Steven Carlson on Wed, 16 May 2001 17:56:52 +0200 (CEST)

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<nettime> City by City: London, UK

Dear Nettime,

Geert Lovink suggested I post this newsletter to the list.

It's a story of fear, loathing and innovation in post-bubble London.

Hope you find it entertaining and informative ...

Steven Carlson
nowEurope moderator

nowEurope: City by City
A city-by-city look at who's building the European Internet
Tuesday, May 15 2001

     Dealing with disaster

     Europe's 800-pound gorilla

     Netimperative -- Making sense, maybe even money
     wcities  -- Shifting gears -- A test of nerves -- Embracing the village leper

     Moving the goalposts

     Well read and in the red

     Mike Butcher -- Guru for hire

     Upcoming Events in Europe

     We value reader tips and contacts

Dealing with disaster

   This issue is a different type of City by City. It's about
   post-crash London, about surviving when reality has conspired
   against your dot-com dreams.

   London is just too big for City by City's normal approach. No
   handful of company profiles can even come close to taking the
   pulse of the internet and new technology sectors here. So, we
   chose this more selective angle.

   London is also a city of extremes. Because it is Europe's
   financial capital, and partly because of its extravagant
   media, nowhere on the Continent did the internet boom roar
   loader. And nowhere has the bust hit harder. While other
   European markets are starting to regroup and move on
   cautiously, London is still searching for the bottom.

   Thus, it seemed natural to concentrate in this edition of
   City by City on four companies that have taken a serious hit
   and to examine how they managed to survive--in one form or
   another. One saw it coming and abandoned its original
   strategy (wcities). Another was rescued by a new investor
   (Netimperative). A third is racing against time to escape a
   share price collapse that might yet kill it (
   And one completely collapsed (, only to have its name

   Each (excepting Boo) has so far endured through a combination
   of good timing, good planning and iron resolve. But they will
   need more of the same to continue surviving.

Europe's 800-pound gorilla

   London is the center of nearly everything in the UK. It's home
   to 9 million people. It is one of the world's great financial
   capitals in a country with high GDP, an entrepreneurial
   culture, and a liberalized and competitive telecoms market. Its
   language is the language of the internet.

   All that fosters massive technological development and a
   healthy embrace of the internet by individuals and business.

   According to eMarketer, 44% of UK homes have a personal
   computer. EMarketer also reports that 32.2% of adult UK
   residents are active internet users (more than one hour per
   week), compared to 25.5% in France and 19.4% in Germany. A more
   liberal standard applied by Angus Reid Group (use in the last
   30 days) identifies 41% as internet users.

   Thus, the UK lags only Europe's Nordic countries in terms of
   percentages online, but, with a population of 60 million, more
   than makes up for it in real numbers.

   The high rate of access is aided by its relatively low cost.
   The average monthly cost is USD 32, according to Boston
   Consulting Group, compared to USD 34 in France and USD 40 in
   Germany. Most of the advantage comes from low average internet
   provider charges. Indeed, a KPMG survey found 55% of home
   internet users in the U.K. use free internet service deals.

   On the business side, 34% of UK companies are connected,
   according to Datamonitor, against a European average of 27%.
   Andersen Consulting reports that 62% of UK businesses view
   e-commerce as a real competitive threat, compared to the
   European average of 40%.

   E-commerce turnover, meanwhile, was USD 3.93 billion in 1999,
   according to eMarketer, which also expects 2003 turnover to
   reach USD 101 billion, second only to their projection for USD
   119 billion in Germany.

   Mobile phone penetration in the UK, on the other hand, is
   merely mediocre, but typical for a country with a
   well-established and reliable fixed-line system. According to a
   European Commission study, 32.2% of UK residents had mobile
   phones by 1999, well behind the Nordic countries and poorer
   countries with inferior fixed-line systems.

<> (Boston Consulting Group)
<> (Andersen Consulting)
<> (European Commission)

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eMarketer -- the world's leading provider of Internet statistics
- makes sense of all the numbers and provides a realistic
overview of the Internet marketplace. <>
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Netimperative -- Making sense, maybe even money

   Felicia Jackson will never forget that Monday morning one year
   ago. At 9:30 am she called the staff together and broke the
   news: Netimperative had been placed into liquidation.

