Many big Australian businesses seem untouchable as they dominate their markets to degree almost unknown in most other developed countries. As the story of Sensis shows, Australia’s big duopolies may not be as strong as they appear.
The last few months have been tough for Sensis; revenues last year fell nearly 25%, the once strong business was folded into the latest incarnation of Telstra Digital Media and now the CEO Bruce Akhurst has departed after seven years.
What could have been a dynamic business is now shriveling away, what went wrong?
Milking the revenue cow
Bruce did a good job of keeping revenue coming in during a period that the then owners, the Federal government, wanted to maximise the book value of Telstra before its sale.
Year upon year Sensis could be relied upon to squeeze more money out of the businesses advertising in it.
Management were focused on extracting revenue from the existing client base rather than responding to the obvious threat from online search.
Expensive distractions
When senior management decided to respond to the online world, they were sucked into unnecessary and expensive distractions; the most notable being the 2005 launch of Sensis Search where the then Telstra CEO – the disastrous Sol Trujillo – famously sneered “Google Schmoogle”.
Three years and hundreds of millions of dollars later, Sensis admitted defeat. By then the small business advertisers who were the life blood of the directory market had woken up to the reality their customers weren’t using the Yellow Pages anymore. Sensis had missed the boat.
Clunky processes
Whenever I spoke to small businesses about Sensis through the 2000s there was the same complaint, “I don’t have time to deal with their sales people, just let me tick a box on a web page or send a fax!”
Purchasing space was difficult for customers, their 1950s Willy Loman sales model should have been automated in the 1990s and never was.
Instead Sensis was locked into a high cost sales model and added friction for advertisers which they shouldn’t need, not only were they expensive but they actually made it difficult for their customers to place orders.
Should Sensis have been sold?
At its peak in 2005, Sensis was valued at between 8 and 10 billion dollars as a stand alone company.
Many, including myself, believe that breaking Sensis away would have been the best result given Telstra were at the time focused on protecting their fixed line copper wire monopoly and the directories business was not getting the management attention or capital investment it needed.
History shows though that we might be wrong.
Commander Communications was spun off from Telstra in 2000 and like Sensis had inherited an almost monopoly position in the small business communications market.
By 2007 Commander was out of business thanks to a combination of incompetence, management greed and an inability to recognise the changing communications marketplace.
The Australian disease
Commander’s biggest problem was it saw its customers as cash cows, just as Sensis did. This exposes a much deeper problem in Australian industry and management culture.
Over the last thirty years Australian government policies have seen duopolies develop in almost every key sector of the economy.
All of these duopolies share the same “customer as a milk cow” philosophy which, along with the rampaging Australian dollar, has dragged Australia into being a high cost economy.
The banking industry, while not a duopoly for the moment, is an even more debilitating example of the cash cow syndrome where small business has been crippled by excessive interest rates and fees – particularly since the 2008 crisis.
Sensis’ demise is systemic of a culture that fixates on extracting maximum revenue from customers; concepts like innovation, R&D or adapting to market trends don’t have a role in this mentality.
Milking cows is a fine business, but sometimes you have to think about the health of the herd.
