Nigel Cope: Six success stories to watch in the bombed-out dot.com sector

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The Independent Online

With dot.com valuations still plunging amidst the stock market meltdown, it is tempting to believe that the concept of a successful internet business is a contradiction in terms. This is clearly nonsense, though it may not be fashionable to say so.

With dot.com valuations still plunging amidst the stock market meltdown, it is tempting to believe that the concept of a successful internet business is a contradiction in terms. This is clearly nonsense, though it may not be fashionable to say so.

Internet penetration is continuing to rise and the internet itself is still a transforming technology that can potentially lower costs and bring buyers and sellers together in a way that was not previously possible.

So, just as a reality check was necessary a year ago when the internet boom reached its peak, another is needed now. The old economy wasn't finished in March 2000 and the new economy isn't finished now. This fragile young thing simply needs a period of readjustment, painful though that is proving to be.

Perhaps it would be instructive, then, as well as uplifting to provide a subjective list of some of Britain's e-commerce winners. They trade in areas as diverse as groceries, finance and sport. Some of them are even profitable.

So here are our "six for success", half a dozen internet businesses that are getting it right.

Tesco.com is the world's biggest online grocery service and a business whose model has proved more successful and sustainable than those of UK rivals and overseas start-ups like WebVan in the United States.

From a standing start in 1997, Tesco.com now has annual sales of £250m, 750,000 customers and near nationwide coverage. The service also claims to be profitable.

The key to Tesco's success has been to piggy-back its internet business on its existing supermarket operation.

This means it picks and delivers orders from its network of stores rather than from a handful of purpose-built depots. Much criticised in the early days, this rather quaint, low-tech model has proved a major strength. Sainsbury's has copied it. And Tesco is hoping to take its expertise to the US and run grocery services in conjunction with local partners.

Egg, the pioneer internet bank, was launched three years ago by the Prudential and floated as a separate company last June. Like charcolonline, egg has adopted an "open finance" model where it offers "best of breed" products from other companies as well as in-depth advice. The business lost a thumping £155m last year but is forecast to break even in the fourth quarter of this year. Much-imitated, the site has attracted 1.4 million customers.

Formula1.com, founded in 1998, is now entering its fourth season of Grand Prix coverage. As the season shifts into gear, the news and views site is forecast to attract 1 million users this month with 70 million page impressions. Revenue, which is not disclosed, comes form advertising, Grand Prix ticket sales, merchandise sales and the syndication of content.

Unusually in the internet world, the business is trading profitably. Or at least it is if horrendous legalcosts are excluded.

The company has run into trouble with Bernie Ecclestone, the Formula One King. He has taken legal action against the site for breach of copyright (the internet business company has also registered the f1.com domain name). In turn, Formula1.com is countersuing on anti-trust grounds. It has all got rather messy but the site is still a potential winner.

Cricinfo.co.uk is a bookmarked site on every cricket enthusiast's PC. Cricinfo was founded in the pre-internet days of 1993 by Simon King, a British former nuclear physicist who missed his cricket while working in the US. The site now claims 1.5 million users with forecasts of 200 million page impressions for this month. The business is 25 per cent owned by Satyam Infoway, India's leading ISP. It is currently loss-making as advertising revenues do not cover costs. But the business hopes to generate substantial revenues from streaming audio rights to matches secured from eight of the top 10 cricketing nations. Break-even is forecast for 2003.

Charcolonline (bradford-bingley.co.uk) is the internet presence of John Charcol, the mortgage broker acquired by Bradford & Bingley a year go. The site is unusual in that advertising revenues are not the major breadwinner. Most of the cash comes from commissions earned on mortgage sales where Charcol acts as an independent adviser. The online service already accounts for a quarter of Charcol's volumes and is growing fast.

A new Marketplace service, which offers a mortgage and investment fund supermarket, was launched in Bradford & Bingley's branches on Saturday.

Profitability is forecast in 2002. "The internet may be a dirty word but for us it is crucial, strategically," the bank says.

Magicalia.co.uk is a sports information and community web site aimed at people interested in biking, surfing and other outdoor activities like climbing. The revenue model is interesting as advertising accounts for only a third of income. Other funds come from a database service whereby magicalia charges a fee to provide a sports equipment manufacturer a list of e-mail addresses of relevant registered users. It also earns commission from putting users in touch with local retailers which stock the product a user is seeking. The commission is typically around 10 per cent. One to watch.

n.cope@independent.co.uk

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