The Five Dumbest Things on Wall Street This Week

2. The Skype Is Falling

eBay (EBAY Quote) finally dropped the Skype hype.

The San Jose, Calif., online auction company admitted Monday that its high-priced Internet phone acquisition hasn't worked out as planned. eBay shook up Skype's management, bidding adieu to CEO Niklas Zennstrom. It also took a $900 million charge to slash the value of the two-year-old investment.

The moves amount to a concession that eBay badly overpaid for Skype back in September 2005. The deal called for eBay to fork over $2.6 billion in stock and cash, plus as much as $1.7 billion more in earnout payments tied to user, revenue and profit targets.

That might seem like a steep price to pay for a company that had reported $7 million in revenue the previous year. But eBay promised the acquisition would create "significant new monetization opportunities for the company."

Monetizing cheap phone service is no easy feat, though. Last year, rivals Yahoo! (YHOO Quote) and Google (GOOG Quote) rolled out their own voice over Internet phone products. The onset of competition pushed Skype to make calls from the U.S. and Canada free for the second half of 2006 -- further compressing Skype's already razor-thin profit margins.

Monday's writedown suggests CEO Meg Whitman may have gotten a little carried away when discussing the virtues of Skype in a 2005 conference call.

"I don't think you can underestimate the strength of the brand," Whitman said. "When people are using your brand-name as a verb, that is remarkably powerful."

Unfortunately, it's not remarkably profitable.

Dumb-o-Meter score: 90. "It's really about turbocharging our growth," a Skype exec told BusinessWeek last year in reference to the free-call decision, "and solidifying our market position here before others catch on."