How Deal for Skype Could Help PayPal Grow

By Wolfe, Daniel | American Banker, September 15, 2005 | Go to article overview

How Deal for Skype Could Help PayPal Grow


Wolfe, Daniel, American Banker


eBay Inc.'s deal for the Internet telephone company Skype Technologies SA could also boost PayPal Inc.'s efforts to expand into new countries and even farther beyond the online auction market.

In the second quarter 70% of PayPal's transactions were made to fund purchases made through its San Jose parent, eBay. The unit's international growth strategy has long been to follow eBay into countries wherever its auction services become popular.

But Skype, which eBay said this week it would buy for $2.6 billion in cash and stock also has a diverse international customer base. (With performance-based triggers, the total price tag could reach $4.1 billion.) More than 80% of its 54 million registered users live outside the United States, and many of them in countries where neither eBay nor PayPal operate.

"Just as PayPal benefited from eBay users, we hope that PayPal will benefit from Skype users," Meg Whitman, eBay's president and chief executive, said in a conference call Monday.

Skype's technology breaks voice signals into digital packets and sends them across the Internet. The Luxembourg company's customers get free computer-to-computer voice calls, and for a fee they can send calls from a computer to someone using a traditional phone. Its international rates for such calls are generally cheaper than those most companies would charge for using a telephone.

In the second quarter Skype, which also accepts credit cards, began accepting PayPal payments for pre-purchased blocks of phone credit. Amanda Pires, a spokeswoman for PayPal, said it is now "one of the most popular ways to pay for Skype."

Ms. Whitman said eBay wants to let customers use Skype's voice service during auctions, and she hinted that there would be changes in store for PayPal as well.

She gave few details, but she said there is plenty of room for PayPal to grow. "What if every PayPal user had a Skype account, and vice versa?"

Ms. Pires said Skype would play an important role in PayPal's international growth strategy.

"Because Skype can be used anywhere in the world, that will play nicely into that strategy," she said. "We continue to see demand from our users to expand to more countries."

Analysts said there are several ways eBay could use Skype to increase PayPal's traffic.

Gwenn Bezard, a research director at the Boston market research firm Aite Group LLC, said PayPal and Skype could be "bundled" into a single service, "so people could use it to communicate with their family and to send money to their family. …

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