ebay and skype merger case study

eBay and Skype: The Misalignment of Strategic Goals

Mergers and acquisitions (M&A) are the different ways companies are combined. The average value of merger and acquisition deals has risen globally for thirty years. By the beginning of 2023, South America had the highest average value of M&A deals. To facilitate these complex transactions, many companies turn to virtual data room providers to ensure secure and efficient management of sensitive documents and communications.

Understanding M&A Terms

The terms mergers and acquisitions terms usually correspond; however, they have slightly different meanings. A merger is usually used to describe the procedure of joining forces to move forward as a single new entity rather than remain separately owned and operated. An acquisition is the process of a company obtaining all or a controlling interest in another company by one of several legal means.

Types of mergers and acquisitions

Beyond core types, there are also market or product extension mergers and numerous acquisitions that are, in some sense, mergers. There are main types of acquisitions based on the relationship between the buyer and seller:

• Horizontal . It occurs when two companies operating in the same market (and selling similar products or services) unite to dominate market share.
• Vertical . It involves two companies in the same industry operating in different stages of production. Vertical mergers are ideal for consolidating operations, increasing efficiencies, and cutting costs across the supply chain.
• Congeneric . In a congeneric merger, the acquirer and target company have different products or services but operate within the same market and sell to the same customers. They are indirect opponents, although their products often complement each other.
• Conglomerate . A conglomerate merger occurs between companies whose business activities and industries may be completely unrelated. In pure conglomerate mergers, the two firms may continue to operate separately within their markets, whereas, in a mixed one, they may look to expand product or market reach.
• Consolidation . It occurs when two or more business entities combine to form brand-new businesses. The main advantage of this type of merger is efficiency.
• Market extension or product extension merger . A market extension merger describes two companies in the same industry who join forces to expand market reach. A product extension merger occurs when a specific product is added to the product line of the acquirer from the acquired company.
• Share or interest acquisition . An interest or share acquisition is when the buyer purchases shares of the target from the owners. It's usually the case that the buyer takes all of the issued shares, giving the acquirer total control of the target company.

eBay and Skype Acquisition Failure

If a merger goes well, the new company's value should be appreciated as investors anticipate synergies to be actualized, creating cost savings or increased revenues for the new entity. However, executives can face large complications after the deal is finished. Different systems and processes, dilution of a company's brand, overestimation of synergies, and a lack of understanding of the target firm's business can all occur, destroying shareholder value and decreasing the company's stock price after the transaction.

The deal's background

Today, M&A insights suggest that the main purpose of any M&A deal is to create synergies between companies that aim to achieve growth that is much faster than natural growth. It always can bring a great amount of risk, which leads to the failure of such a deal and destroys the investor value, says (Gilbert Waters, Co-founder and marketing specialist at data-rooms.org)

The eBay and Skype deal is usually mentioned as a failed acquisition example. It stands as the most well-known case of failed acquisitions in the history of M&A deals . In September 2005, eBay Inc. acquired Skype Technologies for USD 2.6 Billion.

The deal's aims

eBay saw Skype as a means to increase the number of members in eBay's business structure, as Skype has millions of active users. As Skype emerged as a popular means of communication through VOIP, eBay saw this technology as it could bring many new members into its domain and act as a strong method of communication between buyers and sellers.

eBay aimed to integrate Skype into its commerce world to enhance online users' experience as a quick way of communication. Skype was bought for eBay's users as this would help generate more customer loyalty and increase the velocity of the trade among its users.

Reasons for the deal's failure

The primary reason for the failure of the eBay-Skype acquisition was the misalignment of strategic goals. eBay's business focus was e-commerce, while Skype was a communication company. The two companies had different visions, which led to conflicts in the integration process.

eBay's management believed that Skype's technology would facilitate communication between buyers and sellers, leading to increased sales, while Skype's management aim was expanding its services beyond e-commerce.

Then comes the cultural differences between eBay and Skype. eBay was a well-established corporation that operated with a set of clear guidelines and procedures, while Skype was a start-up that had an innovative and flexible work environment. Furthermore, Skype's management team wasn't fully integrated, leading to a lack of coherence among the top-level leadership.

The next reason for the deal's failure was the valuation of Skype. eBay bought Skype for $2.6 billion in 2005, an amount that was considered by many as overpriced. The acquisition was meant to enhance eBay's competitiveness by integrating Skype's technological expertise. Still, Skype's market value was based on its potential rather than its actual financial profit.

