Business Tech

Hurt by its sluggish auction business, eBay reported a 29 percent drop in second-quarter earnings.

Net income fell to $327 million, or 25 cents a share, compared with $460 million, or 35 cents a share, in the year-ago quarter. Sales also were lower, slipping 4.5 percent to $2.1 billion for the quarter ended June 30, the company said Wednesday.

Excluding one-time charges and stock-option costs, eBay said quarterly earnings would have reached 37 cents a share, or $478.6 million.

Despite the downturn, results beat the forecasts of analysts, who had expected sales of $1.99 billion and net income of 36 cents a share.

eBay said that the volume of merchandise sold on its auction site fell 10 percent in the quarter compared with a year ago, though analysts had been expecting a decline of 20 percent or more.

eBay's 2009 second quarter results

(Credit: eBay)

The results prompted some analysts to raise their investment opinions and earnings estimates on eBay.

Growth in eBay's core auction business has stalled over the past year, prompting the company to try new tactics. It's been pushing more fixed-price auctions, hoping to lure back buyers and sellers.

But the weak auction trade has been offset by healthy growth for both PayPal and Skype.

PayPal revenue hit $669 million in the second quarter, a gain of 11 percent from the previous year. Skype saw revenue rise 43 percent to $170 million.

PayPal President Scott Thompson recently said he plans for the company to double in size next year. And Skype, which eBay scooped up four years ago, is expected to launch an IPO next year.

For the current quarter, eBay is looking for sales of $2.05 billion to $2.15 billion, while analysts have been eyeing revenue of only $1.99 billion. Excluding special charges, the company is projecting earnings of 34 cents to 36 cents a share, with analysts on average forecasting 35 cents a share.

"We are making progress," eBay CEO John Donahoe said on a conference call with investors. "But we know we still have the long way to go as we work to improve trust, value and selection, and we will stay focused on this execution path."

In a highly watched legal ruling, a court in Sweden on Friday found all four defendants in the high-profile Pirate Bay case guilty of having made copyright-protected files accessible for illegal file sharing.

The defendants were each sentenced to a year in jail and also ordered to pay a total of 30 million Swedish kronor ($3.6 million) in damages to copyright holders, among them a number of American media giants.

The four men--Peter Sunde, Gottfrid Svartholm Warg, Fredrik Neij, and Carl Lundström--were found guilty of having made 33 copyright-protected files accessible for illegal file sharing via the Piratebay.org Web site.

"The crime has been committed in a commercial and organized form," Judge Tomas Norström said in a Web broadcast from a press conference in Stockholm. Warg and Neij are the founders of The Pirate Bay. Sunde is a programmer and a spokesman there, and Lundström offered technical services to the site in 2005.

Pictured, from left, are Pirate Bay defendants Peter Sunde, Fredrik Neij, and Gottfrid Svartholm Warg. Carl Lundström is not pictured.

(Credit: Pontus Alexander/Fabian Landgren)

Copyright holders cheered the verdict, as the large penalty will likely discourage illegal file sharers, according to those in the music business. While the legal process still has a long way to go in the United States, Rick Carnes, president of the Songwriters' Guild of America, said he and everybody else "put out of business by cyberlooting" were smiling after the verdict.

Of course, even though the verdict has been handed down, legal actions are far from done.

"The prosecutor leads 1-0 after the first round, but this will, of course, be appealed," said Per E. Samuelsson, defense lawyer for Lundström, according to the Swedish newspaper Dagens Nyheter.

Meanwhile in the media word, controversy brewed this week when Amazon.com delisted from its sales ranking system gay and lesbian book titles that it deemed "adult."

When one author of novels with gay characters noticed that many books were suddenly deranked, he made inquiries into the matter and received the following response from an Amazon representative:

In consideration of our entire customer base, we exclude "adult" material from appearing in some searches and best-seller lists. Since these lists are generated using sales ranks, adult materials must also be excluded from that feature.

An online petition against the move attracted thousands of signatures and pointed out that the policy appears to be biased against books with gay, lesbian, and transgendered characters.

Of course, being delisted from the rankings doesn't mean that the book giant has stopped selling the title; it just means that the title won't show up with a public-sales ranking or in the best-seller lists--often a factor in how shoppers make their purchases.

One blogger claimed that he did it to cause an outrage among the gay community, a claim that was dismissed by Amazon representatives, who characterized the episode as "a glitch in our system, and it's being fixed."

