Picture Worth "A Thousand Words"

Here is a great chart prepared by Martin Geddes of Telepocalypse, along with some comments excerpted from his post regarding Ebay’s acquistion of Skype.  Together, they provide the best explanation I have seen for the strategic rationale underlying the deal.  Not surprisingly, my web wanderings have yet to lead me to a financial rationale justifying the multibillion dollar price tag. 

So, what’s the message? Really, it’s quite simple. Marketplace
enablers can be defined by the breadth f goods on offer, and the depth
of support for the transaction they offer. The picture shows how eBay,
Amazon and Google are currently positioned, and how Skype might be
positioned in future. The edges are “clipped” because not all
transactions go to the maximum depth; e.g. not all eBay auctions are
settled via Paypal, and Amazon sometimes hands off fulfillment to 3rd
parties. (The eBay region is made translucent — I hope it’s still
obvious which bits are eBay despite the colour transition.)

At one extreme, Google has a very broad business base (any
commercial transaction that can have an unambiguous keyword associated
with it). But it doesn’t do much beyond that.

At the other extreme is Amazon, which will encase your goods in gift
wrap and even deliver them to you personally when it comes to certain
digital goods.

eBay falls in the middle. Its business model is narrower and
shallower than these extremes, but perhaps encompasses a greater
“commercial land area” as a result.

The purpose of the Skype-eBay deal is to push eBay into a broader
realm of things for sale. For instance, if you want legal advice today,
Google is the only place to go search for it. Want a reputable lawyer
nearby? Sorry, the eBay reputation system doesn’t help you — yet.

Interestingly, Geddes wrote about the potential strategic value of Skype to Google a few weeks before the Ebay transaction.  Here are a couple of excerpts from that post.

Putting together Skype and Google, whilst no match made in heaven, does have a lot of synergy.  The Skype client, or something very like it,
has the potential to re-invent telephony. (That, after all, is the
point of the Stupid Network, not disintermediating legacy voice toll
charges.) It just requires you to stop thinking of telephony as an
application, and instead just see it as a feature of a bigger
communications framework.

The e-commerce value chain

Google is competing in a long transaction value chain that looks something like this:

  • Demand stimulation/market formation. Self-awareness of user need,
    awareness of market solution. The domain of traditional marketing.
  • Capture attention. The user is presented with ads, and eventually
    sees a proposed solution to a problem the user has. In the user’s mind,
    the connection is ready to be made. In the olde world of directories,
    this is (i) finding the category of vendors who match your problem
    (often somehting that isn’t intuitive if you’re after something more
    complex than a taxi or flowers), and (ii) filtering on the
    locality/capability criteria you have. By the end of this stage the
    user feels “I am aware of a potentially relevant solution to my
    acknowledged problem”.
  • Connection. The user clicks on a link. The connection is only
    one-way; the advertiser doesn’t know who the user is, or what they
    really want. An extended Yellow Pages advert is the analogue version of
    connection. The user is now engaged with a
    particular soltion provider and is paying attention to their message.
  • Contact. The user and advertiser engage in bi-directional contact.
    The user presents some form of identity (e.g. gives a phone #, e-mail
    address, etc.). This is like calling the 800 number.
  • Transact.  The user’s requirements are codified, and a non-repudiable contract is formed to deliver some good or service.
  • Settle.  Payment is remitted.  A third party like a bank or Paypal is normally involved.
  • Fulfillment.  The goods are despatched.
  • Delivery.  The goods arrive.

Google’s competitors aren’t search engines per se. Google is competing
for transaction value chain slices against eBay, Amazon and even
vertical search like Craigslist.

….Google’s competitors aren’t search engines per se. Google is
competing for transaction value chain slices against eBay, Amazon and
even vertical search like Craigslist. Of course, chop off the search
engine leg today, and the Google animal as a one-trick pony falls over.
But Skype could equally be another leg on the Google animal.

….So Google = totally unstructured transactions with no integation of
user identity; eBay and Amazon = structured transactions, with limited
flexibility, and some user identity (but isolated within their commerce
island).

….Yahoo is a media company, and is unlikely to be the commerce bridge.
eBay is a real threat to Google, and eBay buying Skype would be a
setback for Google. It isn’t hard to see eBay aligning with, say, Ask
Jeeves and using all the Interactive Corp. properties as seeds for an
integrated search and transaction experience. Amazon is a similar
story. Microsoft has execution problems of its own, but knows what’s at
stake and has boundless cash and armies of developers to throw at it.
Google’s aura of invincibility is largely hubris. They need to
diversify up the transaction chain.

Damn good analysis and extraordinarily prescient and timely insights!

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