3 Things you should (not) learn from Meg Whitman, courtesy of The Economist
Last week I read one of the better post-mortems on Meg Whitman’s ill-advised, bloated acquisition of Skype. It was in the Economist, of course.
The piece, short and pithy, as that newspaper’s stories always are, gets right to the point of eBay’s most recent day of reckoning: the vacuousness of “three lessons,” honed over a 30 year-career in business, which Whitman claims informed her 2005 decision to pay $2.6 billion for the Internet phone service shop. At least, this is what Whitman apparently told a crowd at Standford, a while back. The Economist recounts her wisdom in the piece.
We’ve summarized it this way:
ONE: Details matter in execution. Such as….
whether the nozzle on shampoo bottles should be half or three-eighths of an inch wide
…a tenant acquired during Whitman’s tenure at Procter & Gamble.
TWO: Pay up, and quick, if only so your competitor doesn’t get the deal. A few years earlier, Whitman decided to buy Paypal. So…
she negotiated for a year, during which the price kept rising. She concluded that in the internet industry one bids early, boldly and pre-emptively high.
She vowed not to let this happen again, as in, with Skype.
THREE: The price of inaction is far greater than the cost of a mistake.
The third lesson was that in such a fast-moving realm…mistakes can always be corrected. In other words, it did not matter that the “synergies” between a telephone service and an online flea-market seemed few and far between. In [Whitman's] view, eBay was right to buy first and look for the answers to such concerns later.
Like the Economist points out, these three “philosophies” ended in management disaster, and a $1.4 billion write-down. But the value here is in reinterpreting Whitman’s so-called lessons. Here’s what we mean:
Lesson ONE. Details matter. Of course they do, like uh.. revenues and profits. Where were they in Skype? it’s not clear eBay ever formulated a plan for generating them.
Lesson TWO: Pay up, and quick, if only so your competitor doesn’t get the deal. Pay up and pay quick, if you’ve gone through step one and there is a strategic reason to pay up, and pay quick. Otherwise, let your competitor have it.
Lesson THREE: The price of inaction is far greater than the cost of a mistake. This seems way too close to ‘act first, strategize later.’ We’re sure no management guru would ever suggest this is so — even HBS-graduate Meg Whitman, were it put to her this way, in a moment of reason. And of course mistakes can be corrected…with like, a $1.4 billion write down.
But this is business after all, and you’re in it to make money. And as the Economist correctly points out, by taking a charge Whitman hasn’t made “right” the mistake, she has merely admitted it.
In conclusion: Do pay attention to details. Don’t pay up, or pay fast, just for the sake of doing it. And don’t ever take an action that isn’t informed by your vision, or doesn’t in some way contribute to your strategy to fulfil that vision at your company.
I’m of the opinion that people who have experience at consumer product companies like Proctor and Gamble have no business running most Internet companies. The type of micro product positioning that happens at these companies assumes a sort of rock-paper-scissors zero sum game. It simply doesn’t prepare executives for strategic decisions with a lot of unknown variables.
Ebay has made a lot of acquisitions lately that don’t seem to have much relevance to their core business. They appear to want to let these businesses run as independent entities ala IAC. Buying unprofitable businesses with no synergies to the core business is simply not wise…leave that to your VC arm.
first off – very cool new ui/layout here at FR – looks like the move to wordpress was a success -
okay, here goes write down or not buying skype was a great move for ebay – it is by far one of the most important and useful web apps ever – people love skype
where the mistakes occurred were post acquisition – i.e skype has not changed much of late – they need to do something with it – my suggestion: add premium web conferencing features such as screen sharing and presenter controls – in one move skype is head to head with web ex with an integrated voice + im + video + conferencing platform.
secondly – i’ll bet folks at google and yahoo wanted it as well, since then we’ve seen google talk with is no where near as cool or as used as skype – but shows that the big G wants in on that space as well.
problem for ebay is that everything has to support their auction biz, while Google and Yahoo can just buy all kinds of random startups as long as they have users and good engineers no one seems to care.
errr, the economist may be very well regarded and all, but in terms of them really understanding the web, i have my doubts.
I’m a new reader here, so maybe I’m missing some sarcasm that’s here. Let me know if I’m being dense, but… I think all of those “lessons” make sense with regards to the Skype deal. Not everything works out perfectly imediately.
Over-paying by $1.4 Billion doesn’t seem like that big of a deal compared the downside recognized with #3 and compared to what is going on elsewhere in the business… especially if you consider the fact that Skype isn’t exactly dead yet and still has a lot of potential if eBay can execute things well going forward.
I think some people are jumping the gun on calling Skype a bad aquisition just because of the technical write off that happened recently.
I loved a bunch of posts I just ran onto on this blog (including this one). Great stuff. Keep up the good work, y’all.
I would never say the Skype acquisition was bad – the price was. I don’t recall a bidding war driving up the price but I do remember hearing that eBay would love to integrate Skype into auction listings – allowing potential buyers to call a seller and get more info.
I always thought that interesting since I felt that eBay allowed a seller to spend less time talking to POTENTIAL customers and actually spending time selling and providing customer service to buyers – which means more efficiency per dollar.
Whitman is saying that she paid so much for Skype because she didn’t want a competitor to get the deal, and I understand the reasoning, I just agree that it is faulty. We have all seen stories where the company who makes the acquisition is the one that gets hurt – just look at the HP/Compaq deal.
Over-valuation seems to be the rule when it comes to web-oriented ventures – revenues, profits and synergies be damned.
I agree. Valuations are once again not matching up to revenues, just anticipated potential (take Facebook for instance currently at an estimated $14 billion). Shades of 2000.
Don’t read too much into it. Writing down the value of Skype is a good business move that will boost earnings in future years. I would do the same thing regardless of what I think the business is worth. If you can get away with it, write it off. The faster the better. And of course ignore the “pundits” who think you’re admitting a mistake…