   Just days before, the company's main backer, investment and
   research firm Durlacher, had pulled out of a commitment to pump
   USD 7.2 million into the company. Worse, Jackson had already
   launched the expansion that was to be funded by Durlacher.
   There were no reserves. No time. The company had hit the wall
   before it even knew it. "We were shell shocked." Jackson

   Netimperative went online in 1999, providing a portal of news
   and services for the internet professional. It proved
   successful in attracting its targeted audience. But the plan
   was, like so many others, painfully over-optimistic in terms of
   attracting advertising. The company had also spent heavily
   moving offices and recruiting internationally.

   But Jackson didn't give up. "We still had a sensible model:
   Create a community and then serve it."

   So, she frantically phoned investor after potential investor.
   Incredibly, Jackson found her white knight by the end of the
   week and before the staff disintegrated. On Friday evening
   Internet Business Group (IBG), a marketing, consulting and
   investment venture, agreed to pay about USD 1.5 million to
   acquire the company from liquidators Kroll Buchler Phillips.
   Crucial to the deal, says Jackson, was IBG's recognition that
   Netimperative's largest expenditures had been one-off charges.
   And, she admits, "Anyone who says there's no luck involved in
   finding investment is lying."

   Netimperative did not, however, then just skip merrily on its
   way. The staff of 35 has been cut to 17. Overall spending has
   been slashed by more than 80%. And the company may still not be
   out of the woods.

   Jackson, 32, has just announced the site will switch to paid
   membership. Six-month subscriptions will run USD 72 (Ł50), with
   an introductory offer of two years for the same fee. She won't
   say how many of her 8,000 members will have to sign up for her
   to break even.

   The move has London dot-comers aflutter. For, now that most
   purely online ventures have abandoned the hope that advertising
   will butter their bread, many are staring straight at the need
   to charge their audience. Netimperative will, in effect, be
   their guinea pig.

   Jackson accepts the role bravely. "If not enough people are
   willing to pay for it, then why are we doing it?"

   With hindsight, it seems crazy this question wasn't asked
   earlier, and not just at Netimperative. But to be fair, a year
   ago every web-based business was under pressure to do one
   thing: gather market share. Charging for content within a sea
   of free content seemed suicidal.

   Obviously, things have changed. And, despite the dot-com pain,
   things do seem to make more sense now.


wcities -- Shifting gears

   As disaster looms for many free content providers, some have
   decided to to start charging their audience. If they like it,
   need it, want it, they’ll pay for it. Maybe.

   But what to do when, like city guide web site wcities, you're
   just not specialized enough? After all, even if the content is
   great, few surfers will pay for it when there's so much free
   travel and destination information out there. Answer: Switch

   Tan Rasab, 33, funded the launch of wcities in 1999 with his
   own money and modest investments from family and friends. He
   raised USD 8m in venture capital later the same year, building
   a solid audience and quickly adding cities and location-based
   services to the site.

   But, as with NetImperative, his expectations for advertising
   revenues proved grossly unrealistic. Though his staff won't
   admit the company ever reached a crisis point, it was surely
   headed there.

   So, the company shifted gears. Instead of marketing the product
   directly to a mass audience--with all the attendant costs--and
   figuring out how to make money doing so, wcities decided to
   concentrate on creating content and, in effect, to let someone
   with an existing audience sell it.

   Now wcities licenses the use of its more than 300 city guides
   and location based services to web and WAP portals, wireless
   telecom operators and travel industry players. It was a clean
   shift from B2C to B2B. (Seems New Economy manufacturers still
   need high volume retailers.)

   And it worked. The company has signed a number of high profile
   deals, beginning with an investment and distribution pact with
   BT Openworld. BT got 17% of wcities for USD 15 million and also
   agreed to purchase wcities content for its web portal,
   Btinternet, and mobile portal, Genie.

   A web, WAP and iTV distribution deal with, Freeserve, the UK's
   largest free internet service provider, was followed by a web
   deal with Italia OnLine. And on April 11, the company announced
   an agreement to plug its content into AOL's Digital City, the
   leading destination information service in the U.S., as well as
   AOL's MapQuest and other destination services.

   Meanwhile, wcities no longer need worry about advertising and
   promotions or bite their nails over their own website's traffic
   figures. It can concentrate on creating solid content and
   backing it with a platform that can deliver to any online

   According to Nigel Couzens, wcities’ head of marketing, the
   company hopes to close another financing round within the next
   couple months, raising USD 25-30 million. He says the money
   will likely come from a new strategic investor.

   At that news, nowEurope's antennae were raised. wcities has
   just been doing a lot of talking with AOL over a distribution
   deal and may soon have a new strategic investor. Will it be

   After an awkward moment of silence, Couzens said he could not
   disclose that kind of information.

