EBay Inc. executives said Thursday the company's Internet-based phone service, known as Skype, has seen explosive growth in China and that the country is now one of Skype's biggest market. Speaking to hundreds of analysts and investors gathered at eBay's San Jose, Calif., headquarters, Skype president and former eBay chief financial officer Rajiv Dutta said the service has 13 million users in China. That's nearly as many users as Skype has in the U.S., Germany and the U.K. combined, according to Dutta. The service has 6 million U.S. users, 3 million in the U.K. and 5 million in Germany. "Skype is a huge hit in China," said Matt Bannick, president of eBay's international operations. EBay (EBAY:21.63, +0.15, +0.7%) spent $4 billion in cash and stock last year to acquire Skype as part of a plan to expand beyond its roots as an online auction site for collectables like Beanie Babies and Pez candy dispensers. Since the start of 2005, eBay has earmarked $100 million for investment in China and paid $620 million in cash for comparison shopping site Shopping.com. Still, the company has watched its stock price erode since the start of 2005 as growth in the company's mainstay marketplace business has slowed. Skype has more than 100 million users, who spoke for 6.9 billion minutes during the first quarter, Dutta said. By eBay's estimates, Skype, which launched its service in August 2003, handles 7% of the world's long-distance minutes. Skype is also one of the top 3 best-known brand names in the world, along with Apple Computer (AAPL: 128.71, +1.87, +1.5%) and Google, according to Alex Kazim, senior vice president at Skype. Kazim said that Skype, which generated $32 million in sales in the first quarter, had 28% gross margins. Skype currently generates all of its sales from Skype Out, a service that lets Skype users call a regular phone from a computer. As for new content, Kazim talked about Skype selling ring-tones or ring-backs based on Warner Bros. content. At Thursday's analyst day, executives, like Bannick, sought to impress upon investors that eBay's investments were worth it. Bannick said that eBay's Skype was just turned on in China in the first quarter, and already 25% of the listings have a Skype-me button next to the listing. EBay doesn't disclose how many listings it has on its China site. EBay and paid search EBay relies less on paid search for new active users in the U.S., according to Bob Swan, CFO. Currently, 60% of eBay's new active users in the U.S. go to eBay directly or find eBay on search listings that show up on the left side of search listings pages. These listings are typically free, but in the case of Yahoo, marketers may pay the search giant to have their pages indexed more frequently. Swan said that in 2002, only 44% of new active users went directly to eBay or found eBay from natural listings. Swan said the market opportunity for Skype is unknown, but that it's estimated that 1.4 trillion minutes will be handled over Internet lines by 2009. Earlier in the day, Bill Cobb, president of eBay North America, tried to appease any investor concerns regarding higher marketing costs at the marketplace operator. EBay has often said that it's one of the largest buyers of keywords from the major search engines. But as more marketers use keyword marketing, the cost of this form of marketing has gone up, raising concerns that eBay's expenses would get out of control. Cobb said that eBay is indeed buying even more keywords. The number of keywords eBay handles for its sellers has gone up twentyfold from last year to 15 million keywords. But eBay has managed to find cheaper keywords to buy. Cobb said that the average cost-per-keyword eBay is buying dropped 74% from last year. Cobb was trying to demonstrate eBay's efficiency in handling its marketing expenses via keyword buying from search engines, like Yahoo (YHOO:   19.15,+0.22, +1.2%) and Google (GOOG:  435.11, +5.84, +1.4%) . Marketplace, PayPal EBay executives also talked about eBay Express, the company's new retail site. EBay Express filters the listings that are posted on eBay's marketplace. If they meet certain criteria, the listings are posted on eBay Express. The Express store launched with 10 million items, and eBay Express is expected to launch in Germany and the U.K. later this year, said Andre Haddad, senior product manager at eBay. EBay executives also talked about PayPal's opportunities beyond the eBay platform. PayPal is now being used as a debit card. PayPal members can also make payments from their mobile phones.