All Things Digital

EBay (EBAY) may yet find a way to justify the astonishing $2.6 billion it paid for Skype. This morning, the Internet phone service launched an aggressive new international calling plan. For flat fees of up to $9.95-a-month, Skype is offering unlimited calls to computers, landlines and some cellphones in 34 countries.

“For example if you live in London, for just 2.95 euros a month, you can call your grandmother in Poland, whenever you like, talk for up to six hours at a time, and not worry about how much it’s costing you,” explained Stefan Oberg, VP and GM of telecoms at Skype. “Your grandmother doesn’t need to understand the Internet. You just use your Skype subscription to make the call and she just picks up the phone.”

An interesting move, and one that comes just days after incoming eBay CEO John Donahoe said the company will consider selling Skype at the end of the year if it can’t find ways to use it to support its core business. “What we’re testing this year are the synergies,” Donahoe told the Financial Times. “If the synergies are strong, we’ll keep it in our portfolio. If not, we’ll reassess it.”

While consensus has long held that the synergies to which Donahoe refers are anything but strong, that may be changing. Last week eBay reported earnings, noting that Skype added 33 million subscribers in the first quarter of this year, boosting its total membership to 309 million. Revenue also hit $126 million, up 61% from the same quarter last year.

eBay (EBAY) may have finally figured out a way to get the sort of return it needs from its infamous $2.6 billion (+$1.4-billion writedown) misstep - the 2005 acquisition of Skype. Unload it. Word on the street has it that Google (GOOG) is considering a partnership with the the telephony service - and perhaps even an acquisition. Which would make sense. Certainly, with Gmail, Google Talk, and the massive distribution platform that is Google.com, Google’s in a far better position to make good use of Skype than eBay is.

Q: You said in the past that a CEO should probably serve 10 years. You’ve served eight. What are your plans? Will you follow your own advice?

A: The first piece of advice I wish someone had given me as a freshman CEO is to keep your mouth shut. Somehow I didn’t get that advice, which is don’t talk about when you’re coming or when you’re going because it just creates a set of questions that probably aren’t productive.

–eBay CEO Meg Whitman, San Francisco Chronicle, Nov. 19, 2006

Looks like eBay CEO Meg Whitman may make good after all on her pledge that no CEO should stay more than a decade. Whitman, the public face of eBay for the past 10 years, is reportedly preparing to retire. She has been delegating more tasks to deputies over the last few months and is expected to decide on her retirement in the coming weeks, The Wall Street Journal reports, quoting “people familiar with the matter.”

John Donahoe, who joined eBay in 2005 to lead its auction business unit, is the leading candidate to succeed her.

Rumors of Whitman’s imminent departure come at a critical time for eBay. The company is due to report earnings for the fourth quarter tomorrow. And though this quarter includes the traditionally strong year-end holiday period, it will likely be marred by a general slowing in eBay’s core auction business and the company’s continued struggles with Skype, the Internet telephony outfit for which it recently took a $1.4 billion write-down.

So perhaps it’s a perfect time for Whitman to step aside. Certainly she leaves a storied career behind her. She led the company through its 1998 initial public offering, and from there through some 40 quarters of sequential revenue growth. An impressive achievement by any measure–Skype acquisition be damned. Now, maybe it’s time to move on to bigger things.

Much bigger. Like perhaps a position in the cabinet of friend and Republican presidential candidate Mitt Romney (shown below, left, with Whitman and VC Steve Jurvetson)? Whitman can’t be suffering through those Romney fund-raising telethons for nothing, right?

Some people have been critical of Skype, but I am very proud of the company’s growth. Very few companies can claim to match the growth trajectory Skype is on and continues to be on.”

Skype co-founder Niklas ‘NZennström’

It’s taken two years longer than it should have, but skepticism with which investors met eBay’s $2.6 billion-plus purchase of Skype in October 2005 has finally made its way up to eBay management.

This morning the Internet auction giant said it was taking a $1.43 billion charge for its acquisition of the Internet telephone provider and that Niklas Zennström, a co-founder of Skype, was stepping down as chief executive of the division. The charge announced today reflects the “updated long-term financial outlook for Skype,” eBay said in a filing with the Securities and Exchange Commission.

