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The ups and downs of the new economy
Published 10 July 2000
The glamour is beginning to rub off dot-com businesses, with some analysts predicting that most new dot-coms will fail in the next year. Gail Robinson picks out those groomed for success and those that bombed spectacularly . . .
Boo.com - getting it spectacularly wrong
What did it do: The trendy boo.com site sold expensive designer casual gear to the young and fashionable.
A bit of history: Boo appeared 18 months ago in the midst of a fabulously expensive advertising campaign that ran the gamut of media, from TV ads to fancy double-page spreads in glossy fashion magazines. The initial £70m funding made it the biggest e-commerce launch Europe had ever seen; the clothes retailer Benetton and the investment bank Goldman Sachs both invested substantial amounts of cash. The management team comprised the former model Kasja Leander and fellow Swede Ernst Malmsted, and the company employed 400 staff.
When did it all go wrong? In May this year, the company collapsed after a failed attempt to secure second-round financing.
Why did it go belly up? Let's start off with the £25m spent on advertising, and then there's the problem that Macintosh computer-users couldn't use the site at all, and those who could see the site had to contend with over-fancy web design that made the pages incredibly slow to view.
That all of the goods sold at the RRP didn't help, either; last December, sales revenue stood at a mere £60,000. Then there's the inexperienced management team and the lack of a financial controller. And don't forget the expense of running a customer-service team based in one of Britain's most expensive retail areas (Carnaby Street), or the beer, fresh fruit and chocolate regularly delivered to the offices.
The aftermath: Boo collapsed owing £17m to creditors, and American Express is still chasing ex-employees in an attempt to recoup debts run up on company credit cards. The technology behind the Boo site, which cost millions to develop, was sold for £250,000, while the Boo name and brand have been bought up by the US online clothes store Fashionmall (fashionmall.com). Fashionmall plans to use the Boo brand to get a foothold in Europe. Everybody wonders if the net bubble has finally burst.
Lastminute.com - a victim of its own hype
What does it do? Sell last-minute holiday, flights, gifts and tickets to events at discounted prices.
A bit of history: Brent Hoberman and Martha Lane Fox set up Lastminute (lastminute.com) in October 1998. Hoberman pushed Lane Fox forward as the acceptable face of net shopping, claiming: "She's prettier than me and she's a good ambassador for the internet." As well as the British site, the company set up localised versions of its service in France, Germany and Sweden.
When did it all go wrong? It all went pear-shaped when the founders decided to float 25 per cent of the company on the London Stock Exchange in March of this year. The flotation was disastrously managed and dramatically oversubscribed, and it was then that the backlash started. On flotation, the company was valued at £570m, based on a share offer price of 380p. Many industry analysts stated publicly that Lastminute was overvalued and, when trading began, the share price dropped dramatically. The share price hit a low of 152p and even now stands around the 200p mark - well below the initial offering.
Where does it go from here? Lastminute is still in business and recently announced this year's interim financial results. The picture isn't too gloomy: gross profit increased to £1.1m, and the service has 1.4 million registered users across Europe. On the downside, the pre-tax losses were £17m, and the internet analyst NetValue estimates that the number of visitors that Lastminute is attracting per month is declining.
Will it succeed? Lastminute has certainly proved good at striking up deals with big players, including AOL, World Online, Excite, NTL, British Airways, British Midland and Virgin. And all that advertising seems to have paid off - according to a poll by BMRB International, lastminute.com is the most recognised e-commerce brand in London and the second most recognised in the UK. But Lastminute is essentially a middleman; and, as companies (including BA) begin to sell their products direct over the web, you have to question whether there is a long-term market position for this company.
Tesco - a net success story
What does it do? Sell groceries online via the Tesco Direct website (www.tescodirect.co.uk).
A bit of history: Tesco began to sell groceries online just one year ago. In that time, it has managed to buck the trend of the net industry by making a profit from its online operation and turning itself into the world's biggest home-shopping business. Tesco Direct now boasts an annual turnover of around £125m.
How did it do that? The key to Tesco's success lies in its bricks-and-mortar base. The company had the infrastructure to deliver groceries already in place. When you order from the Tesco Direct site, a member of staff is sent round your local Tesco store to fulfil your shopping list. Unlike many of the other major supermarkets, including Sainsbury's, Tesco hasn't spent money setting up dedicated warehouses for online shopping orders. As a result, the start-up costs for its online business were relatively low.
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