Very nice article at Read/Write Web about eBay and its business model. The theme of the article is that eBay as an auction site is going to continue to face tough competition, which it may or may not overcome … but that some of the other businesses of eBay are doing extremely well, and seem positioned for the end-game. The author particularly calls out PayPal, which has been solving the problem of doing safe banking on the Internet one country at a time, and Skype, which has been growing 30-40% per year, as great businesses that are undervalued as part of eBay.
The PayPal argument is compelling to me: it’s a great business, and being part of eBay creates complicated relationship issues for eBay competitors who otherwise would be great supporters of PayPay.
Skype I’m less convinced about. While I love Skype, and use it regularly, its present business model has two serious problems. First, Skype is bizarre in that it is one of the few communications business to have an inverse Metcalfe’s law effect: the more people who use Skype, the less money the company will eventually earn — because Skype calls are free if both ends use Skype. Of course, this is only a problem at the end-game, which is likely many years away, but it may be a fundamental problem eventually.
Second, Skype is in a business with relatively low barriers to entry. They have the lead in the audio and video encoding right now, and have by far the best interface … but the telcos should be well-positioned to compete for the business if they decide to tackle VOIP in a big way. It would be scary to be Skype and to face several of the baby bells coming fast for your business.
What do you think? Do you want a chance to buy Skype of PayPal stock, or would you rather they stay safe in the eBay cocoon?