However, an unnamed Amazon employee confirmed the report of manual error. "Amazon managers found that an employee who happened to work in France had filled out a field incorrectly, and more than 50,000 items got flipped over to be flagged as 'adult,'" the employee said.

Meanwhile, Amazon has reportedly blocked the use of the controversial behavioral-advertising system Phorm on its British site. The move comes as the European Commission takes action against the United Kingdom, alleging that the country failed to adequately comply with data protection laws in Europe.

Phorm's technology is designed to allow its customers to observe a user's behavior while online, such as Web sites visited or keywords entered, and then serve up relevant advertisements based on that behavior. The controversy over Phorm's technology revolves largely around privacy issues.

Google on the go
Buoyed by continued growth in search and by cost cuts, Google reported better-than-expected profitability for the first quarter of 2009. Google's net income increased 8 percent annually to $1.42 billion. Revenue increased 6 percent to $5.51 billion, but excluding commissions paid to advertisers (called traffic acquisition costs), revenue increased 10 percent to $4.07 billion.

Google's revenue growth rate has been slowing, but for the first time since it went public, the company's quarter-to-quarter revenue declined. (Click to enlarge.)

(Credit: Google)

But everything is most definitely not coming up roses. Google's revenue, after ascending steadily quarter after quarter, peaked in the fourth quarter and declined 3 percent in the first quarter. Google's business is still relatively strong, and it's been hit by the recession less than many in the tech world, but it's been hit nonetheless.

In short, people are buying less, and advertisers consequently are advertising less. As an Efficient Frontier study released earlier this week showed, advertisers are getting more conservative by bidding for search terms where there is a proven return on investment. Google Chief Economist Hal Varian's "Wal-Mart effect," in which people under financial pressure would steer more of their purchasing behavior through search engines in an attempt to get the best deals, has its limits.

Meanwhile, Google-owned YouTube has struck deals with a host of entertainment companies, including Sony Pictures, CBS (parent company of CNET News), Metro-Goldwyn-Mayer, Lions Gate Entertainment, Starz, and the BBC, to acquire "thousands" of TV episodes and hundreds of films. The new content will be available only in the United States.

YouTube executives also said during a conference call that they have redesigned part of the Web site to create separate areas for professionally made content. On the site's front door will be two new tabs. Movies from Sony Pictures will only trickle on to YouTube, at least initially. YouTube has agreed to display the films using a video player from Crackle, Sony Pictures' own video site. The studio will control all the advertising for the films, and Crackle will also get credit for the traffic.

So far, YouTube has been a free, advertising-supported service, but Google plans to build payment mechanisms into its video-sharing site. The change in tactics will mark a new era for Google's attempt to make money from YouTube. The service is tremendously popular, but also tremendously expensive to operate, and Google has been working hard for months to come up with a more successful financial formula for sharing video.

On the line
The founders of Skype have reportedly been trying to repurchase the Internet phone service. Niklas Zennstrom and Janus Friis sold their company to eBay four years ago for $2.6 billion. The two men have been meeting with private-equity firms and gathering their own funds to finance the deal.

eBay has acknowledged that Skype has few synergies with its core businesses. And eBay's chief executive has publicly stated that he's willing to sell it for the right price.

Zennstrom and Friis are reportedly encountering turbulence in striking a deal with eBay to buy back the Internet phone service, despite the financial backing from a group of large private-equity firms. KKR, Warburg Pincus, Elevation Partners, and Providence are reportedly teaming up with the Skype founders. But eBay and the founders' group reportedly face a wide gap on price, and a deal involving the private-equity firms appears unlikely.

Those efforts may be for naught, as eBay announced plans to spin off Skype with an IPO in the first half of next year. While eBay plans to launch a Skype IPO in the first half of next year, the company noted that its exact timing will be based on market conditions.

Last year, Skype generated $551 million in revenues, up 44 percent over the previous year. The number of Skype's registered users has increased to 405 million at the end of last year, up 47 percent from the previous year.

Meanwhile, Time Warner Cable has put the brakes on a trial that was testing its new "consumption-based billing" system for its broadband service. Chief Executive Glenn Britt said in a statement that there has been "a great deal of misunderstanding" by consumers and lawmakers who have criticized the plan.

Time Warner had quietly been testing its metered billing service in Beaumont, Texas, since last year. But last week, the nation's second-largest cable provider said it was planning to expand the test of the bandwidth caps to other cities, including Austin, San Antonio, Rochester, N.Y., and Greensboro, N.C.

