Stifel Nicolaus analyst Scott Devitt believes it's "possible" that the software giant could acquire an equity stake in eBay's PayPal and Skype. So are we talking about minority stakes or total ownership? Would Mr. Softy buy into the individual subsidiaries or into eBay as a whole? Is eBay even up for the sale?
No matter how you slice it, Microsoft has a lot to gain if eBay is willing to sell off any of its moving parts.
The pieces fit
I can't argue against the notion that Microsoft could swallow eBay whole. I suggested as much three months ago. Such a move by Mr. Softy would make sense, especially since PayPal and Skype are good fits in Microsoft's online strategy.
Microsoft once had dreams of taking on PayPal. It was hoping to transform its Passport platform into a transactional medium for third parties. But it failed, just as Yahoo!'s
PayPal was too big to compete against back then, and it's even bigger now. The only real threat to PayPal these days is Google Checkout, and not even that race is close. If Microsoft wanted to buy Yahoo! so badly, imagine how much it would love to own the micropayments standard that's trouncing Google
Skype is another good fit. The leader in online chat dovetails nicely with Microsoft's Web-based communications efforts through Windows Live Messenger.
Then we have eBay itself. Microsoft is no stranger to the leading consumer-to-consumer auction-listings website. eBay is part of the Live Search Cashback program, through which Microsoft rewards buyers with rebates.
Perhaps the most important aspect eBay can offer in Microsoft's quest to take on Google is that eBay's website traffic consists of consumers with a predisposition to spend money online. And Microsoft needs quality traffic, not simply the sheer volume of poorly monetized pages it would have gotten on a Yahoo! deal.
Under Microsoft's arm, eBay would probably appease sellers by lowering fees and reversing some of the site's recent anti-seller moves. It would have to, just so it wouldn't alienate the Power Sellers by serving up competing ads to monetize the site.
No one said eBay is available
With eBay's enterprise value sitting at $33 billion, a friendly acquisition at a fair premium would run Microsoft about -- if not more than -- what it was willing to pay for Yahoo! earlier this year.
This would have to be a friendly combination. Despite eBay's recent growth hiccups, there is no equivalent of a Google roughing it up. What's more, eBay, PayPal, and Skype -- remain the undisputed market leaders in their niches. Nor are there any shrinking market-share worries creating an urgency to sell.
As for a piecemeal approach, there's no reason for eBay to sell off its PayPal appendage. It's the true star in eBay's portfolio, and it ties in perfectly with eBay's auction business. Skype, on the other hand, can probably be had, probably for even less than the $4.2 billion that eBay paid for it three years ago.
Skype remains a speed demon. It now connects 309 million users, with revenue soaring 61% this past quarter. The rub is that it's still a small part of the eBay revenue mix, as attempts to squeeze more money out of the popular voice-chat application have been difficult. After taking a $900 million impairment charge on Skype last year -- a clear admission that it overpaid -- eBay may be open to unloading the service.
If so, Microsoft would be the best suitor. Google may not want to further antagonize the antitrust gods by mounting a rival bid. Vonage
In short, Microsoft would be hard-pressed to wrestle away PayPal and should have no problem on Skype, but it would be better off either making a play for all of eBay, or at least a significant minority stake in the company.
Microsoft has to make moves in cyberspace. It can't afford to keep bleeding market share to Google organically. Swallowing eBay may be too much for even a mouth as big as Mr. Softy's, but the Redmond giant doesn't know how much it can eat until it sizes up what's on the menu.