Perception Gap, Out of Touch, and Destroying Value

“Josh Silverman is on the defensive. As the head of eBay's Skype unit, he's happy to talk about his company's more than 330 million users and six straight quarters of profitability. But the topic he has been asked to address more frequently in his six months at the helm is how eBay could have so grossly overestimated Skype's value when in 2005 it paid more than $2.5 billion for the Internet calling service. ‘There is this perception gap related to eBay and what people thought eBay would do with Skype,’ Silverman says.

“The gap is more than just a matter of perception. Executives at eBay bet Skype's cheap and easy-to-use Internet calling tools would help eBay users land more sales. But it turns out many of the small business owners who market their wares on eBay had little time to sit by the phone to take questions, and in October, eBay was forced to concede it overpaid, recording expenses of $900 million.

“Silverman's task now is to ensure that Skype earns its keep, giving eBay executives reason to retain the business rather than sell it to the highest bidder. So far, eBay Chief Executive John Donahoe says he'll keep Skype. ‘We know Skype is a great stand-alone business’ … Donahoe said during a conference call with analysts earlier this year.”

(“At eBay, Is Skype There to Stay? To earn its keep at eBay, the Internet calling service needs to goose growth and gain traction on mobile phones. Otherwise, a sale may be in the offing.” Catherine Holahan. businessweek.com: September 15, 2008)

A COMMUNITY OF CUSTOMERS cries for our understanding. How can we ignore, assume away, or misperceive their ways? How can we be blind to how they will, or will not, use our service?

We are blind when we fall prey to mantras, the sweep of our times, or the lures of investment bankers drooling to make a deal.

Reach out; get in touch; listen for what to ask.

And if we must chant mantras, let it be, "Big, unrelated mergers destroy value -- certainly for owners, often for customers;" and, "Most synergies are synthetic and as illusory as our assumptions about customers and value."

Be real. Stand alone.