UK: JEWELS IN THE WEB - This one's the genuine article. Having analysed more than 300 e-ventures Management ...

UK: JEWELS IN THE WEB - This one's the genuine article. Having analysed more than 300 e-ventures Management ... - JEWELS IN THE WEB - This one's the genuine article. Having analysed more than 300 e-ventures Management Today and Bain & Company present

by MATTHEW GWYTHER [PP] 63, 068 Photographs (omitted).
Last Updated: 31 Aug 2010

JEWELS IN THE WEB - This one's the genuine article. Having analysed more than 300 e-ventures Management Today and Bain & Company present their e25, the definitive index of e-business start-ups in the UK today Matthew Gwyther reports on the findings and profiles some of the most exciting players.

As the century winds up, Britain is in the early stages of a Klondike-style gold rush into the cyberspace wilderness. Trailing the American mule-train by 18 months, but ahead of our European cousins, we have all heard about the gold in the e-stream. The first UK wave of paper-millionaire prospectors has already begun to file claims, and become Britain's first real internet tycoons as they bring their e-commerce ventures to the stock market.

So how do we stake out a piece of the action? Where, amid all the dust, the doubt and the hoopla, do we dig in for a share of the mother lode?

Management Today has teamed up with the top business consultancy Bain & Company to map this uncharted territory by constructing a league table of e-commerce companies based on Bain's lengthy and detailed analysis of the sector in the UK.

We call it the MT/Bain e25. And we think it will take its place alongside the other indices that chart the rise and fall of leading companies. Bain has been deeply involved in the world of e-commerce, not only from a strategic advisory point of view for its corporate clients but also through bainlab - a business it set up to help e-commerce initiatives succeed, for both clients and entrepreneurs, in return for a slice of equity. Now, after extensive research over the summer and into autumn, we present the first e25.

The e25 aims to identify the most exciting entrepreneurial ventures in the internet space in the UK. It is a barometer for what is hot in cyberspace today, and it measures two dimensions:

1. The power of the idea. To measure this, Bain used three criteria - concept, innovation and execution. Each start-up was assessed using material from a variety of sources (including management interviews) and was given relative scores in each category.

2. Success to date. Three factors were applied - traffic (how many people use the site), financing and public profile. The data for this assessment was taken when possible from public sources.

A couple of things about what the e25 is not. It was decided early on that it should be made up only of internet start-ups, pure web companies.

So there are none of the so-called multi-channel retailers like Tesco who also sell by more established methods.

This decision leaves out probably the most famous, trailblazing British e-company of them all, Freeserve, since more than half its equity is still owned by Dixons, of which it forms an integral part.

Other features contribute to the unique quality of the e25. It is not a table of established success, placing at the top of the list the company with the highest turnover or profit. We are, after all, talking about a league table here in which 80% of those who feature don't make any profit whatsoever - companies whose 'burn rates' are oxidising cash at frightening speed. Some have yet to buy the powerful electronic server boxes that will run their shows. Indeed, some are in reality no more than ideas.

Bain gathered information from many areas, including company interviews and a range of external sources, and the quality of this data was exhaustively 'pressure tested'. However, the speed of change of the internet and the embryonic nature of many companies mean that some of the data may be out of date by the time this magazine goes to press. But sense needs to be made of what is going on, and the creation of the e25 at this stage is important. The internet may seem like a tiresome, mewling child to some, but it is not going to go away. Total estimated e-commerce revenues in the US (for business-to-business and business-to-consumer transactions) are set to top $100 billion ( £60 billion) this year and research has suggested they will grow tenfold to more than $1,000 billion ( £600 billion) by 2003.

Of these totals, business-to-consumer revenues are estimated at $14 billion ( £9 million) this year and $70 billion ( £40 billion) in 2003. These US business-to-consumer figures compare to a UK forecast of £7 billion by 2003.

The fact that e-commerce is accelerating is confirmed by the sheer number of internet start-ups that are out there. 'There are literally hundreds,' says Michael O'Sullivan of Bain & Company. 'Sure, some are simply crazy ideas whose founders are floating on the internet hype, but many others really do appear to be based on sound business principles. The founders understand their target customers, have a proposition that will meet their needs and a business model that will deliver this profitably.'

To pick out the best from this growing universe of companies, Bain and Management Today developed and applied the six criteria mentioned earlier - concept, innovation, execution, traffic, financing and public profile - and evaluated each company in detail.


