg Does Skype; Ebay Looks Smart

WSJ's gadget titan Walt Mossberg reviews Skype 2.0 and predicts it is ready to blast into the mainstream. Along these lines, I spoke with an experienced Internet CEO yesterday who runs two small companies, both of which are Skype-only, neither of which has a single land-line phone.

Skype is doing what it needs to do to keep VOIP synonymous with Skype (a strategy whose wisdom is nicely illustrated by the power of the equations "Google = search," "Kleenex = tissue" etc), and as long as it can keep doing so, eBay looks smart. What most observers missed about the Skype acquisition, in fact, was that the price eBay paid was irrelevant.

The outcome for Skype is likely to be binary: home run or bagel. In the bagel scenario, eBay will lose 100% (or 5% its market cap). Although not inconsequential, companies have made riskier bets (Time Warner, for example).

In the home run scenario, meanwhile, eBay will make at least 10X. (I don't want to rush to hyperbole here, but this is not a small market opportunity we're dealing with, and the idea that the leading global VOIP player could someday be worth 1/5th of Google's current value, 1/3rd of Verizon's current value, or 1/2 of Yahoo!'s current value is not far-fetched.) Quibbling about whether eBay should have paid $1 billion, $2 billion, or $4 billion, therefore, is a waste of time.

My two cents - Too bad he did not do this type of analysis at Merrill Lynch. That said, it is smart to read him now. Lot's of successful venture capitalists lost $100 million of investor's money in the bubble and have come back strong. It's America stupid!

At Cypress Golf I am amazed at the low cost of our monthly phone bill - we use Skype in our Phoenix office. Service is sometimes spotty but nobody has quit over it.

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