John Ilhan’s widow Patricia sold his Crazy John’s mobile reseller empire in 2008 to Vodafone for a reported $200 million. Five years later, Vodafone has destroyed the entire value of its acquisition. As management follies go, that is significant.
Admittedly, Patricia Ilhan’s timing was perfect — just before the global financial crisis unfolded. And the writing was on the wall for resellers, even before the GFC, says independent telecommunications expert Paul Budde. “Go back 10 or 15 years, and resellers made a profit of 20% to 30%. Now they make 5% and a lot of telecom operators says let’s not give them the 5%, let’s use it ourselves. It is no longer cost-effective,” he said.
A decade ago, there were about 200 resellers, Budde says, and today there are about 10. But Crazy John’s is no longer one of the survivors.
Vodafone has suffered from bad management for years, according to Budde. It started with its debut in Australia, where it moved straight to the 2G network and didn’t resell 1G. “They relied on new customers and were never able to catch up,” Budde said. “The other providers just moved their customers from 1G to 2G. You can point back to that as taking the wrong strategy.”
The company carries a lot of debt, a situation compounded by its attempt to recoup market share by buying Hutchison Telecoms in February 2009. “Hutchison went into three different technologies, spending billions and then abandoning it all. When they merged, they had all this baggage, and no capability to invest,” Budde said.
And, like other carriers, Vodafone missed the smartphone revolution. All providers had expensive “portals” offering products, services and applications until the iPhone blitzed their entire business model with apps on the phone. “They were all hanging onto monopolist portal idea and trying to get all this money for 10 years, and were caught off guard by Apple. Optus and Telstra reacted quicker than Vodafone, which was in the midst of the merger, and had lots of problems internally,” Budde said.
The business model for reselling was already on the rocks when Vodafone bought the company in 2008. “It is the reality of the reseller market more than anything else,” said Budde. “The situation is that we are seeing the telecommunications companies having to invest increasingly in new infrastructure — 3G, then 4G — but consumers like you and I not paying more. That has to be arranged, and the only way for companies to organise it is to cut costs.
“You see that mobile is commoditised — it doesn’t really matter which plan. In a commoditised market with low margins, you need to be big. Players with a few thousand less customers can’t survive, and you get market concentrated. People merge and merge and we end up with handful of players,” Budde said.
“When you gut a house you still have the shell, but it is not somewhere you want to live.”
A multi-brand strategy is a difficult one to pull off and an idea that is widely misunderstood, according to independent brand advocate Michel Hogan. “If you have separate and distinct operations, identity, deliverables and promises, that is multi-brand. If not, it is nothing more than a bunch of labels,” he said.
Following the merger with Hutchison, Vodafone removed the Crazy John mascot that was emblematic of the company’s promises. “Love it or hate it, it was unique and identifiable,” said Hogan. “Those ‘brand markers’, as I call them, are a way for people to access and recognise the company. When you remove them, you are monkeying with people’s ability to access and recognise the company.
“Think about if Qantas got rid of the flying kangaroo. These iconic elements have recognition and people have emotional attachment to them. In an acquisition, you are buying that affection. It always seems suicidal to me to systematically dismantle that.”
Companies may decide they have built relationships of sufficient strength with the acquired company’s customers to relinquish the brand. “I guess the hope is to move them over to Vodafone — [the thinking being] we have got enough connection to those customers and we will be able to move them. I don’t think that is true; I don’t think the people who sign up for Vodafone are the same as those who sign up for Crazy John. There is a very different underlying promise,” said Hogan.
The death of Ilhan was a blow for a brand built so closely on his personality. But the impact of Vodafone’s ownership on the culture was probably greater. Once the company was sold and links to its entrepreneurial beginnings cut, Crazy John’s essential nature as an innovative entrepreneurial company was on shaky ground. Its ownership by a large international company contributed to its end.
Garrow said: “It is very difficult for a relatively sophisticated international company like Vodafone to acquire an entrepreneurial innovative company like Crazy John’s. It is very different from such a highly structured organisation, and that leads to challenges of cultural assimilation.”
Hogan says the company changed so much in essence that the brand was no longer representative. “When you remove the foundation of people’s attachment, their experiences that creates that attachment, you are left with an empty shell, and it is no wonder it struggled. The removing of the picture was a symptom of a deeper malaise that led to what Vodafone is doing. When you gut a house you still have the shell, but it is not somewhere you want to live.”
*This article was originally published at LeadingCompany