We assessed the basic strength of the business model and took its economics to pieces for close inspection. The qualities sought included superior customer value, superior economics, first-mover advantage - which might lead to market domination - and the size of the potential market. We did not always like what we saw and awarded points accordingly.

Example: Internet Exchange

Crossover company Internet Exchange is the largest online cafe chain in the UK with 20 owned sites and 80 under licence. Founded by Robert Proctor, ex-Mecca Leisure and Mansfield Breweries, and Simon Henderson, an ex-strategy consultant, it is an exceptional example of the 'clicks-and-mortar' business model. Its concept combines offline and online services to build a powerful relationship with its customers. It also offers clever exploitation of cost and revenue opportunities. Where other companies have to invest in acquiring customers, Internet Exchange uses its cafes as a traffic driver for its own web browser. Some say it's the internet's best-kept secret.

The company boasts that, as a brand, it is 'non-anorak' - with women making up 52% of its clientele, against an industry average of 20% to 30%. Revenue flow is also good. Going online is £6 an hour and training is offered. The IPO is expected later this year or early next. The newly installed CEO, Mark Hudson, ex-Bain & Company, will lead the flotation, raising around £100 million (April 1999 valuation).


While e-commerce may be a whole new ballgame, the basic principles of market economies bring it back to the ground. Start-ups offering 'more of the same' will find it hard to build sustainable demand. Companies that use the opportunity to innovate will continue to re-invent themselves and drive new demand.


It has to be said that the e-commerce world has so far been woefully short of real characters, but Ernesto Schmitt changes that. The 27 year old ex-consultant, who has an MBA from INSEAD, is the first truly quotable nettie. Asked whether he was really worth a paper £4 million, he replied: 'Paper wealth doesn't buy you a hamburger.' He travels on the Tube because he doesn't have a car.

Schmitt has gone for the colour-filled world of music and his idea is a clever one. The mission of peoplesound is to bring musicians and buyers of music together on the net. With 15,000 new albums launched every year, and popular music growing increasingly fragmented, buyers find it hard to get to the music they like and want to buy. Peoplesound is a matchmaker for musical lonely hearts - those who record it and those who want to listen. Schmitt has offered more than 1,000 bands £100 each to submit their best tracks on a non-exclusive basis and he gives each of them a web page. (Artists keep their copyright.) There are free downloads and the chance to buy custom-made CDs. Peoplesound will keep 50% of the sale here - a percentage unheard of in the music business, although the revenue model is fundamentally driven by advertising and sponsorship. The aim is to make the site a huge meeting point for musicians, consumers, recording industry people and journalists.

Schmitt has got two heavyweight right-hand men in Compuserve's ex-MD Martin Turner and Will Lovegrove, who ran the Ministry of Sound's online site. Schmitt had to fight to get Turner, who was being wooed by a big investment bank to start up a financial services web site. He had been offered a new Ferrari, but 'he doesn't like red', said Schmitt, who then hired Turner himself. Expect an IPO in the second quarter of 2000, when Ernesto will cash in on his 30% and can buy more hamburgers than Wimpy.


The e-sector is famous for its disasters, or flame-outs. The web sites have to work, be well designed, easy to get around and as 'sticky' as possible. And an e-company must be able to deliver - once you've made the sale, the goods must get to the customer.


Software firm NetCall is a simple idea - an online call-back service.

You click on an icon on a web page and the company gets a message to call you back to see what you're after. Amid the wall-to-wall youth on the net, it's a welcome relief that its founders are established business people in their fifties. Jeffrey Rubins, John Burnett and David Rothschild are a software company executive, an accountant and a stockbroker.

NetCall was the first company in the UK to develop and market this software and make it cheap and easy for e-sellers to implement in their web pages.

Unusually for a business-to-business company, their excellent site is very sticky. NetCall proved in startling fashion that its system can work when a Bain researcher pushed the NetCall button for the company's founder/CEO and a phone call was made back, by the CEO himself, within two minutes.


This criterion provides evidence that the company attracts interest, either in the form of 'page impressions' (for business-to-consumer companies), or through a combination of online revenues and page impressions (for business-to-business companies).

Example: sells 'distressed inventory' - last-minute cheap flights, event tickets, holidays and gifts. It claims 300,000 registered users and 4.3 million page impressions each month, which makes it among the highest ranking companies in the traffic category. It also tops the e25 overall because it scores high across the board. Unusually, there is no US equivalent. One American journalist called it 'the toast of the European internet community'. was founded in November 1998 by Brent Hoberman, 30, a former strategy consultant, and Martha Lane Fox, 27, also an ex-consultant.

