Ebay finally bites the bullet after $2.6bn acquisition

SKYPE HAS over 405 million registered users, generated $551 million in revenues last year and is the number one downloaded free application for the iPhone.

Despite the impressive figures it has been no secret that e-commerce giant eBay has been keen to offload the internet telephony service it acquired for an eye-watering $2.6 billion in 2005.

Many industry observers questioned what an online auction house with an electronic payments subsidiary (PayPal) wanted with a provider of free and cheap telephone calls. For its part, eBay trumpeted how the deal would “create an unparalleled ecommerce and communications engine for buyers and sellers around the world”.

Founded in Estonia in 2002, its engineers and senior managers had previously developed Kazaa, software for the peer-to-peer sharing of files, which had got them into hot water with the music industry. Skype was not the first company to provide voice over IP software which routes calls over the web, but the offer of relatively good quality PC-to-PC calls was enough to attract millions of users – 54 million at the time of the eBay purchase.

Additional features such as the ability to call Skype users from a normal telephone, or to have phone numbers in different countries, helped it become the leading internet phone company.

A broadband internet connection or 3G mobile phone is required to use Skype. Video and instant messaging make it popular with home users keeping in touch with overseas relatives, while small firms are attracted by cheap international communications.

Cracks first began to emerge in the eBay/Skype relationship following a series of disruptions to the service in August 2007.

In October that year eBay effectively admitted it had overpaid and took a $900 million charge on the Skype purchase.

When eBay’s long time chief executive Meg Whitman departed last year, her successor John Donahoe was not long putting his own man Josh Silverman in charge at Skype, replacing co-founder Niklas Zennstrom.

Next year’s floatation of Skype could prove to be bitter sweet for the e-commerce giant.

If it is a success it will show that eBay failed to unlock the value in Skype, while if it underperforms it confirms that the auction site overpaid in 2005.