All businesses must evolve to remain competitive but those that stray too far from their strengths can come unstuck. EBay has announced its intention to sell off Skype through an IPO.

Purchased in a blaze of glory in 2005, eBay heralded the acquisition; “Communications is at the heart of e-commerce and community”. So why are they getting rid?

Why?

Can it be as simple as a clash of cultures? eBay, taking a slice of every transaction that it enables, purchasing a company that essentially gave away its main product for free. There were obvious touch points between the two businesses, especially at business to business relationship level, but were they strategically complementary products? Does this prove horizontal integration of services is a more risky approach to controlling the value chain than traditional vertical integration?

Compare Skype or StumbleUpon (another acquisition by eBay now looking for an acquirer) to eBay’s most successful partnering model PayPal. PayPal sits naturally with the eBay proposition, creating a market place by matching supply and demand, albeit through a service rather than a tangible product, and charging users for the privilege. A simple and effective model of vertical integration where the user of a service has subsumed that service into its own organisation to exploit synergies and reduce key concentration risk (either supply or demand side).

The acquisition of Skype was meant to offer eBay a strategy to increase wallet share of existing customers, by “bolting on” additional services. Divesting into new products and markets without a clearly aligned strategy is now set to cost eBay almost $1 billion in a write down of its investments.

In the persistent search for increasing returns it is all too easy for organisations to extend beyond their traditional risk parameters. The financial services industry is a prime example, where the incessant requirement to increase shareholders’ wealth through generating returns that the traditional model could not aspire to achieve brought the impromptu demise of some institutions whilst other global firms had to go cap in hand to their government’s for a bail out.

So what could we conclude?

Maximising shareholder wealth is not just about the short-term financial wins, staying true to a company’s raison d’etre and delivering consistent returns that are proportional to the risk appetite of shareholders is how to build a sustainable and successful business. UiD knows it, so do our clients.