Hoberman is ex-BT Line One, the internet service provider (ISP) set up with News International and United News. Hoberman came up with the idea because he was bored with having to haggle with hotels and airlines for better deals when he was travelling. So, lastminute is aimed at cash-rich, time-poor professionals who can't stop to shop for bargains.

The company is the e25 leader because it is up and running and it works - and it even has a strong revenue stream from multiple sources, which is rare in British e-commerce at this point. A flotation is expected this autumn and a valuation of £400 million has been mentioned. The co-founders are believed to have retained 45% of the company.


You cannot get anywhere with an e-idea, however brilliant, without the money to get it off the ground and see if it will work. There is currently venture capital by the bucket-load sloshing around in London and some of it will be invested greedily and very unwisely. But some will make scarcely imaginable profits for the lender. This category is about how well-backed the company has been.


Gameplay started out five years ago with a £2,000 grant from the Prince's Youth Trust. It sells computer games and there is talk of moving into other products, even clothing. Dylan Wilk, its founder, got off to an inauspicious start when, in the first advertisement he placed, he offered a new game release for £42.99 instead of the correct price of £47.99.

That taught him how to manage relationships with suppliers. 'I shouted and stamped my feet and got the price I needed,' he recalls.

Gameplay became when it floated in August at 135p and the price immediately went to 221p. Wilk's stake rose to £4 million. Things have been bumpier since.


One of the most profound problems faced by many of these companies is that, in terms of public profile, they are beginning from Year Zero. The price of entry into consumer consciousness these days is huge, but there is nothing better than being talked about.

We have carefully measured media activity over the past 12 months (or the life of the company) and awarded points accordingly. One US internet legend tells of a man who raised $20 million in venture capital for his net idea and blew most of it in a month on advertising to raise his profile quotient.


Perhaps the most talked about e-company in the UK is With offices in Carnaby Street, a mission to sell sportswear, and 28 year old ex-model Kajsa Leander as one of its three founders, the company's profile index is almost off the scale.

All the founders are under 30. Two of them created, now the third most successful online bookseller.

Boo has also had a vast amount of money thrown at it by eager investors. The unconfirmed figure is £74 million from the Benetton family, JP Morgan, Bain Capital (sister company of the consulting firm), Sedco and LVMH.

There are anxieties, however, about its ability to deliver. And when you hype to the extent that boo has, you must deliver.

Sceptics anticipate the first big-time British net flame-out.

Boo's is an incredibly ambitious strategy because it is hoping for a seven-country launch, which has been postponed twice. The intricacies of selling and delivering clothes over the net are a little short of nightmarish. We wish it well and will be first in the queue to buy a Cosmic Girl T-shirt when it goes live.

So what have we learnt in establishing the e25? Business-to-consumer start-ups are valued far more highly than are business-to-business companies.

Nearly 80% of the latter are valued at less than £50 million, whereas over half of the business-to-consumer companies are valued at more than £50 million. However, business-to-consumer companies are less active so far. More than two-thirds of the e25 are in development stages of funding and of the 10 business-to-consumer companies, only four are original concepts.

There is also a downside. The e25 turns out to be a male-dominated zone.

All but two of the founders of the e25 are men. Bain has even analysed the geography of the internet start-ups it has looked at and when, for the first time in history, we have an industry that in theory could be situated in the Orkneys or Penzance, we find that the most obvious discernible cluster is centred in London's Notting Hill. Plus ca change.


The e25 is filled to bursting with millionaires. Aside from John Pluthero, whose Freeserve did not qualify, the most famous UK internet millionaire is Tim Jackson of QXL, which ranked close behind To the intense envy of everyone in our profession, Jackson is, of course, a journalist - a former freelance writer for the FT. As an online auction site, QXL is not an original idea but an import from the US. However, its flotation value was approximately £280 million after its first day trading. Jackson is reported to have a 25%-30% stake. (The original US analogue, eBay, incidentally, now has a market capitalisation of $15.4 billion.) Alongside Jackson is the legendary Dylan Wilk, 25, virtually the only true rags-to-riches story in e-commerce. Born into a poor family on a Batley council estate, he quit school to work for a mail-order fish products company but got fed up and left to get into computer games. floated and Wilk got a cash payment of £2.6 million plus shares worth £4.3 million. Other names are virtual unknowns: Charles Muirhead of Orchestream (left) has raised £16 million; Jamie Corsellis of iCollector, is worth close to £10 million; Jason Drummond of Virtual Partners, who 'doesn't have the time' to spend his £35 million paper fortune; Adam Twiss, a 23 year old Cambridge graduate whose Zeus Technologies has left him worth between £8 million and £13 million. And so it goes on.


