eBay paid $2.6 billion for Skype

How flipping a $2.6 billion asset left tens of billions on the table

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Business Knowledge
July 01, 2025

Hey there

In 2005, eBay paid $2.6 billion for Skype, betting voice calls would juice buyer–seller engagement. By 2009, the auction giant had lost patience, offloading 65 percent of Skype to private-equity investors for $1.9 billion in cash and a modest promissory note. Barely two years later, Microsoft snapped up the same company for $8.5 billion—triple eBay’s original outlay. Today, analysts value the communications technology Microsoft absorbed into Teams at well over $30 billion. This case study breaks down what eBay got wrong, how it misread strategic fit, and the lessons any firm can take from one of tech’s most costly timing errors.

In this edition of Business Knowledge

  • Executive Summary

  • Background: From Auctions to Voice Calls

  • The Business Challenge: No Synergy, Mounting Write-downs

  • The Strategic Missteps: Wrong Fit, Wrong Patience Window

  • Execution: Partial Sale, Lost Control

  • Results and Impact: Microsoft’s Windfall, eBay’s Missed Billions

  • Lessons for Business Leaders

  • References

Executive Summary

eBay purchased Skype in late 2005 for $2.6 billion, hoping to integrate voice chat into online auctions. Integration stalled, user overlap was minimal, and eBay wrote down about $1.4 billion of goodwill by 2007. In September 2009, a Silver Lake–led consortium bought 65 percent of Skype for $1.9 billion in cash and a $125 million note, valuing the firm at $2.75 billion. eBay retained roughly a third. Less than two years later, Microsoft paid $8.5 billion for Skype in its largest acquisition to date. eBay’s retained stake netted a gain, but analysts estimate it left $4–$6 billion on the table by selling majority control too soon.

Background: From Auctions to Voice Calls

Throughout the early 2000s, eBay dominated online auctions but feared growth would plateau. Skype, founded in 2003, had 54 million users by mid-2005 and was the Web’s fastest-growing voice-over-IP service. eBay CEO Meg Whitman argued that seamless voice chat could reduce friction between buyers and sellers, boosting conversion. On 12 September 2005, eBay announced a cash-and-stock purchase valued at $2.6 billion, plus performance earn-outs that later lifted total cost to roughly $3.1 billion. Wall Street questioned fit, but eBay pressed ahead.

The Business Challenge: No Synergy, Mounting Write-downs

1. Mismatched user bases

Auction buyers wanted secure, asynchronous transactions; few clicked “Call the Seller” buttons. Skype traffic had little overlap with eBay’s core commerce metrics.

2. Monetization shortfall

Skype’s freemium model (free voice, paid land-line calls) generated only $60 million in revenue during 2005, small against eBay’s $4.5 billion. Integration failed to unlock new fee streams.

3. Technical friction

Embedding Skype widgets in auction listings complicated page load times and clashed with PayPal’s dispute-resolution workflows.

4. Competitive distractions

Google Talk launched in 2005; Apple’s FaceTime arrived in 2010. Voice IP arms race forced higher R&D with no guarantee of commercial payoff.

5. Goodwill impairment

By October 2007, eBay wrote down $1.4 billion of Skype’s value, admitting the asset would not deliver projected synergies.

The Strategic Missteps: Wrong Fit, Wrong Patience Window

1. Acquisition thesis built on untested overlap

eBay assumed buyers would call sellers; data later showed fewer than 10 percent of listings with Skype buttons generated a call.

2. Cultural mismatch

Skype’s Estonia-London engineering culture thrived on consumer innovation, clashing with eBay’s U.S. e-commerce bureaucracy.

3. Impatient asset trimming

Under new CEO John Donahoe, eBay pivoted to a “core plus PayPal” focus and sought quick exits from non-synergistic units. The Silver Lake sale raised cash but surrendered strategic option value.

4. Under-valuing network effects

Skype’s active user base grew from 54 million (2005) to 124 million (2009), yet eBay’s valuation model did not price exponential growth.

5. Ignoring enterprise potential

Skype for Business telephony was nascent; eBay focused solely on consumer voice, missing B2B opportunities later exploited by Microsoft.

Execution: Partial Sale, Lost Control

1. Carve-out terms

On 1 September 2009, eBay announced the sale of 65 percent to Silver Lake, CPPIB, Andreessen Horowitz, and Skype’s co-founders for $1.9 billion cash plus a $125 million note, valuing Skype at $2.75 billion. eBay retained 35 percent.

2. Governance shifts

Silver Lake installed experienced telecom executives, refocused the roadmap on mobile video and enterprise adoption, and prepared an IPO filing by mid-2010.

3. Product acceleration

New leadership launched group video chat and mobile apps, driving monthly active users to 145 million by Q1 2011.

4. Sale to Microsoft

Before the IPO was priced, Microsoft approached with an $8.5 billion all-cash offer, seeking an instant global user base for unified communications. Silver Lake accepted; eBay’s minority stake yielded $2.5 billion gross proceeds, turning a profit but far below the potential had it held control.

5. Integration success

Microsoft folded Skype into its Office suite, later into Teams; by 2025, Teams boasts 320 million monthly active users, while Skype is set for sunset in May 2025.

Results and Impact: Microsoft’s Windfall, eBay’s Missed Billions

  • Value delta: Skype’s valuation rose from $2.75 billion (2009) to $8.5 billion (2011), a $5.75 billion gain in 20 months. eBay captured only a slice via its minority stake.

  • Opportunity cost: Analysts at the time estimated Skype could have added $4–$6 billion to eBay’s market cap had it retained majority control until the Microsoft sale.

  • Strategic clarity: eBay’s divestiture sharpened focus on PayPal and Marketplaces, helping double PayPal revenue by 2014.

  • Microsoft’s ecosystem boost: Skype tech accelerated Microsoft’s shift into cloud communications, later underpinning Teams’ pandemic-era surge to 320 million users.

  • Private-equity playbook: The Silver Lake consortium earned an estimated 3× return in under two years, highlighting PE’s ability to unlock trapped value from corporate cast-offs.

Lessons for Business Leaders

1. Validate Synergy Before Paying Up

Buying adjacency assets without hard user-overlap data risks costly write-downs. Test integration in pilots before committing billions.

2. Be Patient with High-Growth Platforms

Communications networks compound value as users multiply. Selling early can forfeit exponential upside.

3. Align Cultures or Keep Units Independent

If cultural integration drags, consider a hands-off structure rather than force-fitting processes that stifle growth.

4. Minority Stakes Limit Strategic Control

Retaining only 35 percent left eBay with no say in Skype’s eventual sale. Maintain control if future optionality matters.

5. Private Equity Can Unlock Corporate Orphans

Divested units often flourish under focused ownership. Corporates should weigh whether they can create that focus internally before selling.