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September 12, 2005
eBay Changes its Business
"I'll take Bubble for $100, Alex." (That's 2004 Jeopardy mega-winner Ken Jennings, whose 15 minutes of fame are now up.)
And the answer is, "The final proof of the second Internet bubble, in 2005."
"What was eBay's purchase of Skype."
"Correct. eBay paid $2.6 million in cash and stock for a company that had few revenues, no profits, and hardly any business model, and whose operations were completely incompatible with eBay's own."
"I could understand the stock, and even understand the press claims the deal was worth $4.1 billion. It's the cash that gets me."
"It was cash eBay had."
"But what else could eBay have done with that cash in the furtherance of its real business? It could have gone into wholesaling, into b2b, into international finance. It could have bought a real bank for $1.5 billion, or started its own credit card bank, like Wal-Mart has done in Utah.
"There's a lot of physical infrastructure needed to do business which eBay does not have, and cheap phone connections are just one little piece of it. This meant they were going into an entirely new industry, were dependent on someone else's expertise to move forward, and were tapped out when that same unit came looking for additional capital with which to build their business.
"But Bubbles are like that. People do stupid things. Even people who you think would know better."
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