Though Skype’s membership and revenues have grown since the acquisition, it has fallen far short of Wall Street’s general expectations for it. And try as it might, eBay just hasn’t been able to figure out a way to make the sort of money it needs from the company to justify that astonishing $2.6 billion purchase price. Said Derek Brown, an analyst at Cantor Fitzgerald, “It has seemed relatively clear that Skype has underperformed even modest expectations for the last two years.”

Silicon Alley Insider’s Henry Blodget agrees. “The Skype acquisition never made sense strategically, and one reason Skype has struggled, we think, is that it is just a distraction to eBay (which needs desperately to focus on its core commerce business),” Blodget writes. “eBay should immediately sell what’s left of Skype to Yahoo, Microsoft, or Google, all companies that offer portfolios of communications services that Skype might actually benefit from being a part of. Skype is rapidly surrendering its early dominance of soft-phone VOIP to other more focused competitors, and if it stays within the eBay fold, we think further write-downs will be in the offing. Skype was a $2 billion to $4 billion eBay Hail-Mary pass, and it just officially fell incomplete.”

ThePudding uses breakthrough technology that makes your conversations fun and interesting.”
–Pudding Media press release

As business models go, this is surely one of the most ill-conceived to come across the decks in some time. This morning Pudding Media announced the beta of “The Pudding”–an advertising-supported Internet phone service that serves up contextually relevant ads to subscribers based on their conversations. How? Pudding’s voice recognition software eavesdrops on calls and selects ads based on what it hears. A conversation about the NSA wiretapping scandal might, for example, serve up a promotion for AT&T. A chat about Pudding Media itself might display an ad for a commemorative edition of George Orwell’s “1984.”

“We saw that when people are speaking on the phone, typically they were doing something else,” Pudding CEO Ariel Maislos (who apparently spent several years doing intelligence work for the Israeli military) told the New York Times. “They had a lot of other action, either doodling or surfing or something else like that. So we said, ‘Let’s use that’ and actually present them with things that are relevant to the conversation while it’s happening.”

Interesting idea, but as Silicon Alley Insider notes, one that’s riddled with problems:

“Why will Pudding Media flop? Four reasons:

1. Free or nearly free phone calls are already available from dozens of companies, including Skype. The difference between two cents a minute and zero cents a minute (for SkypeOut users) is negligible.
2. Except for people trying the service to see how relevant the targeted ads are (of which there will be many, especially after the NYT article), users will be absolutely freaked out by the idea that someone/something is listening to their phone calls.
3. Advertisers will be absolutely freaked out by the potential consumer backlash.
4. PC-based calling is a niche market to start with.”

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday, Aug. 27.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Although they made no jokes about their secret marriage, as did Apple’s Steve Jobs when he appeared with Microsoft’s Bill Gates at D5 in May, the CEO schmoozefest between Steve Ballmer of Microsoft and John Chambers of Cisco today in New York City yielded news of increased cooperation between the two tech giants, according to eWeek. Ballmer also deflected questions from moderator Charlie Rose about whether Microsoft was contemplating acquiring Yahoo, writes Elizabeth Montalbano of IDG News Service.
2. Adobe’s Media Player isn’t quite ready for show time: the eagerly awaited player won’t be fully released until next year. In an exclusive, Beet.TV’s Andy Plesser gets the word from an Adobe spokesman and posts a video interview with Adobe’s Chris Hock, head of its Flash media group.
3. Paramount Pictures and DreamWorks have chosen HD DVD over competing technology Blu-Ray as a means of releasing their DVD movie titles, according to FT.com. The decision heats up the DVD format battle, as media companies consider which technology provides a better viewing experience.
4. With little fanfare, Hewlett-Packard has debuted Cloudprint, a free service enabling users to print documents on any printer from almost any location worldwide. According to the New York Times, the innovation came after H-P wondered earlier this year how it might piggyback on the release of Apple’s iPhone.
5. Speaking of the iPhone (left), recycling is already catching on. This week, Apple is bringing out refurbished iPhones at the online Apple store. Engadget notes that the company is discounting the reconditioned handsets by $100 for both models.
6. Skype, reports the Register, is blaming its outage woes last week on a flood of users downloading a routine security patch. The VOIP provider has also issued an apology for the “unprecedented” service interruption, which for some users lasted into the weekend.
7. Google is flexing its muscle in China. Reuters reports that the search colossus has bought a stake in a Chinese community Web site called Tianya.cn. The move in the second-largest Internet market in the world marks Google’s growing interest in social networking.
8. Tilera Corp., a start-up in Silicon Valley, has revealed details of its 64-processor chip. The Wall Street Journal says that the chip and its underlying design could be used in products that have upward of a thousand calculating engines.
9. A multistage attack has left job-search site Monster.com reeling from a potentially huge stolen-data headache. Computerworld disclosed that more than 1.6 million records belonging to several hundred thousand people have been compromised by a Trojan horse program that could plant malware on their computers.