The way the plan worked is that Time Warner would cap data downloads and uploads at 10 gigabytes to 60 gigabytes a month, with prices ranging from $25 to $65 per month, depending on the region. The company also planned to introduce a new plan that would have offered 100GB of downloads for $75 a month. Additional downloads would be charged $1 a gigabyte, with a cap of $75 on the extra fee, essentially making an unlimited plan cost $150 per month.

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Skype is going after business customers with a service designed to help cash-strapped companies reduce communications costs.

On Monday, eBay-owned Skype will announce a new version of its Internet calling service that allows companies to use their IP-enabled corporate telephone systems to make Skype calls using regular office phones instead of using a headset that plugs into a PC.

The new service called Skype For SIP allows companies to use the Skype service with their IP-enabled PBX's, which use an open standard called SIP or Session Initiation Protocol. Companies using the service can make phone calls from their office phones to any regular phone or cell phone at the same cheap rates that Skype's consumer customers can. The calls are carried over the public Internet.

Skype For SIP users will also be able to purchase online Skype numbers available in over 20 countries to receive calls from business contacts and customers who are using traditional fixed lines or mobile phones. Skype is launching the beta test of the service Monday and will offer it commercially later this year.

The majority of Skype's 405 million registered users are consumers, but about 30 percent of them also use the service for business, the company has said. Most of these business users have been small or medium-sized companies looking to keep costs down. Since the economic downturn began last year, executives at Skype say the company is seeing a surge in interest from businesses of all sizes that are looking to use the service to cut costs.

"We're seeing a whole new opportunity in the business market, as companies that I'd never have thought would be a target for Skype are pro-actively coming to us and asking for a solution," Scott Durchslag, the company's chief operating officer, said at a press conference during the Consumer Electronics Show in Las Vegas in January.

Skype has been trying to reach business customers for nearly three years. In 2006, it announced Skype for Business, which is designed for users who lack the resources to invest in building their own Internet Protocol telephony networks or to subscribe to expensive managed services from a telephone carrier.

The service includes a Web site, Skype.biz, which offers downloads to make using Skype easier. As part of the Skype For Business service, Skype also integrated its software client with the Microsoft Outlook toolbar. And it offers an auto-management tool that enables group administrators to purchase Skype credits for one account and then distribute them to employees, who can use them for Skype premium services such as SkypeIn, SkypeOut, voice mail and third-party conference calling.

But the latest announcement is targeted at companies that are larger than a small, 10-person operation. These are companies that have already invested in a SIP-based PBX phone system.

While Skype has been successful in the consumer market, it may have a harder time cracking into the business market as there are already several competitors. In addition to traditional IP-based phone systems from companies including Cisco Systems, Microsoft also offers software to connect phone calls to its Office software. And Google recently announced software that allows users to link phone calls to a single number and access voice mail online.

Skype is hoping that its large installed base of users, who are already familiar with the software and the service, will want to use the service at work too.

Still, there are concerns that Skype's service won't provide call quality that is sufficient for business use. There are also concerns about the security of the Skype service, which uses the public Internet for the voice calls.

Skype says that its software is secure. And the company believes that the low-cost service and the new tools it's developing to help business manage the service will appeal to new customers.

Most businesses probably won't get rid of their existing telephone service to use Skype's service, but some may use the Skype service to communicate with employees internally. For example, a company may use Skype to make calls between corporate headquarters and employees who are traveling and using cell phones. Skype could help reduce costs when these traveling employees are overseas or outside their cell phone coverage area.

The open-source PBX platform Asterisk is to gain Skype functionality, Asterisk's primary developer, Digium, announced on Thursday.

The beta version of Skype For Asterisk, an add-on channel driver module, will make it possible to use the popular Web-telephony service through Asterisk-based, small-business phone systems. A channel driver manages incoming or outgoing calls, acting as an interface for various standards, such as SIP or IAX2. The companies say Skype For Asterisk will enable low-cost, global calling through such systems, while using existing hardware.

"Working together with Skype, our goal is to help businesses boost productivity and reap the rewards of feature-rich telephony software, all while saving a substantial amount of money," said Digium chief executive Danny Windham, in a statement on Thursday. "The Skype For Asterisk beta program is a first step toward adding Skype capabilities to Asterisk-based phone systems and enabling them to reach more than 338 million Skype users."

The beta will make it possible to manage Skype calls with Asterisk applications, including call routing, conferencing, phone menus and voice mail. Once out of beta, Skype For Asterisk will be sold by Digium and its resellers.

Asterisk appliances are available from Digium and other manufacturers, such as 3Com.

David Meyer of ZDNet UK reported from London.