After boom and bust, it's boom again for dot.coms
Online businesses' talent for survival puts profitability within grasp as bricks-and-mortar firms watch share prices dive
Saturday 27 July 2002
After another week of turbulent stock markets, a casual observer might believe that the internet generation had long since slipped away. The dot.com entrepreneurs who started the boom in 1999 and rode its wave into the spring of 2000 must surely be struggling. Mustn't they?
Well, actually, no. Sure, many high-profile names such as boo.com, boxman and Clickmango have long gone. But many others are not only surviving but prospering.
The best-performing share on the UK stock market this year is, wait for it, Lastminute.com. The online travel business, founded by Martha Lane Fox and Brent Hoberman, has seen its shares treble this year. It has pulled off four acquisitions in the past three months and is aiming for revenues of £1bn a year.
It is not alone. Ebookers, an online flights specialist, has seen its shares rise 80 per cent this year, making it one of the top 10 performing stocks. And Sportingbet, an internet betting service, now has a stock market value of £125m after capitalising on one of the Web's fastest-growing areas. It had revenues of £1bn last year and it even made money, with profits of £5m.
As one former internet analyst said yesterday: "It was the first sector to head down and, for the ones who survived, it is one of the first to come back up. If you want safety, hide in the internet. What an irony that is."
It is important not to overstate the success of this small group of companies. For every Lastminute, there is a QXL, the online auction house that was worth a fortune in the boom but which is virtually worthless now. For every Martha Lane Fox there are countless other twentysomethings whose dreams of entrepreneurial greatness have turned to nothing. But the internet is still here and still growing. Specialist websites such as friendsreunited.com, which puts school and college friends back in touch, have grown exponentially and show how powerful a medium the internet can be.
It is the same story in the United States. The Big Daddies of the internet scene, such as Amazon.com and eBay, have proved remarkably robust. A runaway success such as Napster, the music swapping service, was quashed by legal action by record companies rather than the market.
What has distinguished the winners from the losers? Three factors are money, business model and management. Lastminute raised more than £100m from its flotation, giving it a big protective barrier when the tough times came. Less well-funded operations found they simply could not cut costs fast enough to conserve their capital when the City money men turned off the cash supplies.
But it is more than that, as Ms Lane Fox said yesterday. "Our service is an online service. It is not just an offline business put on the web. Brent's idea couldn't have worked without the Web and it is really a very good use of the technology. Our brand name is also very strong and does exactly what it says on the box," she said.
As for those that failed: "Partly it was just the natural life cycle of new businesses, 80 per cent of which fail anyway. But a lot didn't have very good sites or the technology didn't work very well."
Companies that have logged on to success
Sportingbet.com is a successful stockmarket-quoted online betting and casino business with an annual turnover of £991.5m and profits of £5m. The company, which is based in Alderney, was founded by Mark Blandford, above, the son of a Hertfordshire tenant farmer. Sportingbet.com has used the internet's global reach to profit from the betting culture in Asia and the Pacific rim. Betting works well on the internet because it requires no physical delivery and gamblers can play online anywhere in the world.
The site has created a wave of reunions by connecting former school friends. Two years after its launch, it has six million "members". More than 45,000 schools and universities are registered and there are details on former pupils dating back to 1892. The company is run by Julie and Steve Pankhurst, above, from their semi-detached house in Barnet, north London, along with their partner, Jason Porter. Mr Pankhurst says his is the "perfect" business. It has low overheads and no advertising bills. Most income is from a £5 fee charged for full access to the site.
The company, based in Seattle, was set up by Jeff Bezos, above, in 1997 to sell books and CDs but has diversified into electronics, tools and kitchen utensils. It suffered two years of misery before surprising Wall Street last January when, as the world's leading online retailer, it reported a profit for the first time. This was seen as a turning point for the industry, but the firm has since recorded losses. However, the hi-tech crash and the economic slump have cleared out most of the firms that threatened Amazon, leaving it in a promising position.
Europe's largest online air travel agency joined the élite rank of dot.coms by making a profit at the end of last year. It expects to achieve sales of £300m this year. The company, which was spun off two and a half years ago from the bricks-and-mortar Flightbookers travel chain, broke into profitability despite the downturn after 11 September. The founder and chief executive, Dinesh Dhamija, above, said the website had 3.5 million "visitor sessions" a month, which gave it the power to negotiate cheap deals with airlines and hotels.
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