eBay seems to be learning the hard way that improving the products you have can be better for business than expanding into new arenas. The Wall Street Journal reports that the one time Internet star is scaling back on its attempts to venture into the new products market, instead leveraging their established dominance in online auctions.

eBay’s model was simple. Individuals with an attic full of “antiques” they didn’t want, could create an online auction to sell their treasures to the highest bidder. EBay’s primary functional role was to serve as the auction forum and to monitor buyers and sellers, insuring complete transactions.

eBay’s dominance in that market gave it the necessary leverage to purchase online payment portal PayPal in 2002 and Internet telephone service Skype in 2005. PayPal has been and will continue to be a powerful source of revenue for eBay. Skype, which offers a service well outside of eBay’s core competency, has yet to produce profit for the company.

These purchases represent good and bad ways of expanding a business to create new revenue streams.

PayPal was a logical purchase, given the fact that the online auction participants want a fast, secure way to transfer money. This is a great service for making the auctions run better for everyone involved.

Skype on the other hand is a service that offers low- or no-cost voice and SMS transmission via the Internet. Auction participants don’t need to chat with one another; they need to move their treasures quickly.

Creating new services that leverage your existing products is much more likely to create new revenue streams for your company, than venturing into completely unknown territory.