Disruptive innovations—the simple, cheap, accessible solutions that create new markets and transform existing ones—make attractive acquisition targets. eBay's struggles to make its acquisition of Skype work, however, show how moving quickly is a critical component of making disruptive acquisitions work.
When eBay plunked down $2.6 billion for Skype in 2005, fans of disruptive innovation cheered. Indeed, in a 2005 analysis titled "Let Disruption Ring," we here at Innosight hailed the acquisition, praising the fundamental disruptive potential of Skype's free Internet-based telephony solution, how eBay users could flock to using Skype instead of email to communicate and the potential for eBay to use Skype to move into new businesses like lead generation.
We did raise one cautionary note: With a $2.6 billion tag, eBay was paying a pretty penny for Skype's disruptive potential. As we wrote: "eBay's acquisition might have been even sweeter if it had acted last year when Skype's price presumably would have been sharply lower."
In early October, eBay announced it was taking a $1.4 billion charge related to the acquisition. About $500 million of the charge was a payment to some of Skype's shareholders and management team, including founder and CEO Niklas Zennstrom. Zennstrom stepped down as CEO but plans to remain involved as Skype's executive chairman.
The other $900 million was an "impairment charge"—eBay admitting it simply paid too much for Skype. Even Zennstrom admitted that eBay might have "overshot in terms of monetization" for his company.
The write-down didn't affect eBay's stock—most analysts had already assumed the acquisition was overpriced—but analysts used the news as opportunity to castigate eBay's failure to find new growth as its core auction model slows. eBay has gone from one of the leading lights of the technology industry to a seemingly mature business whose stock has been essentially flat for the past four years.