Another reason for the failure of the eBay-Skype acquisition was the technical challenges of integration. Skype's technology was incompatible with eBay's systems, leading to operational challenges that restricted integration.

Late mergers and acquisitions news has confirmed that it is essential to create an integration plan and a strategy that can mitigate the risks associated with M&A deals. Before entering into a deal and developing a constructive strategy to integrate the business, various factors should be considered. It is also important to draw conclusions based on examples of failed M&A deals to avoid mistakes in the future.

Most Popular

NASA Astronaut Captures Stunning View of Two Nearby Galaxies

Black Holes May Be the Key to Resolving Einstein's Gravity Dilemma

Future Missions, Space Weather Goals for Solar Physics Mapped by New Survey

Did Neanderthals Exhibit Abstract Thinking? New Fossil Study Thinks So

Moon's Largest Crater May Be Bigger Than Previously Thought

Latest stories.

Mercury Temperature, Composition and Other Interesting Details Uncovered in New Infrared Imaging

Subscribe to the science times.

Sign up for our free newsletter for the Latest coverage!

Recommended Stories

Voyager 2’s Historic Uranus Flyby May Have Captured Rare Event, Changing Scientists’ View of the Planet

Is the Ozone Layer Repairing Itself? Scientists Think So

SpaceX Dragon Successfully Docks With ISS, Delivering 6,000 Pounds of Supplies

Colorectal Cancer Deaths Increasing Among Millennials and Gen X: Learn the Warning Signs

• Search Search Please fill out this field.
• What Is an M&A Strategy?
• Understanding an M&A Strategy

Bank of America and Merrill Lynch

Volvo and renault.

• Corporate Finance

4 Cases When M&A Strategy Failed for the Acquirer (EBAY, BAC)

• Mergers and Acquisitions (M&A): Types, Structures, and Valuations
• Acquisition
• Why Do Companies Merge With or Acquire Other Companies?
• How M&A Can Affect a Company
• What's the Difference Between Mergers and Acquisitions?
• What You Should Know About Corporate Mergers
• Inorganic Growth
• Merger vs. Takeover
• Takeover Bid
• Hostile Takeover
• Hostile Takeovers vs. Friendly Takeovers
• What Are Some of the Top Hostile Takeovers of All Time?
• How Can a Company Resist a Hostile Takeover?
• Poison Pill
• Reverse Takeover
• Reverse Mergers: Advantages and Disadvantages
• Reverse Triangular Merger
• A Guide to Spotting a Reverse Merger
• How Does a Merger Affect Shareholders?
• How Company Stocks Move During an Acquisition
• What Happens to Call Options If a Company Is Bought?
• Stock-for-Stock Merger
• All Cash, All Stock Offer
• Acquisition Premium
• Exchange Ratio
• SEC Form S-4
• Special Purpose Acquisition Company (SPAC)
• Understanding Leveraged Buyout Scenarios
• Vertical Merger
• Horizontal Merger
• Conglomerate Merger
• Roll-Up Merger
• The Five Biggest Mergers in History
• The 5 Biggest Acquisitions in History
• 4 Cases When M&A Strategy Failed for the Acquirer CURRENT ARTICLE

What Is an M&A Strategy?

Transforming a small business into a large one, or scaling a business, occurs in one of two ways. Companies can grow their revenues and profits from within by cultivating and growing demand for their products and services, or they can acquire other companies.

Key Takeaways

• An M&A strategy is one whereby a company seeks to acquire other companies to achieve synergies and scale.
• An M&A strategy is riskier than an organic growth strategy.
• Some mergers fail to create synergies and destroy shareholder value.

The first strategy is known as organic growth. It requires patience but pays big dividends when executed successfully. The second strategy, known as a merger or acquisition (M&A) involves more risk.

Understanding an M&A Strategy

An M&A strategy can create synergies when companies with complementary products, services, and missions unite. However, an M&A strategy can also create tensions and failure when corporate cultures clash, or the acquirer fails to successfully integrate the acquired company's assets, systems, and brands. Some corporate unions fail to create synergies and thereby destroy shareholder value. The following four case studies show how mergers can create problems.