   With or without an AOL investment, wcities has escaped dot-com
   oblivion with a nifty shift of gears.

<> (Italia OnLine)

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   It's the company that listed at the (what else?) last minute.
   On March 14 2000, floated 26% of its shares on
   New York's NASDAQ and the London Stock Exchange, raising a
   whopping USD 150 million for the website that sells last minute
   travel services, tickets and gifts.

   Investors eagerly bought up shares, pushing the share price to
   nearly USD 45. But then the floor fell out of the NASDAQ, and
   what might have been a price correction after a hyped IPO
   turned into a bloodbath. Within days, the share price dropped
   below USD 10. The stock bottomed out in March of this year at
   USD 2.38 per share and now huddles just below USD 4.

   Of course, Lastminute got its cash, but it won't last forever.
   There are few signs the NASDAQ will rebound any time this year,
   and Lastminute is still losing money. Its reserves should (and
   must) hold out at least until mid-2002, when the company hopes
   to start turning a profit.

   In the meantime, the share price looms over management as an
   annoyance and a threat.

   An overvalued share price for a company in a rapid growth stage
   is a cushion against mistakes. It offers an assurance of cheap
   funds, if needed. Conversely, a share price in the toilet means
   there is no room for error.

   Shareholders will scream over any deviation from projected
   performance, aware that disaster waits should the company run
   out of money before profits are realized or the share price
   rebounds enough to allow raising more cash. It makes for a very
   high stakes test of nerves.

   "It certainly forces you to focus." says Lastminute's head of
   global marketing Sep Riahi. "I wouldn't say it makes it a
   pressure cooker, because it already is a pressure cooker." he
   adds with a laugh.

   But Lastminute is hitting its projected numbers. It is the most
   recognized e-commerce brand in the UK, and it's one of the most
   popular European-based e-commerce sites. In fiscal year 2000
   (ends September 30), the site generated USD 49 million in
   revenues, up from USD 3.7 million in fiscal 1999. Most
   recently, second quarter results for fiscal 2001 showed
   transactions worth USD 45 million, up 47% over the previous
   quarter and nearly four and a half times the total transaction
   value in the same period of 2000.

   The other risk from a share price collapse in this day of stock
   options, is that key employees will lose enthusiasm and may
   even jump ship. The antidote for this, according to Riahi, has
   to be given long beforehand. "It's very important to get the
   right people on board early on. From the beginning, we've
   stressed this is a long-term thing and we didn't want anyone
   looking for an early exit."

   Easier said than done, but the original team gathered by Martha
   Lane-Fox and Brent Hoberman is, to their credit, still in place
   at Lastminute.

   Ironically, Lastminute may be getting some benefit from the
   share-price plunge. After greed, fear may be the next best
   motivatorand control on spending. "We've definitely been more
   careful with our money." says Riahi.

   And, with much less dot-com clutter fighting for attention,
   advertising spacefrom outdoor to onlineis cheaper and delivers
   more impact.

   But will Lastminute reach profitability by 2002? The company
   lost a mind-boggling USD 51.4 million in fiscal 2000. It lost
   another USD 29.9 million, mostly in operating losses, in the
   first half of fiscal 2001. On top of that, the company spent an
   additional USD 30.8 million acquiring France's most popular
   travel website, Degriftour. Cash reserves are down to USD 89

   Sometime, and soon, Lastminute will have to start not only
   generating more revenues, but reducing losses if it hopes to
   break even by next year. Otherwise, that lousy share price
   will, indeed, mean the end of Lastminute.

<> -- Embracing the village leper

   If there is a poster child for dot-com hubris, it is
   Its birth was extravagant, its death spectacular. But,
   ironically, the name that attracts so much scorn across the
   internet industry is still alive.

   Last September, was relaunched by New York-based, which purchased the Boo name, it's magazine
   Boom and other branded content for an undisclosed amount.

   But even if Boo came cheap, what on earth, you might ask,
   were Fashionmall thinking?

   As a corporate entity Boo was founded in London at the end of
   1998 by two 30-year-old Swedes, Ernst Malmsten and Kajsa
   Leander. They raised USD 135 million from such blue chip
   investors as the Benetton family and French billionaire
   Bernard Arnault, as well as US investment banks Goldman Sachs
   and JP Morgan.

   The pair then proceeded to spend with reckless abandon on
   everything from marketing and promotions, to recruitment and
   technology. It took a year to actually launch the website,
   and, only six months after that, Boo was out of cash. By
   then, the market had begun to sour on online retailers.

