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EBay to sell majority stake in Skype for US$1.9 billion

Juan Carlos Perez | Sept. 2, 2009

EBay didn't address in its statement the legal squabble over access to Skype's peer-to-peer technology. In July, eBay said it was developing an alternative to the technology currently used by Skype because licensing talks with the owner of the technology had broken down.

When eBay bought Skype, the deal didn't include the technology used to run the VoIP (voice over Internet Protocol) service. That technology is owned by a company called Joltid, which licenses the technology to Skype.

Skype brought Joltid to a U.K. court earlier this year in a bid to resolve the licensing dispute, which led Joltid to terminate the licensing agreement.

"Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement," eBay said in a U.S. Securities and Exchange Commission filing in July.

Skype responded to Joltid's move to terminate the license by asking the court to declare the termination was invalid. The court case is due to be heard in June 2010.

EBay is struggling to jump-start growth in its online marketplace, as it faces increased competition from Amazon.com and other rivals, and deals with the effects of the economic slump on online sales.

For its second quarter ended June 30, eBay's revenue fell almost $100 million to $2.10 billion year-on-year, mostly due to its core online marketplace business, since both PayPal and Skype posted revenue increases.

The marketplaces business unit, which includes eBay, Shopping.com, StubHub, Kijiji and other e-commerce sites, generated $1.26 billion in revenue, down 14 percent year-over-year.

In contrast, Skype had $170 million in revenue for the quarter, up 25 percent year-on-year. It ended the quarter with more than 480.5 million registered users. Skype had revenue of $551 million in 2008, up 44 percent compared with 2007.

Although eBay had net income $327.3 million, or $0.25 per share, operating margin decreased to 19.6 per cent for the quarter, compared to 24.8 per cent in 2008's second quarter.

In March, Donahoe outlined a three-year plan for growth, telling financial analysts that the eBay marketplace "hasn't kept up with competition, nor customer needs."

In April, eBay announced the sale of StumbleUpon, which it acquired in 2007, saying that it too lacks "synergies" with eBay's core business. That month eBay also said it would begin taking a more hands-on approach to solving disputes between merchants and sellers, a departure from its laissez-faire philosophy in an attempt to make eBay more attractive to a broader audience of shoppers who consider the site's buying experience today too risky and chaotic.

 

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