Acquisitions and mergers are organizational expansion frameworks that allow companies to gain control of more resources and grow their reach to diverse markets. An acquisition involves obtaining another organization’s shares or resources, and a merger refers to establishing an alliance with aligned goals while sustaining independence. Therefore, though creating a partnership and buying out other companies are effective growth strategies, they have different implications, target specific outcomes, require varying managerial approaches, and do not often succeed. For example, eBay’s acquisition of Skype in 2005 was one of the biggest business flops of the 21st century because they did not investigate the feasibility of their expansion strategy. Although R-bay made a sound decision to purchase a fast-growing internet company, its initiatives did not yield fruits because it could not use Skype to enhance its business or facilitate efficiency.
E-bay is an organization that connects buyers and sellers from all walks of life and facilitates the seamless exchange of goods for cash. As a result, the organization experienced notable success as soon as it was established because of the value it offers consumers. E-bay has adopted various expansion strategies throughout its life cycle because of its growing revenue, which allowed it to create opportunities in China, India, and Korea (Fei et al., 2020). However, eBay’s acquisition of Skype for US$ 2.6 billion on September 12th, 2005, was misinformed because consumers did not experience value or essential benefits from using the new product. Two years later, market dynamics obligated E-bay to write off Skype and sell it for 1.9 million dollars, resulting in a loss of $700 million (Kumar & Sharma, 2019). However, the organization learned several lessons from its purchase, allowing it to make more calculated decisions in its future initiatives.
When eBay purchased Skype, its main intention was to enhance its customers’ communication effectiveness and efficiency by providing them with Voice-over-Internet Protocol services. Nevertheless, it misevaluated its consumers’ needs and desires as most people preferred using emails for communication (Kumar & Sharma, 2019). The idea of face-to-face chats between buyers and customers sounds good, but it is not practical. Anonymity is a critical aspect of eBay’s platform because no buyer wants to face time with a stranger online, and sellers do everything they can to avoid disappointed buyers who do not realize when they purchase fake items (Fei et al., 2020). Thus, the decision to introduce the service did not materialize because it did not add any value to eBay’s customers.
The perceived outcome of a merger or acquisition is success for the companies involved as they bring together resources that allow more efficient service provision, diversification, and coverage. However, these strategies are complex because they do not always promise the best outcomes. Two organizations with different organizational cultures or a company that does not require the services offered by another, as in the case of eBay and Skype, limit the success achieved by these strategies. Instead of rushing to purchase because an industry is booming, it is advisable to investigate associated factors. For example, eBay should have asked its customers whether they would appreciate the changes to understand better and forecast customer reactions. Subsequently, a partnership would have better served the organization since it would have allowed them to save on investments and offer their consumers a choice of whether to use the service.
References
Fei, W., Jiang, D., & Xing, C. (2020). Business Plan for Future eBay, Subject: Introduction to Business. The Frontiers of Society, Science and Technology, 2(14). Web.
Kumar, V., & Sharma, P. (2019). Why Mergers and Acquisitions Fail? In An Insight into Mergers and Acquisitions (pp. 183–195). Palgrave Macmillan, Singapore. Web.