Masha Geller reviews eBay buying Skype, Microsoft eyeing AOL, eMarketer forecasting a rosy future and Atlas narrowing the ad conversion window.

As I was writing last week's column, rumors of eBay's $2.6 billion acquisition of Skype spread around the web with alarming speed. Today, a similar rumor about another acquisition is hovering overhead -- that of Time Warner and Microsoft being deep in talks over Microsoft buying a stake in America Online. The story was broken by the New York Post early yesterday morning. Later, Reuters picked it up and eventually so did the Wall Street Journal. As I write this, officials at both companies are still declining comment, and unnamed sources are calling the talks preliminary, so I won't go into too much detail except to cite the facts and let you decide for yourself.

Before I do that, however, let's talk about eBay and Skype.

Facts first. On Monday, online auctioneer eBay made the official announcement that it would shell out $1.3 billion in cash and an equal amount in stock for Luxembourg-based Skype -- a global communications company that provides free voice over internet protocol (VoIP) connectivity.

The company launched in 2002, boasts 54 million users and expects revenues of $60 million this year. Interestingly enough, despite adding a reported 150,000 users a day, Skype has yet to post a profit, according to an unnamed executive quoted by Reuters. Nevertheless, eBay has agreed to pay up to an extra $1.5 billion in addition to the initial $2.6 billion, if Skype meets certain financial targets by 2008, making it the biggest acquisition in eBay history.

According to eBay CEO Meg Whitman, the combination of eBay, PayPal and Skype would offer eBay an "unparalleled ecommerce and communications engine." In the integrated eBay/Skype auction environment, a buyer would be able to immediately contact the seller without having to leave eBay, reveal private phone numbers or waste valuable time waiting for either party to respond to email.

All that sounds good, but as you may remember, eBay purchased PayPal for about $1.5 billion and Shopping.com for $620 million in cash. Both of those acquisitions made sense to and were readily supported by investors. The Skype buy, on the other hand, has Wall Street, not to mention interactive industry insiders, scratching their heads.

First, for eBay to be paying such a huge sum for a company with such a tiny revenue stream screams 1999. eBay is obviously following in the footsteps of Google Talk, Yahoo! and Microsoft, all of which are playing around with VoIP, but many are wondering if it wouldn't have cost a whole lot less for eBay to develop VoIP capability in-house if it's so important to their business.

Second, most of Skype's revenue is coming from Europe, about a quarter from Asia, and a measly eighth from North America. An almost pathetic one percent of eBay users currently subscribe to Skype. Will enough users adopt the new technology to live up to eBay's promises of profiting from the deal within a year? Wall Street is skeptical.

Your truly is skeptical as well, mainly because I just can't wrap my head around the $2.6 billion figure. But who am I to judge.

Similarly, I'm hesitant to pass any judgment on the Microsoft/AOL rumor. First of all, the last time we heard from Microsoft they were in talks to acquire Claria, but we all know how that ended. This time, Microsoft is reportedly thinking of acquiring an AOL stake and then combining it with MSN, making the two companies roughly equal stakeholders in the venture.

The real issue here is ad sales. Since AOL and MSN are no longer locking horns to win dial-up consumers, the "big prize," as the Wall Street Journal put it, is ad revenue -- "and both AOL and Microsoft are lagging behind Google and Yahoo!, Inc. in that arena." Apparently, the companies are thinking of combining the ad sales forces of AOL and MSN and going after Google, which is currently selling nearly $3 billion worth of ads on its search engine.

At the same time, AOL has been using Google's search engine for its properties since 2002 and earned about $300 million from the deal last year. In turn, Google's filings with the SEC state that AOL accounted for 12 percent of its revenues in 2004.

At press time, the two companies were still talking. We'll let you know if those talks result in anything worthy of real analysis on these pages.

In the meantime, I'm more interested in Google's Blog Search and AOL's Podcast Engine, both announced this week.

Google has launched a beta of search engine for finding blogs, whereby users can find blogs the same way they currently find everything else through Google search. Competitors of the new offering are such specialty blog search engines like Technorati, Feedster and Ice Rocket, but it seems there's more than enough room for everyone in this arena because, according to Intelliseek, upwards of 20,000 blogs are created every day. Somewhat similarly, AOL is offering a podcast search tool on its recently-revamped portal.

Now, all rumors aside, let's talk about something a lot more substantial -- forecasts!

Although I've vowed not to pay attention to any more crystal balls for the foreseeable future, I've always liked eMarketer's analytic approach to other people's data and their latest release deserves a mention.

According to their analysis, online advertising is about to pass the $10 billion mark this year, for the first time in history, totaling $12.9 billion. That's more than double 2002's $6 billion. The future looks even better, with eMarketer estimating that by 2009, the online adspend will reach $22.3 billion. Check out David Hallerman's column about this in today's issue.

Another report released this week may play a large part in influencing where, and more importantly when, that money will be spent.

According to Atlas, lunchtime and primetime hours are the best dayparts for conversion rates. The noon EDT hour showed the highest conversion rate of 35 percent more than the overall average. The 4 a.m. EDT hour had the lowest rate, converting at less than half of the day's mean rate, while the morning, in general, showed the least activity. Atlas found that the early morning hours convert the poorest, but account for 10 percent of the overall conversion volume. Cutting these hours may increase efficiency, but will sacrifice volume. Also, although increasing impressions during the most effective dayparts will increase conversion rates and volumes, a point of diminishing returns may be reached due to higher frequency.

And finally, a word about email.

DoubleClick latest Email Trend Report says that key email performance metrics including the non-bounce rate, click-to-purchase conversion rate and orders per email delivered all improved versus Q2 2004, despite a decline in open rates. You can get the complete list of stats here.

And on that note, I'm off to pester AOL and MSN people about their plans.

iMedia Editor at Large Masha Geller is the founder of interactive marketing and corporate communications consultancy Geller Public Relations in New York. She has been covering the interactive advertising industry since 1999 as the former editor in chief of MediaPost.com, and is a widely-published thought leader in the interactive arena.