Magazine article Newsweek

Tracking eBay's New Bid; CEO Meg Whitman Paid Billions for Upstart Skype. Now She Has to Make It Pay

Magazine article Newsweek

Tracking eBay's New Bid; CEO Meg Whitman Paid Billions for Upstart Skype. Now She Has to Make It Pay

Article excerpt

Byline: Brad Stone and Rana Foroohar

The folks at ebay will undoubtedly be pleased to hear about the recent experiences of Austrian art dealer Alexander Zacke, who has sold antiques on the site since 1998. Zacke is one of the few eBay sellers who have combined their auctions with the free Internet telephone service Skype, which eBay bought last summer for $2.6 billion. In February, Zacke listed his Skype user name on an auction of 120 pieces of rare Chinese art, and invited potential bidders to call and talk to a Mandarin-speaking art expert. Suddenly, his remote, impersonal digital store carried the promise of a warm human voice. Those who spoke to the expert on average bid higher than those who did not, and the entire collection sold for $150,000, close to Zacke's eBay record for Asian art. "It's the sort of service that won't necessarily help you sell simple $10 items, but can really help with high-end, complicated sales," he says.

This week, the San Jose, Calif.-based eBay will see whether its multibillion-dollar bet on the Internet telephone firm will pay off just as handsomely. At its annual "eBay Live" convention, the company will announce plans to integrate Skype into its U.S. marketplace for the first time. Sellers can choose to include Skype buttons in their auctions for a few carefully chosen product categories, such as cars, real estate and diamond solitaire rings. CEO Meg Whitman hopes that this time-honored sales technique--good old-fashioned conversation--will generate more trust between buyers and sellers, and increase the number of sales--and eBay's commissions.

The stakes for eBay's integration of Skype are enormous. Over the last few years, the e-commerce giant has been furiously remaking itself to survive in an increasingly competitive, maturing industry. When NEWSWEEK put eBay on its cover four years ago, the company was purely an auction firm, growing fat from commissions on the sale of the doodads and gewgaws that sellers found in their attics. Its primary rival at the time was, and the rise of e-commerce fueled its growth rate and stock price. But as more people got comfortable buying all things online, eBay's expansion leveled off. Then came Google. The search leader is now one of the biggest blips on eBay's radar: it offers small businesses a way to advertise alongside search results and to lure Web surfers to their own sites. The threat from Google is so formidable that last month, eBay allied itself with Yahoo, striking a deal that allows Yahoo to place search ads on eBay.

Whitman, 49, has responded to eBay's new challenges by aggressively diversifying the company. She bought not just Skype but payment firm PayPal in 2002 and online retailer last year, and last month introduced eBay Express, which lets customers purchase new books, clothes and consumer electronics for fixed prices. Wall Street has viewed all these changes skeptically: eBay stock has fallen 31 percent over the last two years, and 23 percent since it bought Skype last summer. "The market has very low expectations for Skype. It was disappointed by eBay's acquisition," says Citigroup analyst Mark Mahaney.

Leading up to the sale, Skype looked like an incredibly appetizing meal for several com-panies. …

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