The halls of investing are littered with companies that had great businesses, but eventually stagnating growth, which inevitably gave their management the urge to do something in order to prove the growth story was still alive. Peter Lynch referred to this phenomenon as diworsification.
Diworsification pretty much sums up how I have felt about Motley Fool Stock Advisor selection eBay (Nasdaq: EBAY ) and its acquisition of Skype, which lets users chat via voice and video over the Internet. Internet telephony isn't all that unique; offerings from Apple Computer's (Nasdaq: AAPL ) iChat service, Time Warner's (NYSE: TWX ) AOL TotalTalk service, and a number of free software packages such as Gizmo allow you to do the same.
My problem with Skype isn't its service. We use it at home to keep in touch with friends and family overseas on the cheap. But because the service is free, and there are so many competing offerings, I've struggled to understand how eBay will recoup the $2.6 billion-plus it spent acquiring the company. I've basically been waiting for a competitive advantage to emerge that will separate Skype from the pack in the long term. Offering the service for free is not a sustainable competitive advantage.
My hope had been that Skype's announcements this week would offer some insight into how Skype is uniquely positioned to exploit voice communications over the Internet and turn a healthy profit doing so. I'm still holding out a bit of hope for tomorrow's announcement by Skype and Netgear (Nasdaq: NTGR ) , but today's announcements from Skype product partners Eastman Kodak (NYSE: EK ) , Matsushita's (NYSE: MC ) Panasonic division, and Taiwan-based D-link offer a lot in the way of convenience but show little sign in the way of profits for Skype -- because, remember, the service is still free.
This isn't a new story for eBay and Skype. Skype is a great service, and eBay's auction business is fantastic. But the marriage of the two still seems bizarre, and months later, there still doesn't seem to be a clear path for how they fit together to deliver a return on investment for eBay shareholders. However, there's still time, and tomorrow's much-hyped announcement with Netgear could still deliver the goods.
For more Skype-related Foolishness:
eBay and Time Warner are both Motley Fool Stock Advisor recommendations.