Magazine article Marketing

Dotcoms Ride Again: Does Lastminute.com's Announcement of a Boost to Its UK and French Markets Mean a Resurgence of the Dotcom Sector?

Magazine article Marketing

Dotcoms Ride Again: Does Lastminute.com's Announcement of a Boost to Its UK and French Markets Mean a Resurgence of the Dotcom Sector?

Article excerpt

The internet industry saw a rare glimmer of sunshine in its much publicised winter of dotcom discontent with the revelation last week that lastminute.com would see a major boost in its UK and French markets within six months.

The dotcom announced it would be "cash positive", meaning revenue would outstrip operating costs in these two countries. As a result, its shares rose 4.25p to 36.75p.

This was taken by some as a sign the company could be a dotcom survivor, like a number of others predicted by internet audience measurement company Jupiter MMXI (see table).

Lastminute.com admits it does not expect to break even until early 2003, with development costs and goodwill payments on acquisitions keeping it in the red until then. But profit is not the key criterion for a potential star in this business.

"Investors can see that we are still delivering on our promises," says lastminute.com co-founder and chief executive Brent Hoberman. "Lastminute.com has never missed a quarter's projections."

Thanks in part to huge publicity, the company was valued at [pounds sterling]570 m when it floated in March 2000 and received [pounds sterling]130 m in cash to fund development.

It now operates in nine countries, including Germany, Sweden and Italy, and boosted its business in France through the acquisition of French e-tailer Degriftour Group for close to [pounds sterling]60 m in August 2000. It also acquired online food-ordering service urbanbite.com in a share deal worth about [pounds sterling]140,000 in July 2001.

Bid for longevity

After its latest results, the company revealed it had hammered down costs by 20%. It had also cut staff by 20%.

Hoberman sees this as evidence of the company's aim for longevity. He says many of the dotcom failures were never prepared to do this. "Many were in it for the quick buck," he argues. "They were looking to launch a business and then sell it on for a profit."

He believes the founding principles of lastminute.com, based on he and co-founder Martha Lane-Fox wanting better service as consumers, has stood the business in good stead.

Along with the flotation came a major outdoor marketing campaign, with posters on London buses and hoardings. Marketing spend has been slashed since then. That is reflected in a drop in customer acquisition costs from [pounds sterling]33 in 2000 to [pounds sterling]16 in 2001.

"We are still doing some outdoor, but it's in France," Hoberman says. "It's a small amount relative to what we have done before."

The company now concentrates more on online marketing, such as its deal with AOL Europe, whereby some of its services are integrated into AOL's channels in the UK, Germany and France.

Reactions to the announcement have been positive. Dinesh Dhamij a, chief executive of ebookers.com, whose business reported operating profits of [pounds sterling]200,000 for Q3, 2001, says: "Right now it's not about profits. It's about forward-looking statements."

Ebookers.com competes in the same market as online travel businesses Expedia and Travelocity, both of which record operating profits.

Travelocity does not separate its UK figures, but overall it recorded earnings of [pounds sterling]4.8 m before interest, tax, depreciation and amortisation for the third quarter, ending September 30.

The majority of revenue is earned from airline ticket sales, but the company is branching out into such areas as hotel room bookings and car hire to combat a fall in margins on ticket sales.

It also aims to counter the drop with an increase in the number of e-tickets for air flights, which means flyers are issued with a code number instead of a paper ticket. In the UK, 30% of its ticket sales are through the web, but the company expects this to increase to about 80% within four years.

Travelocity UK has focused its marketing spend offline until now. …

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