An M&A strategy can create synergies, but it can also create cultural clashes.

eBay and Skype

In 2005, eBay Inc. (NASDAQ: EBAY ) purchased Skype for $2.6 billion. The purchase price was extremely high considering that Skype had only $7 million in revenues. Meg Whitman, eBay's CEO, justified the acquisition by arguing that Skype would improve the auction site by giving its users a better platform for communicating. Ultimately eBay's users rejected Skype's technology considering it unnecessary for conducting auctions, and the rationale for the purchase dissipated. Two years after the acquisition, eBay informed its shareholders that it would write down the value of Skype by $900 million. In 2011, eBay was fortunate to find a higher bidder for Skype. It sold Skype to Microsoft and realized a $1.4 billion profit. While the eBay and Skype merger failed because eBay miscalculated its customers' demand for Skype's product, other M&A deals have failed for completely different reasons.

Daimler-Benz and Chrysler

In 1998, German automotive company Daimler AG (OTC: DDAIY), then known as Daimler-Benz, and American car company Chrysler merged to form a transatlantic auto company. Many observers praised the merger because it combined two companies that focused on different areas of the automotive market and operated in different geographical regions. However, the financial and product synergies for this merger soon paled in comparison to the cultural conflicts the merger created. Chrysler had a loose, entrepreneurial culture, while Daimler-Benz had a very structured and hierarchical approach to business. Analysts noted clashes between the German and American managers at the companies. Ultimately, the merger dissolved when Daimler sold its remaining 19.9% stake in Chrysler in 2009.

While Bank of America Corporation (NYSE: BAC ) and Merrill Lynch remain as a united entity, the 2008 merger faced serious challenges initially. The two companies took an inordinately long time to integrate their assets and make key executive announcements. Months after the announced merger, the two companies had still not decided which executives would run key groups within the firms, such as investment banking , and which of the two company's management models would prevail. The uncertainty created by this indecision led a lot of Merrill Lynch bankers to leave the company in the months following the merger. Ultimately, these departures destroyed the rationale for the merger. This merger illustrates how a lack of communication of key decisions to stakeholders in the company can lead an M&A strategy to failure.

$2.5 trillion

The value of global M&A deals in 2023, according to the latest data by the Institute for Mergers, Acquisitions, and Alliances.

The attempted merger of Volvo (OTC: VOLVY) and Renault SA (OTC: RNLSY) in 1993 encountered trouble because the two parties failed to address the ownership structure at the outset. Unlike the Daimler and Chrysler merger, this automotive deal lacked executive and cultural clashes. Instead, the two companies began their relationship as joint venture partners, which allowed them to acclimatize to each other. The merger was expected to save the companies $5 billion. However, the two companies failed to consider the problems of combining an investor-owned entity with a government-owned company. The merger would have left Volvo shareholders with a 35% stake in the combined company while the French government controlled the remainder of the shares. Many analysts believed that shareholders of Volvo and the Swedish people found it unacceptable to sell one of its prized companies to the French government.

University of Pennsylvania, Wharton. " eBay Calling Skype: Is It a Good Connection? "

eBay. " eBay Inc. Reiterates 'The Truth About Skype .'"

Mercedes-Benz Group. “ 1995-2007 .”

Institute for Merges, Acquisitions & Alliances. “ Hindsight or Foresight: Reassessing the DaimlerChrysler Deal as Merger of Equals or Acquisition .”

U.S. Securities and Exchange Commission. “ Form 20-F ,” Page 13.

Federal Reserve Bank of St. Louis. " Bank of America Buys Merrill Lynch Creating Unique Financial Services Firm ."

U.S. Government Publishing Office. " Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? "

Seven Pillars Institute. “ Bank of America’s Takeover of Merrill Lynch .”

Institute for Mergers, Acquisitions, and Alliances (IMAA). " M&A Statistics ."

Bruner, Robert. “ An Analysis of Value Destruction and Recovery in the Alliance and Proposed Merger of Volvo and Renault .” Journal of Financial Economics , vol. 51, 1999, pp. 142-149.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Accessories
• Entertainment
• PCs & Components
• Smart Home Security
• Wi-Fi & Networks
• Cord-Cutter Confidential
• Newsletters
• Digital Magazine – Subscribe
• Digital Magazine – Info
• Smart Answers
• Future Tech
• PCWorld Awards
• Best laptops
• Best antivirus
• Best monitors
• Laptop deals
• Desktop PC deals

When you purchase through links in our articles, we may earn a small commission. This doesn't affect our editorial independence .

Skype, eBay Divorce: What Went Wrong

The future looked bright in September 2005 when eBay announced it was buying Internet telephony company Skype Technologies for $2.6 billion. But after four years of unfulfilled expectations, the marriage between the online auction giant and the upstart VoIP provider came to an end Tuesday when eBay said it was unloading Skype to a group of private investors for $1.9 billion.