1 late bookings 15.0 8.0 13.5

2 auctions 13.0 5.0 11.5

3 callbacks 13.0 7.0 14.5

4 collectibles 17.5 9.0 15.0

5 games 14.0 8.0 13.0

6 gambling 15.0 5.0 16.0

7 virtual partners net security 12.5 5.0 14.0

8 callbacks 13.5 7.5 12.0

9 sportswear 14.5 5.0 7.0

10 e-solutions 12.5 5.0 15.0

11 music 18.0 9.5 12.0

12 net strategy 12.0 5.0 14.0

13 Internet Exchange net cafes 15.0 8.0 13.5

14 encryption 12.0 7.0 14.0

15 data software 13.0 6.0 13.0

16 fashion infomediary 13.0 6.0 13.0

17 data backup 13.0 7.0 13.0

18 online tenders 14.0 6.0 10.5

19 net access 14.0 6.0 14.0

20= content

software 13.5 7.0 13.0

20= handheld

technology 14.5 7.0 14.0

22= e-commerce support 13.5 6.0 14.5

22= fast file transfers 13.0 7.0 12.0

24 weddings 15.5 9.0 15.0

25 Sportal (pangolin) sports

portal 11.0 5.0 11.0


1 late bookings 16.2 8.0 10.0

2 auctions 20.0 10.0 10.0

3 callbacks 10.9 12.0 8.0

4 collectibles 7.5 8.0 8.0

5 games 1.6 18.0 10.0

6 gambling 7.5 12.0 8.0

7 virtual partners net security 5.5 16.0 10.0

8 callbacks 16.2 10.0 2.0

9 sportswear 11.3 14.0 8.0

10 e-solutions 2.8 16.0 8.0

11 music 7.5 6.0 6.0

12 net strategy 13.8 8.0 6.0

13 Internet Exchange net cafes 3.8 10.0 8.0

14 encryption 10.9 8.0 6.0

15 data software 9.3 10.0 6.0

16 fashion infomediary 16.1 7.0 2.0

17 data backup 11.7 6.0 6.0

18 online tenders 11.1 8.0 6.0

19 net access 10.9 8.0 2.0

20= content

software 10.9 8.0 2.0

20= handheld

technology 10.9 6.0 2.0

22= e-commerce support 10.7 6.0 2.0

22= fast file transfers 10.7 8.0 2.0

24 weddings 3.8 4.0 2.0

25 Sportal (pangolin) sports

portal 3.8 10.0 6.0


1 late bookings 70.7 Brent Hoberman, Martha Lane


2 auctions 69.5 Tim Jackson/1997/n/a

3 callbacks 65.4 Geoffrey Rubins, John

Burnett, David


4 collectibles 65.0 James Corsellis, Simon


5 games 64.6 Dylan Wilk/1999/68

6 gambling 63.5 Mark Blandford, Geoffrey


7 virtual partners net security 63.0 Jason Drummond/1996/n/a

8 callbacks 61.2 Eric Vanderkleij, J Martin


9 sportswear 59.8 Kajsa Leander, Ernst

Malmsten, Patrik


10 e-solutions 59.3 Jonathan Robinson, Keith

Young, Larry Bloch/1995/35

11 music 59.0 Ernesto Schmitt/1998/25

12 net strategy 58.8 Jeremy White/1995/75

13 Internet Exchange net cafes 58.3 Robert Proctor, Simon


14 encryption 57.9 Alex von Someren, Nicko von


15 data software 57.3 Charles Muirhead/1996/48

16 fashion infomediary 57.1 Julian Worth, Marc


17 data backup 56.7 Paul Barry-Walsh, Geoff


18 online tenders 55.6 Rouzbeh Pirouz, Alexander


19 net access 54.9 Bob Jones, John Sunners,

Andrew Hurdle, Keith


20= content

software 54.4 Ben Hayman, Stephen


20= handheld

technology 54.4 Andrew Foyle/1996/25

22= e-commerce support 52.7 Peter Landale, Shantha


22= fast file transfers 52.7 Paddy Falls, John Roper,

Brian Collins, Steve


24 weddings 49.3 David Lethbridge, Andrew


25 Sportal (pangolin) sports

portal 46.8 Rob Hersov/1998/120.

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