Accountants, corporate governance, strategy

I might come across in occasional blog entries as not thinking much of accountants, but that isn’t true. I trust my tax affairs to an accountant and expect that he will save me more in taxes than he charges in fees. They have a valuable place in the world. I have a lot of respect for them, I just think they should stick to what they are good at.

The reason I am so often critical of the role they play is that they are often used outside their core expertise. In a narrow world of counting, calculation, extraploation and looking for legal holes to exploit, they are excellent. I have problems once we assume that this is the primary skill needed to run a company. Every board should have an accountant on it who understands the corporate finances extremely well. But this should only ever be an information provision role, one of simple advice on what is available, and of alerting threats and opportunities. Decisions though should be taken by people who fundamentally align with the nature and purposes of the company, who are visionary and can see the big picture, where they fit in now, and where they could migrate into nearby green fields. There is no reason why an accountant can’t learn these skills, and I am certain that many companies are led very well by people of vision who also happen to be accountants, but there is no reason to assume any link between such talents.

Accountancy as a whole needs to learn to better understand the workings of companies. Movement of cash is only one part of it, and I think that too often, they overlook many of the mechanisms that influence the creation and destruction of wealth. Without analysing productive mechanisms properly, it is easy to make cuts where they cause harm to production in excess of the supposed savings. A good example of a classic error would be the elimination of coffee breaks, since if staff are working instead, surely they will be more productive. Errors such as this, and there are many like this, ignore the mechanisms of inetrpersonal interaction in the happiness levels, personal development and loyalty of staff, but even more importantly, the effects on creativity and even invention as staff cross fertilise, the sharing of good practice, the roll-out of corporate messages, improved networking, and of course oiling of the corporate machine by enabling staff to form key relationships with others in the business. These things are hard to measure, but that doesn’t mean they should be ignored in favour of those that can, such as hours at the desk or numbers of transactions.

If and when accountants use business models that account sensibly for all the factors that govern the well-being of the company, and its rightful contributions to the host community (no company exists in a vaccuum and all parts of the economy are ultimately linked, so accepting a small loss to a competitor can sometimes generate a long term benefit), then I will be much more willing to give them more control. But where all they do is to count some of the beans, they should be firmly limited to advisory roles, with decisions left to others with a view of the bigger picture, and especially one that includes the long term future of the company.

eBay and Skype, the correct strategy

So eBay made a big loss selling Skype. While a lot of analysts are saying ‘I told you so’ because they never thought it was a wise purchase, I think it was the right decision, but it was badly managed. Certainly, eBay should have ensured that they were buying the proper package, it seems that they didn’t actually buy the rights to use some of the key technology on which it depends, so are now crippled. But that is the only obvious error in the acquistion. In my view, the rest of the subsequent decline in the perceived market value is down to vision failure. And it was entirely recoverable right up to the point of the discount sale last week. The biggest mistake eBay made was to sell it. With a strategy review and a bit of effort, they could have made a lot of money from it, and used it to increase the overall presence of eBay, ensuring its longevity. They thought it was just a means to allow people to talk to each other during auctions, but they over-estimated the size of the market for that, and how saturated it already was. Now eBay is disappearing fast from everyday awareness as other entrants on the web take the limelight. Here is what they should have done and why the deal made perfect sense if they had carried through a sensible strategy.

When they acquired Skype, eBay already had a large market presence, with a very high level of trust from a very large number of users, and hence enormous brand value, while Skype was just getting going, so was still relatively cheap with a lot of potential in the right hands, but already well recognised and trusted. eBay owned Paypal, a well-recognised electronic cash variant, used all over the world.

At the same time, we started seeing the market acceptance of electronic cash, e.g. the Oyster card in London, which was just beginning to migrate from the London underground, to become acceptable in other shops for minor payments, exactly the sort of territory Paypal could have aimed at. And at the same time, mobile phones were being used for more and more payments, such as car parking, ticketing, store vouchers. So we were seeing a key vulnerability in the small payments markets worldwide. People everywhere obviously want a simple, convenient, portable, and most of all, trusted alternative to carrying lots of cash around, especially small change. The key factor in acceptance is the level of trust in the supplier, people need to be sure they won’t lose all their cash through technology errors or fraud, and eBay was exactly the sort of company that could have pulled it off. It had enough presence, brand image, trustworthiness, and the ability to handle the many transactions involved. Supposing it had decided to do so. It would be the provider of the sort of platform needed to make a whole range of viable business models for mobile music,and all kinds of on-line content purchasing. It would also be able to implement cross linking of the physical and on-line worlds in areas such as enabling and policing access to on-line content on purchase of other physical products or services. So, but this physical product, get various forms of electronic cash bundled, and access to on-line content. Areas such as air-miles, supermarket loyalty points and other electronic cash could migrate easily onto a single platform.

So where does Skype fit in to all this? It was the missing link. Provision of the servers and software is only part of the solution. Having a global communication capability is also key to such a market success. Skype provided the ability to allow users free text, data, voice and video interactions across the net, so that vouchers and cash could change hands easily, and discussion or negotiation between parties could take place easily and for free. Skype was the oil to the global small financial transaction machine. Most importantly, mobiles were starting to replace laptops as the platform of choice for email and web access on the move. That was obvious even then. Now, with mobiles also due to become the target platform for services such as Spotify, destined to be the prototype business model for content distribution, it is increasingly obvious that we need more than ever a simple electronic payments service that works across all platforms, with no currency borders. Paypal, backed up with Skype, and offered as a wholesale platform for mobile operators, with the eBay transaction engines there to run it all, and all implemented by a trusted company, would be in pole position to capture a very large share of the revenue from micropayments, air miles, loyalty schemes, travel ticketing and minor purchases at millions of retail outlets. They could become the default platform for paid content distribution. And any mobile operator that didn’t join up would face the threat of becoming marginalised since their call and text revenues would be increasingly bundled into other more palatable business models by their competitors. Even services such as smart metering would naturally fall into their camp.

So in a nutshell, the eBay/Skype/Paypal alliance was in a superb position to capture a lion’s share of the revenue circulating the networked world. Starting with small payments and establishing trust, they could have grown via future alliances into the world’s default electronic banking/retailing/ticketing system. With a competent and visionary team at the top, they could still be up there with Google as masters of the universe instead of looking enviously at Twitter and Facebook and wondering where it all went wrong.

eBay didn’t really understand the world they were in. The guys who created Skype were visionaries. The guys who invented eBay and Paypal were too. But as with most companies in the IT world, they grew, the visionaries moved on to other things, and they became ordinary companies, with any lingering visionary skills pushed further and further down the organisation structure, as control migrated to mega-managers who are probably really good at managing generic big companies, but don’t really understand the point of the company they are managing, and have too little awareness of the value of what they have in their armoury. They bought Skype for the wrong reasons, and never really understood what it was or how to use it.

So they blew it. Not the first company to get lost, and they won’t be the last. But it’s still sad looking at the lost potential.