Bad Partners

“I’m a fairly regular eBay user, and there are ways of interacting without using voice over IP,” says blogger and tech journalist Tom Keating, who writes the VoIP & Gadgets Blog for TMCNet. “I think people like the anonymity of eBay. Talking is a great thing. You can communicate and ask more details about the product. But people prefer anonymity, and they don’t necessarily want to talk with the person on the other end.”

Andy Abramson, a marketing consultant and Internet telephony guru who writes the VoIP Watch blog, agrees. The eBay ecosystem, he says, consists of three groups: buyers, sellers, and third-party operators that ship products. “Those three [groups] were built around a bunch of customers who never wanted to talk to anybody,” Abramson says. With eBay, “you don’t have to talk to your customers. You have to email them. Skype is all about talking or chatting.”

The eBay-Skype marriage suffered from other problems too. First, the culture clash between the two companies was too great to overcome. “eBay is an extremely conservative, bank-like culture,” says Abramson. “Skype was out to be the democratization of voice. They were out to be the leveler of the playing field, and they’ve done that.” In addition, Skype went through several management teams during its four-year eBay period—a lack of consistency that didn’t help matters at all.

Skype’s Future?

Now that Skype is free of eBay, where will it go from here? Keating sees Skype making a play for the business VoIP market, where competition is fierce. Abramson believes the company will focus on bringing advanced video conferencing services to consumers, and on expanding its presence in the mobile VoIP market.

Academia.edu no longer supports Internet Explorer.

To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to  upgrade your browser .

Enter the email address you signed up with and we'll email you a reset link.

• We're Hiring!
• Help Center

Download Free PDF

EBAY’s Acquisition of Skype SA: Valuing the Voice of the Buyer

Communications of the Association for Information Systems

This set of teaching cases deals with the surprising acquisition of VOIP provider Skype SA by e-commerce giant eBay in the fall of 2005. The initial case examines two distinct topics: First, it introduces VOIP technology and traces the development of commercial applications from 1995 to 2003. Second, it considers issues of strategic alignment by raising the question of whether eBay should have allied with or acquired Skype SA. The second case provides an epilogue set two years after the acquisition that examines the intermediate outcomes of the Skype integration.

Related papers

… Model Design and …, 2005

In this paper, we study the effects of integration of one or more disruptive innovations and ask if the resultant (new) innovation can have a dramatic impact on new and existing markets, and the resultant technology paradigm. We describe the evolution and dynamics of this process using Skype as a case in point. Skype successfully fused peerto-peer computing (P2P) techniques and voiceover-Internet-protocol (VoIP) to create a new standard and operating model. We discuss whether such integration of disruptive technologies may lead to a ''marriage of equals'' or whether it leads to dominance by a single technology -and if so, in what circumstances.

Communications of the ACM, 2008

Communications of the ACM, 2003

The recent big tickets include Microsoft acquiring part of Nokia for US$ 7.2 billion, Verizon buy 45% stake in Vodafone for US$130 billion, Google acquiring Motorola for 12.5 billion. These buyouts are analyzed and commented by experts of the industry. This research paper attempted to collate their view in the context of Microsoft and Nokia deal on six parameters. These parameters are (i) reasons for the downfall of the Nokia market share, (ii) general comments of the experts, (iii) similarities / dissimilarities of past and business models of the smartphone business, (iv) reasons for Microsoft to buy out Nokia, (vi) impact of buyout on Microsoft, Nokia, consumers and markets. In addition, paper discusses the existing theories of merger & acquisition in telecom sector in the past.

By focussing on EIS, this study highlights LM Ericsson's relation to information technology or, more precisely, to computerised information systems. During its long history, Ericsson has always had strong connections to this technological area, at least because its main products covered the related field of telecommunication. The EIS adventure can be therefore related to other tracks in Ericsson's history pointing

During the past few years there have been numerous reports and articles from the telecommunications sector, focusing on technological convergence and aiming at presenting managerial implications for operators active in the industry. This paper adds to the discussion by suggesting that there lies value-creation potential in convergence processes. The case of VoIP is discussed and analysed as an example of a market, where incumbent operators are most likely not winners, but are rather defeated by new entrants (allowed by industry convergence) and other providers with more customer-focused strategies (such as pure VoIP providers, ISPs and cable companies). The paper raises questions concerning technological convergence and its role in the telecommunications landscape, which is characterized by increasing competition and technological development. The paper thus suggests that technological convergence may be used as a tool in order to create value for incumbent and service operators in telecommunications Based on this study, one could assume that challengers and attacker's possess an advantage when it comes to converging markets such as the VoIP market, and creating value for both the firm and the end-customers. Incumbent operators entering the VoIP market are likely to cannibalize their own revenues and missing out on value-creation.

