Meg Whitman and the "Skype hype"

      In a recent issue of The Economist, eBay CEO Meg Whitman is taken to task for the recent $1.4 “impairment write-down” related to the acquisition of Skype.  Just two years after forking over the massive sum of $2.6 billion to buy the internet phone company, eBay has written off more than half the sum. 

      But The Economist doesn’t stop there.  It quotes Ms. Whitman’s own lessons of good business judgment:  first, to pay attention to details;  second, in the world of the internet, to bid early, boldly and pre-emptively high;  and third, that “the price of inaction is far greater than the cost of a mistake.”  Good in theory, perhaps, but together they led eBay to make a blunder with Skype – bidding early, boldly, but it turns out, excessively, to the tune of $1.4 billion.  Quite a price to pay for slavishly following principles.

      The Economist goes on:  “Ms. Whitman should have known better,” it confidently claims.  Skype’s business model is not about making money at all, so why pay lots to acquire it?  The acquisition was not a bold move, but a “Hail Mary pass,” a desperate move and a foolish miscalculation.

      Perhaps The Economist is right – but if it is, it should do more than merely criticize after the fact.  Anyone can see what was right and wrong after the dust has settled – whether at eBay or at Merrill Lynch or at Citibank.  All we are doing here is picking through the remains of a corporate failure and assigning blame retrospectively.  It’s little more than the mirror image of what we read about so often – simplistic accounts of successes, the sort of staple that fills the page of Business Week and Fortune magazines, business school case studies, and then gets recycles in large quantities as the basis for seemingly credible studies by consultants and gurus.

      One of the points I try to make in The Halo Effect is that we need to distinguish between a bad decision and decision that turns out badly.  A $1.4 write-down is surely a decision that has turned out badly – at least as of now.  But that is only a bad decision is we can show that, at the time it was made, an executive really should have known better – and the sorts of hindsight logic set forth by The Economist hardly qualifies.  If it was such a bad decision, where were they at the time?  It’s always easy to criticize after the fact, but much harder to isolate a questionable decision up front.  Yet in the absence of such analysis, all we have are easy attributions made after the fact.

Comments

[Yosi Zituni]

I think you are right, criticize after the fact is easy job and its "fun" to make a nice story that also match it.

And as you put it in your book, the problem is even though many of these authors mean well and have sometimes worked hard to syntesizey the reasons for a companys success, they are offering most of the time a quick "fix" route to high performance which simply does not exist in the real world.

Best ragards from Munich, Germany.
Yosi

[Lilly]

I fully agree that it is essential to distinguish between 'bad decision' and 'decision gone bad'. First, as you say, stems from doing something wrong at the time the decision is made. Second is the result of subsequent developments, whether within or outside the control of the original decision-maker.

It is my hypothesis that inability to make this distinction comes from the lack of appreciation for the dynamic nature of business, and life in general. Yet, very rarely does anyone pull journalists or politicians or other public figures for making such retrospective comments.

Perhaps like Dear Lucy in FT you could offer to have 'Halo' blog that brings these incidents to light regularly. Readers need to be better informed and writers should not be let off lightly just because they have chanced upon a subject or person that is 'hot'!

Congratulations on winning the Best Business Book prize on Frankfurt Book Fair - I understand that it is the world's largest!

Regards from Virginia Water, UK

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