• Economist, Friday, October 5, 2007 10:45 AM

eBay's failure with respect to its 2005 purchase of Skype is CEO Meg Whitman's fault. Earlier in the week, eBay issued the bookkeeping equivalent of a "mea culpa" by taking a $1.4 billion charge related to its $2.6 billion acquisition of the voice-over Internet protocol provider. Skype, as many predicted, has been a disaster for eBay. It paid way too much for a company with an unproven business model and there are no obvious synergies.

"Ms. Whitman should have known better, because Skype became and continues to be a revolutionary technology precisely because it does not extract much revenue from its customers," the Economist says, citing the following quotation from co-founder Niklas Zennstrom: "We want to make as little money as possible per user." Indeed, Skype's very mission was to one day make voice communication cost next to nothing.

And while the rest of Silicon Valley can laugh at Whitman's ill-advised move, the report warns that eBay created a Web 2.0 bubble, which Google inflated with its 2006 acquisition of YouTube. The report contends that it would blow up more if either Google or Microsoft were to make a hefty investment in Facebook, the latest Next Big Thing, as all three companies "make almost no money."

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