EBay’s write down of its Skype acquisition got me thinking about my 11th grade history class. While I remember little from Mr. Griffin’s lectures, I do vividly recall his poster of 18th century British philosopher Edmund Burke with the quote: “Those who don’t know history are destined to repeat it.”
Strategic Communications Group’s (Strategic) representation of clients in the technology, software, telecom, network, security and systems integration markets now spans more than a decade. In that time, we’ve seen a myriad of trends come, go and re-emerge. With each cycle come the press, pundits, entrepreneurs and investors who proclaim their lessons learned will sharpen future thinking and decision-making.
The dot-com bust of a mere six years ago was particularly painful. Strategic hyped its fair share of companies destined for the scrap heap, including a provider of piano lessons over the Web and a company attempting to turn the computer screen saver into a delivery medium for content. (Yes…a Gartner analyst pointed out during a briefing that the screen saver pops on only when the user is away from the computer.)
It’s comical now. Yet management, employees and investors of those poorly constructed companies spent many an afternoon dreaming of IPO millions. It was argued the rules of business had changed. Revenue was an afterthought. Business benchmarks were defined by attracting eyeballs, building buzz and closing that next round of capital.
EBay’s acknowledgement that it overpaid for Skype to the tune of $1B-plus is reminiscent of those dot-com days gone by. Well-respected analyst Greg Sterling told the NY Times, “Right after the bust, people started focusing on business models and revenue. There has been a little bit of departure on that, with a focus on building the biggest audience and figuring that revenues will follow. That is the attitude that has prevailed over the last couple years, and it may not be sound.”
I do understand the desire to attract eyeballs or build a social community. It’s a lot easier than having to win a customer and run a profitable business. It’s also easy to become enthralled by the reported $10B valuation Facebook will likely secure in its next round of funding.
However, business is ultimately about increasing revenue, profitability and valuation over time. Those benchmarks are intertwined and it takes a proven product, a solid business model and a lot of hard work to achieve them. We’ve been down the errant path of eyeballs and community before. And I bet you Edmund Burke could tell you where it will eventually lead.
