An Extremely Valuable Asset

“When eBay Inc. purchased Skype for $2.6 billion in 2005, Wall Street wondered how the Internet-calling company could be worth so much. The skeptics appear to be proven right.

“Acknowledging that its largest-ever acquisition hasn't lived up to expectations, eBay yesterday said it would take a $1.4 billion third-quarter charge related to Skype. It also announced a management reshuffle, with Skype co-founder Niklas Zennstrom stepping down as chief executive of the unit…

“Companies such as Skype… generate tremendous consumer loyalty, [yet] they can't always turn users into profits. It's just the latest of many innovative technologies -- such as social networking, online music and digital video -- that inspire legions of followers but don't necessarily turn into a profitable and sustainable business…

Analysts were so uniformly negative at the time of eBay's acquisition of Skype that the news yesterday was greeted with shrugs. EBay shares rose 64 cents to $39.66 in Nasdaq Market trading yesterday.

“‘We had concerns at the time of the acquisition that eBay was overpaying for an unproven technology and expecting a lot of synergy that didn't seem plausible,’ says Derek Brown, an analyst at Cantor Fitzgerald…

“It's also a setback for eBay Chief Executive Meg Whitman and her strategy to rev up the San Jose, Calif., company's growth through acquisitions…

“EBay acknowledged that Skype has been disappointing, with spokesman Hani Durzy noting that the business ‘hasn't performed as well as we'd expected.’ But he added that Skype remains an ‘extremely valuable asset.’

“EBay bought Skype two years ago knowing that Internet calls made from one computer user to another would generate little or no revenue. But it hoped to entice more people to join the Skype network and eventually make money through other services…

“In an interview yesterday, Mr. Zennstrom, 41 years old, says he always planned to leave Skype at some point.”

(“Sorry, Wrong Number, eBay Says on Skype; A $1.4 Billion Write-Down Shows the Pitfalls Plaguing Some Internet-Phone Services.” Mylene Mangalindan and Christopher Rhoads. Wall Street Journal: October 2, 2007. pg. B.1)

INTANGIBLE SYNERGIES are a very real trap -- trapping us mentally, emotionally, culturally, operationally, and certainly financially. When we think that we have run out of ways to create real value within existing operations, it may be time to revisit and re-view our foundational premises.