International Business Review, 2004

The purpose of this article is to examine through a case study of the merger of Telia–Telenor why firms from apparently similar national cultures can fail to form a co-operative venture. Telia and Telenor were the largest telecom operators in Sweden and Norway, respectively. Both were government-owned with a strong monopoly over their respective national markets for a long time. Despite perceived similarities between the negotiating parties in national culture, corporate practice, and language, the negotiation eventually went askew and the ongoing merger ended in December 1999 after only two months in existence. We describe the process of the Telia–Telenor merger negotiation and analyze it from a cross cultural management perspective. Our major finding is that historical sentiments, feelings and emotions, if not handled well, can cause fatal damage to cross-cultural business ventures.

… , IEEE Transactions on, 1991

Technological developments in the area of telecommunications are going to bring about as fundamental a change in the functioning of business and public organizations in the near future as computers have in the recent past. The study reported in this paper is part of a large-sample survey examining the acquisition and management of telecommunications technology by small and medium sized organizations. Three important sectors-public administration, financial services, and manufacturing-are compared in this study with respect to their telecommunications acquisition practices. The three sectors are compared on a number of variables pertaining to the role and management of telecommunications technology, the process of acquiring telecommunications technology, and the outcome of this process. Findings indicate that information technology plays a more important role in the service-oriented sectors than in manufacturing. The acquisition process for telecommunications appears to be more elaborate in the public sector organizations than in private firms. In a relative sense, public sector and financial service organizations are more likely to opt for service solutions for their telecommunications needs as compared to manufacturing organizations that rely mainly on equipmentbased solutions.

Roman Decorative Stone Collections in the Kelsey Museum of Archaeology. Kelsey Museum Studies vol. 10, 2024

At the turn of the twentieth century, Francis W. Kelsey began to amass a large collection of artifacts from ancient sites across the Mediterranean, with an emphasis on Imperial Rome, to broaden the teaching of antiquity at the University of Michigan. Among the objects now housed in the museum that bears his name is a collection of seven hundred colorful stones dating to the Roman period, one of the largest and most varied collections of Roman decorative stones outside Europe. These pieces were obtained as archaeological artifacts, mostly architectural, with many deriving from well-known ancient buildings, such as the Baths of Diocletian in Rome and the Palace of Herod in Jericho, allowing for new interpretations of their architectural decoration and design. Chapters trace the formation of the collection, study the archaeology of the artifacts, and detail the history of each stone and its study with a comprehensive bibliography. In keeping with the nature of the collection, Roman Decorative Stone Collections focuses on archaeological contexts and object biographies, from the stones’ first use to their eventual display in the Kelsey Museum. Entries are accompanied by rich photographs detailing the stones’ appearances, environmental factors, and their collectors. The fully illustrated catalog includes essays deriving from Kelsey’s original notes on sources, buildings, sites, and dealers. As the first formal catalog of these items, Roman Decorative Stone Collections is an accessible resource of Roman archaeology, antiquities, and the decorative arts.

Fieldwork and Research

Paesaggio Urbano, 2024

Arei: Journal for Central and Eastern European History and Politics. 2022. V.1. # 1. P.68–91., 2022

Anatolian Studies, 2001

International Journal of Mineral Processing, 2005

Zeus the Tragedian An Intermediate Greek Reader Greek Text, 2019

Clarin, 2023

Parallaxi, 2022

Fitopatologia Brasileira, 2003

Tectonophysics, 2013

Boletín de estudios geográficos, 2017

Jurnal Ilmu Kimia Universitas Brawijaya, 2014

Environmental Biology of Fishes, 2023

Rigaku ryohogaku

ABM Proceedings, 2009

Journal of Applied Health Sciences, 2017

Revista Mexicana De Ciencias Forestales, 2014

Related topics

•   We're Hiring!
•   Help Center
• Find new research papers in:
• Health Sciences
• Earth Sciences
• Cognitive Science
• Mathematics
• Computer Science
• Academia ©2024

Product details