   Appalled by Boo's burn rate, and probably embarrassed by
   their own lack of supervision, investors declined to produce
   the USD 30 million Malmsten and Leander said they needed to
   keep Boo afloat.

   And it only got uglier.

   The 300 staffers (who survived earlier job cuts) each got a
   mere USD 1,200 in severance. In liquidation, according to
   CNET, the company's customer information, including names,
   telephone and credit card numbers, addresses and shopping
   habits--gathered with promises of protecting privacy--were
   sold to the highest bidder.

   Adding one final insult to injury, the Guardian reported that
   Malmsten and Leander held an auction among London publishers
   for the "warts and all" story of Boo's rise and fall. The
   pair reportedly signed with Random House for nearly USD

   After all that, Fashionmall stepped in and embraced the
   village leper. Why?

   Fashionmall's rather gruff New York public relations folks
   wouldn't answer. (Nor would they comment on Boo's current
   performance.) But there is one simple answer: The vast
   majority of Boo's potential customers don't give a fig about
   the company's history. Thanks to Boo's gargantuan branding
   efforts, the name is widely known and, among the masses,
   still says "chic" and "trendy."

   Fashionmall still believes in online retail, and by running
   Boo from New York (Boo has no London presence whatsoever,
   despite the site's Euro-Brit flavor), the company can
   administer it relatively cheaply.

   Now, about online retail ...


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Moving the goalposts

   The week City by City visited London, News Corporation's USD
   650 million venture capital fund Epartners decided to give back
   USD 520 million--80% of the fund's money--to investors. "There
   is a lot of capital still chasing a rapidly dwindling number of
   great opportunities. We just don't think we can put that much
   money to work effectively." Epartner's managing director Mark
   Booth told the Financial Times.

   What's wrong with this picture? Do innovators and entrepreneurs
   suddenly stop appearing during a market slump? nowEurope thinks
   not. But Booth is blaming them for failing to come up with the
   goods. And that is a foolish notion.

   The explanation lies not with entrepreneurs but with investors.
   Let's face it, many of them invested imprudently in the frenzy
   of 1999-2000 and got burned. Now, they have moved the goalposts
   back to where they should have been in the first place and, in
   many cases, even further back.

   Suddenly, from big VCs to independent angels, investors are
   stressing the value of aggressive and methodical due diligence,
   as if blessed by some new level of wisdom.

   Despite the pullback, most agree there is money ready to be
   invested, and from every level. "Entrepreneurs are suffering.
   But there's still a lot money out there. It takes a lot longer
   to close a deal, though." says Adam Valkin from Arts Alliance.

   As if to provide evidence that money is, indeed, still out
   there, Venture Capital Report, an association of more than 200
   business angels, recently hosted an event at London's Cavendish
   Hotel, where a handful of screened entrepreneurs gave their
   best pitch. About 50 angels were in attendance.

   Even in the worst of times it seems London has a depth of
   equity investors with which no other European city can even
   pretend to compete.


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News sites and red ink

   The British do love their newspapers. Ten national dailies
   combine to print more than 13 million copies. Nine national
   Sundays add another 15 million copies. About 55% of the adult
   population reads at least one daily newspaper.

   Combine that with the industry's reputation for aggressive,
   even eccentric, behavior, and it is no surprise the newspapers’
   race to embrace the web--joined by everyone from the BBC and
   The Economist, to Ananova the virtual newscaster and the Anorak
   Press Review--has been frenetic. But the results have been less
   than impressive.

   News sites seem to be bleeding no end of cash, ad rates have
   plunged and the wreckage is starting to pile up. The Financial
   Times, which can boast one of the best news sites in the UK
   (especially for business and finance, of course), has just laid
   off 40 employees from its online division. Express Newspapers,
   publishers of the fourth widest circulated daily in Britain,
   has abandoned its online version completely.

   It wasn't supposed to be this way. The news media already had
   the content and working relationships with advertisers. A new
   way to significantly widen their audience without having to
   print more copies, obtain more licenses or buy satellite time
   was supposed to be a boon.

   But, as everyone knows, the advertising pay-off never happened.
   A year ago, banner ads were selling for as much as USD 40 per
   1,000 unique visits per month, but have plunged to as low as
   USD 3, according to Sam Michel, who runs Chinwag, a publisher
   of online mailing lists and newsletters, including
   UK-Netmarketing and MarketingSherpa.

   Though he may be biased (as might nowEurope), Michel says
   advertising agencies in London are continuing to push online
   spending, but are showing a preference for smaller, even more
   targeted content, like online newsletters. Email marketing also
   continues to gobble up more and more online marketing budgets.
   "It's not that banner advertising doesn't work. It's just that
   it was too expensive." he says.