10. Who’s behind those mysterious edits to the entries on Wikipedia? Why, the very corporations written about. According to Wired, Wikipedia Scanner, a data-mining service launched earlier this month, has shown that millions of entry changes can be tracked to corporate “editors.”

–posted by Associate Editor John Sullivan

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday, Aug. 27.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it will appear in Digital Daily.

1. Dell says it will restate financial results after an internal audit finds evidence of irregularities going back several years. The adjustment will reduce the company’s profit by $50 million to $150 million.



2. Though some Skype users report being able to log on after a major outage yesterday, many users of the VOIP service remain in connectivity limbo as the company struggles to resolve what is presumed to be a software problem.
3. Despite the lingering hangover from its board-leak counterintelligence scandal, Hewlett-Packard reports robust third-quarter earnings, based largely on lower computer-component costs.
4. Computer rivals IBM and Sun Microsystems will collaborate on server technologies. The move means Sun’s Solaris operating system will be able to run on Big Blue’s servers.
5. Sprint announces it will spend $5 billion on its upcoming WiMax service dubbed (somewhat unpronounceably) “Xohm.”
6. Crying patent infringement, Nokia wants U.S. authorities to halt imports of Qualcomm’s chips and the cellphones they’re used in. The world’s largest cellphone maker is in a legal fray with Qualcomm since a deal over patents expired on April 9. Meanwhile, Nokia has warned its handset users that defective batteries pose a potential danger, offering to replace them in a voluntary program.
7. Strong sales of its Mac and iPhone are giving Apple renewed momentum, says RBC Capital’s Mike Abramsky, who maintains that shares of the computer-maker’s stock could eventually hit $175.
8. MTV Networks will pump $500 million into video-game development based on the network’s range of shows over the next two years. The investment comes as the traditional media company attempts to gain a toehold in the $30 billion global games market.
9. It looks like there’s upheaval at Technorati. The blog-search service is reportedly laying off eight people, and CEO David Sifry is resigning.



10. Today marks the 25th anniversary of the compact disc, the format that triggered a revolution in the recording industry and one that remains the principal means for consumers to listen to music, despite the growing popularity of digital downloading.

–posted by Associate Editor John Sullivan

What’s most surprising about today’s Skype outage is not its 12- to 24-hour duration, but the fact that it’s the first such outage we’ve seen in years. In its relatively brief history, Skype has rarely gone offline. The service’s last reported outage occurred in October 2005.

So while today’s event is certainly annoying for fans of the widely used VOIP (voice over Internet protocol) service, it’s likely not indicative of some lurking infrastructure problem. “This is the most significant outage for the service in years, yet we already foresee scores of headlines trumpeting the flaws of VOIP communications based on this outage alone,” writes Ken Fisher at Ars Technica. “That’s unfortunate because we think Skype network performance has been spectacular on average, given that it’s free and heavily used. In fact, it would appear that the Skype P2P network is indeed in fine shape, it’s just that the authentication system (which authenticates but also provides location services for routing purposes) is hosed.”

If you’re among the 100 million Americans who shop at Wal-Mart weekly, chances are you’re not familiar with Voice over Internet Protocol (VoIP), or Internet telephony, but you may be soon. The colossus of American retailing put its considerable weight behind the Internet telephony market yesterday by adding a special section that sells Skype calling cards and “Skype certified” Webcams, handsets and headsets to more than 1,800 of its stores. “This brings Internet communications to the masses,” Don Albert, vice president of Skype’s North American operations, told USA Today.

The deal places Skype and other hosted VoIP services into the mainstream spotlight and may even bring them a huge crop of new users. I say “may” for two reasons. First, bargain-hunting small-town America, where Wal-Mart does a great deal of its business, isn’t exactly technologically adventurous. Will it embrace Skype? Will it even notice it? Second, Wal-Mart’s been reporting lousy financials for a while now. America may still shop at Wal-mart, but from the looks of the company’s earnings reports, it isn’t buying much–even at price points that make it feel like it’s getting the deal of the century.