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SAN FRANCISCO - ONLINE auctioneer eBay has finally admitted it paid too much for Internet phone company Skype two years ago, as fears of a new dot.com bubble come to haunt.
On Monday, eBay wrote down the value of its investment in Skype by nearly half - or a whopping US$1.43 billion (S$2.12 billion). It paid US$2.6 billion for the company two years ago.
When it bought Skype in 2005, eBay had a controversial plan to make it the third leg of an expanding Internet conglomerate, alongside its e-commerce and online payments businesses.
But while Skype's membership rolls have swelled past 220 million, it has not had as much success making money. Skype does not charge its users for calls to other Skype users. There is only a small fee for calls to landline numbers and cellphones.
On Monday, eBay insisted that its long-term hopes for Skype were unchanged.
The Skype deal helped to initiate a renewed acquisition frenzy in the online world and a return to what some call a bubble mentality.
After the spectacular dot.com flameout seven years ago, Internet executives pledged to begin judging technology companies by revenue rather than by something as ephemeral as 'eyeballs', or traffic on a website.
But somewhere along the line, the high-tech industry reverted to its old form.
Microsoft is weighing up paying as much as US$500 million for a 5 per cent stake in social networking site Facebook. Such a deal would value Facebook at US$10 billion - despite it being expected to achieve revenues of only US$150 million this year. It could also start a bidding war with Google for what is widely viewed as the Web's hottest property.
'We are almost going back to year 2000 types of errors,' said Mr Aaron Kessler, a senior Internet analyst at Piper Jaffray, who pointed out that Internet companies are buying users instead of revenue and profitability.
EBay has struggled to turn Skype's popularity into profits. This year, Skype added a 'yellow pages' directory and ways for its users to rate businesses. Neither of those features has drawn much attention or activity.
The high price eBay paid for Skype now brings to mind some of the most flagrant mistakes of the first dot.com boom, like Time Warner's purchase of America Online.
'Right after the bust, people started focusing on business models and revenue,' said Mr Greg Sterling, a Silicon Valley analyst. 'There has been a little bit of departure on that, with a focus on building the biggest audience and figuring that revenues will follow.'
NEW YORK TIMES, FINANCIAL TIMES
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