   Who still likes banner ads? Financial services, travel industry
   players and technical equipment makers, says Michel. But there
   just aren't enough to go around to meet the spending at all
   those news sites, never mind the whole universe of online

   So, while few observers expect any more big outlets to abandon
   their online operations altogether, expect more layoffs and


Top 10 web properties in the UK, April 2001

Property                Unique Audience         Time/visit
1.  MSN                      5.1                 31:48
2.  Yahoo!                   4.5                 40:32
3.  AOL Time Warner          3.8                 17:48
4.  British Telecom          3.1                 24:21
5.  Freeserve                3.1                 12:40
6.  Microsoft                3.1                  6:15
7.  Lycos Network            2.9                 13:22
8.  BBC                      2.1                 13:57
9.  Excite@Home              2.0                 12:41
10. Ask Jeeves               1.9                 10:18

Source: Nielsen-Netratings

Top 10 online advertisers in the UK, April 2001

Advertiser             Impressions
1.  TRUSTe               95.9
2.  MSN                  77.7
3.  Amazon               39.7
4.  Yahoo!               38.5
5.  Jobsite              26.4
6.  Excite               23.6
7.  Freeserve            22.3
8.  Marbles              21.5
9.  Compaq               20.4
10. Lycos                19.3

Source: Nielsen-Netratings


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nowEurope is now selling sponsorships

Upcoming issues include: Paris, Budapest and Tallin

For rates and availability, please contact:
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Guru for hire

   A guru among gurus, Mike Butcher was, until recently, news
   editor at the European edition of The Industry Standard. He had
   left the top editor's job at a smaller publication, New Media
   Age, only eight months previous.

   Now he's freelancing.

   After just 23 editions, the weekly's US parent suddenly pulled
   the plug, dumping the London-based magazine and nearly all its
   65 staffers.

   Such a short run in the publishing business means its owners
   never even gave the title a chance. Butcher wasn't eager to
   trash his former employers, but he didn't disagree. "It was
   because of the very fast slowdown in America where the economy
   looks like a car crash." he says. "It had nothing to do with
   our performance."

   In other words, the parent company lost the will to follow
   through on a project it had already launched, but well before
   it could have begun to pay off.

   The London magazine's management were given a week to find an
   investor willing to keep the title alive. They hired Credit
   Suisse First Boston. But a Netimperative-like miracle didn't

   The magazine's closure had a particular impact in London. This
   was not another e-zine. It was good old-fashioned print on
   paper covering the new economy for a well-placed readership
   that had already reached 30,000. Its sudden fall was surprising
   and a symbolic blow to Europe's new economy apostles. "In terms
   of perception of the new economy, it certainly was a big deal."
   says Butcher.

   Despite his personal experience, Butcher believes Britain's
   dot-com picture is bright. "I don't know if we've bottomed out,
   but it's a good time to invest in tech start-ups." he says.
   "The web isn't going away. The number of people online is still
   going through the roof. Wireless is not going away."

   And money is being invested, Butcher insists, though "they're
   not the huge deals, and there aren't many IPOs." He also
   doesn't see the wider implications from the tech slump being as
   bad as in the US. "The tech sector here is a smaller part of
   the overall economy. I’m not saying it hasn't been difficult,
   but there's still a lot more tech growth ahead in Europe."

   Hopefully some of that will benefit an unemployed journalist,
   or two.


We welcome reader recommendations
for upcoming European conferences

   May 22-23: MforMobile Content & Entertainment, Cannes, FR
   Partnerships, strategies and revenues for mobile content and
   entertainment. Contact Jonathan Gardner at +44 20 7375 7563.

   Jun 9-12: East-West Collaboration Conference; Budapest, HU.
   To bring together companies and organizations from Central
   and Eastern Europe, the CIS and the 15 member states of the
   European Union with the purpose of helping them find
   potential business partners. Contact Viktoria Levai at

   Jun 25-26: 14th Bled Electronic Commerce Conference; Bled, SI
   This year's theme is e-Everything: e-Commerce, e-Government,
   e-Household, e-Democracy. Contact Joze Gricar at


    nowEurope would like to thank the following people for their
    help in preparing this issue:

Peterjon Creswell
John Browning


Copyright 2000 nowEurope Publications

Published by Steven Carlson <>
Edited by Christopher Condon <>
Sponsorship enquires: Buba Dolovac <>

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