The Wannabe Venture Capitalist

Thursday, September 15, 2005

The Digital Identity Trifecta & Skype-eBay

Acquisition day. A day that entrepreneurs and VCs love (not as much as an IPO) because it usually means a big payoff, especially when the company doing the acquiring is of the caliber of eBay. I know that a lot has already been written about the Skype - eBay deal in the past 48 hours but it was too big of a topic to ignore. After reading much of what is out there about the deal I still think I can add some value to the conversation. However, before I get to my revelations I will discuss the best of what has already been said.

One of the most thoughtful blogs that I found on the subject is Nivi's entry entitled "eBay Buys Six Apart." Intriguing title, isn't it? There is an interesting discussion there as well. Nivi states that most of the reasons eBay gave for buying Skype work for other communications media like blogs as well. That fact prompted Nivi to ask, "Why not Six Apart? Or ICQ and Hotmail years ago?" Answer: A blogging platform does not need to be acquired because blogs are not a viral product running on a closed network with network effects. As for ICQ and Hotmail, they were merely missed opportunities for eBay which the Skype acquisition is supposed remedy. With that question answered we can move on to the main reasons Nivi gives for eBay's purchase of Skype. Drumroll please...

1. eBay can't accept the risk of having a powerful supplier that essentially has a monopoly on VoIP because Skype has a viral product that runs on a closed network with network effects. PayPal runs on the same type of model.

2. eBay wants to deprive their competitors from buying Skype or using Skype as a supplier.

I agree with the reasons Nivi gives for the purchase because eBay could have achieved the same synergies as a customer of Skype cheaper and with far less risk. Jeff Clavier also notes in his entry on the deal that had an interesting thought that I feel backs up Nivi's idea that eBay did not do the Skype deal for synergies. The thought is as follows:

"... Trying to gleam any sense of synergy between [eBay's] current business and Skype's business is a waste. Enhancing eBay's auctions with the convenience of voice interactivity isn't worth the billions eBay shelled out... Interestingly enough, it is eBay that has the enviable position of providing digital
identities [as opposed to Google] with true value. eBay's reputation system is without competition..."

So, it appears that eBay bought Skype to continue their leadership role in digital identities. eBay is one of very few who can provide digital identities with true value because of their fantastic rating/feedback system combined with PayPal's verified service that attaches a bank account (and/or a credit card) to an identity. Google has a lot of catching up to do if they want to surpass eBay in the digital identity space.

The talk of digital identities is what really got me thinking. Clearly the formation of digital identities plays toward eBay's core competencies and eBay has the "free money" from investors to make some big moves. The question in my mind is: If this is the path eBay is moving down what else can/will they do to stay ahead of other internet conglomerates like Google that have a ton of "free cash."

To answer this question I first took a look at the sectors that eBay already plays in according to my newly developed three sector digital identity model or, as I like to call it, The Digital Identity Trifecta. The Trifecta consists of the following three sectors that cover our daily lives: play, life, and work where play consists of things like hobbies and extra curricular clubs, life consists of things like money management and paying bills and work consists of things like finding a job and making connections.

eBay has the play category cornered with great companies such as, Craigslist and of course eBay itself. All three sites allow people to find items that are hard to obtain and items they need everyday cheaper that stores. eBay employs a bidding platform, employs a "set price" method and Craigslist employs a simple message board style interface targeting local transactions. Craigslist also allows the formation of community through such categories as personals, jobs and stories.

Craigslist, as well as eBay and to a lesser extent, also overlap into the life category. Craigslist is a good example of a life company because of the community it creates. However, I was thinking of PayPal when this category came to mind. PayPal allows people to get verified online spending accounts linked to credit cards and bank accounts of their choice which, in turn, creates a strong digital identity for each user.

The last piece of my Trifecta is the work sector. While Craigslist does provide job listings I do not think that it creates strong digital work identities since there is no effective rating system in place. There are two early stage companies out there now that have a great digital work identity platform and could become acquisition targets of eBay or eBay's competitors. These companies are and

SimplyHired was discussed in my previous post as was LinkedIn to a lesser extent. SimplyHired and LinkedIn have a partnership in place which allows both companies to benefit from the other's technology. Essentially, SimplyHired has created a job rating system (like NetFlix' movie rating system) and a job finding community through their message boards. This system works very well with LinkedIn. LinkedIn has created a phenomenal "connection management" product that allows users to rate, or endorse, other users prior work experience while also allowing them to view the connections of their connections for purposes such as job finding, reconnecting, references and recruiting. All of the features above provide an outstanding digital work identity platform, something that eBay truly needs to complete their mission.

We can all look for eBay to make more "work" acquisitions in the future to complete the Trifecta and make eBay the dominant force in digital identities. The first companies to be acquired, either by eBay or a competitor, could just be SimplyHired and LinkedIn. You heard it here first.

If anyone has any research or knowledge to corroborate this post please add a reply. Also, please post a reply if you think I am completely off base.


  • I don't have any corroborating evidence. My own analysis arrived at roughly the same conculsion. Much of the analysis I have read has been traditional and generally focused on the here and now.

    I found that many people ignored the fact that EBay isn't an auction site per-se. EBay merely facilitates communication between the seller and the buyer. Otherwise known as presence.

    The purchase of Skype allows EBay to increase the scope of the company's Presence service without outlaying captial for infrastructure.

    Skype also rounds out the utilities offering that EBay provides to the sellers. In effect EBay has become a outsourced supplier of shopfronts, transaction service and communications for the sellers.

    This matches with EBays need to find growth. As posts have pointed out the garages of the world have been cleaned out. I don't have any numbers but I expect the SMEs on EBay are showing the fastest growth in turnover. EBay is simply laying the ground work to increase the number and type of SMEs using EBay.

    EBay is aiming to become the managed presence provider of choice to SMEs of all types.

    By Anonymous Anonymous, at 7:43 AM  

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