Knowing It's Time to Buy
By Interviewed by Patricia Sellers

(FORTUNE Magazine) – ONE OF THE MOST difficult choices I've made was whether to buy Skype. I met [Skype co-founder] Niklas Zennström in May. He gave me some statistics--like 100,000 new registered Skype users per day--that made me begin to think that Skype would fit into the eBay family.

There are always 100 different reasons not to do a deal. Most acquisitions fail. Big acquisitions, in particular, usually don't work out. At $2.6 billion, Skype was going to be our biggest acquisition ever, but it's not as if I sat closeted in my room and wondered, "What's the world going to think of this?" Acting in the face of skepticism is part of eBay's DNA. When we bought PayPal three years ago, people said, "Why is eBay buying a bank?" I knew that with Skype, people would ask, "Why are they getting into the telephone business?"

When we evaluate acquisitions, we always ask three questions. Are there synergies? In the case of Skype, a leader in Internet telephony, there are, because our buyers and sellers in high-priced categories like cars told us they wanted to talk to each other. Second, do we like it as a standalone business? And finally, what's the cultural fit? I went to London three times to talk with Skype's management, and I decided that these are very direct people who view the world the way we do. I decided to go ahead. We bought it in October.

Now the key decision will be how to let the Skype people feel that they're still running an entrepreneurial entity within our $4.5 billion company. There's such an art to orchestrating that. We learned from buying PayPal that you don't want to overwhelm a young division with corporate prophecies and structures.

For example, every manager at eBay has quarterly objectives. This works great in an 11,000-person company but not in a 200-person organization. In terms of when to introduce quarterly objectives at Skype, I'm thinking that I came to eBay in 1998, and we didn't start doing that until 2002. So maybe four years in?