lastminute com was a European innovation since at launch, no equivalent site existed in the USA Its business model is based on commission from selling distressed inventories which will have no value if they are not sold immediately This includes hotel rooms, airline and theatre tickets In the first half of 2005, the breakdown of product sales (total transaction value which last minute gain commission) was as follows Hotels 96 million Holidays 163 million Flights 158 million Car hire 71 million Non travel, e g theatre tickets 24 million Total 512 million lastminute explain TTV as follows Total transactionvalue (TTV) does not represent statutory turnover Where lastminute com acts as agent or cash collector,TTV represents the price at which products or serviceshave been sold across the Groups various platforms Inother cases, for example the reservation of restauranttables, a flat fee is earned, irrespective of the value ofproducts or services provided In such cases TTV representsthe flat fee commission earned Where lastminute com acts as principal, TTV represents the priceat which goods or services are sold across the Groupsvarious platforms Turnover for H1 2005 was 222 million with grossprofit of 83 million For the Group as a whole, thenumber of active customers increased in the half year to1 69 million compared with 0 99 million in the first half of2004 (71 per cent growth) There were over 10 millione mail subscribers and 7 million cumulative customers,although not all were active customers Active customerspurchased 3 6 million items in the half year, an increaseof 49 per cent over the previous year This gives anaverage order value of 142 (512 divided by 3 6) Although the turnover and gross profit of lastminute com did improve until the point of takeover, it did not achieve profitability in all markets (it did in the UK for its travel business) It did make great steps in reducing its customer acquisition costs which were 7 30 prior to takeover (5 69 in the UK) in its final financial report as an independent company Note customer acquisition costs are calculated in the financial report as all external media spend divided by the number of unique customers This is effectively media spend per customer, not customer acquisition costs Since this figure includes repeat customers it would be expected that this number would fall naturally in more mature markets In 2005, lastminute had relationships with 13,600 suppliers including Lufthansa, Air France, Alitalia, bmibritish midland, United Airlines, Virgin Atlantic Airways, Starwood Hotels and Resorts Worldwide, The Savoy Group, Sol Melia, Six Continents, JMC, Disneyland Paris, Kempinski Hotels, English National Ballet, The Royal Albert Hall, The Way Ahead Box Office and Conran Restaurants In terms of its brand, lastminute says lastminute com seeks to differentiate itself by generating some of the lowest prices for many travel and entertainment deals, and by packaging and delivering products and services, such as restaurant reservations, entertainment tickets and gifts, in convenient, novel and distinctive ways It also aims to inspire its customers to try something different Since 1998 the company believes that it has developed a distinctive brand, which communicates spontaneity and a sense of adventure, attracting a loyal community of registered subscribers At 30 September 2001, there were over 4 million registered subscribers, with a total transaction value on the site of 124 million Of these subscribers, there have only been 536,000 customers since inception However, lastminute com is working hard at increasing the conversion rate of new subscribers to customers This increased from 5 5 to 13 9 between 2000 and 2001 The preferences of users for the type of service required are held on a database and then matched against the offers of suppliers to the site The choice of suppliers is one of the key differences between an intermediary site such as this and one hosted by a single supplier ortravel agency Enhancements in 2001, to help increaseconversion rate included 9 times faster image download time completely redesigned home page and navigation smarter search capability including a mapping search tool to find restaurants, hotels and entertainment options in your local area 200 product supply increase with over 100,000 offers available at any given time new MySpace category with personalized offers and e mail alerts new Staying In category with food and in home entertainment delivery options The company was founded by Brent Hoberman, 31, and Martha Lane Fox, 27, both Oxford graduates Hoberman suggested the idea in 1996 while working at Spectrum, a company specializing in new media strategies At the time, Lane Fox said that the idea was too complex and would need thousands of suppliers to be effective Hoberman and Lane Fox raised 600,000 to get the company going and achieved many high profile backers such as France Telecom, Deutsche Telecom, Sony Music Entertainment, the British Airports Authority and Intel and venture capital company Arts Alliance Advisers One problem was the domain name which had been registered by a Sardinian businessman Both founders were adamant that their site had to be called this and the Sardinian was happy to sell it for several hundred thousand pounds This can be compared to the owner of Jungle com, a Californian who sold it for 235,000 to the sites founder The company hoped to use the money from flotation to increase access to the service by offering access to its service by WAP mobile and has signed deals with BT Cellnet and Orange to help achieve this Other site improvements will also be made Lane Fox has been quoted as saying Weve spent a lot of money improving the back end, but we want to do more with the frontend The improvements to the back end have been necessary to avoid problems with customer service Writing in Computer Weekly , 2 March 2000, Anne Hyland reported that several customers had money deducted from their account without purchasing any products from the site For example, Charlotte Brett, a London customer has had 50 deducted from her account on three occasions in January and February 2000 The money was recredited to her account, but Ms Brett was quoted as saying I am a very angry customer in my experience they have failed on the three key areas of technology, customer service and Internet capability Brent Hoberman said the problems were caused by its third party credit authority firm What of the future threats and opportunities for the company In a Guardian interview with Jamie Doward on 27 February 2000 Lane Fox was asked about the threat of a major ticket site setting up its own site Lane Fox dismissed this possibility Companies cant do it on their own web site because they fear cannibalization, and she says of first mover advantage you still have to set the company up and were starting to get critical mass in Europe lastminute com have opened offices in London, Paris, Munich and Stockholm to help achieve this Towards the end of 2001, nine European airlines including Air France, BA, KLM and Lufthansa responded to lastminute com with the launch of Opodo (which stands for OPportunitiestO DO (www opodo com) which has been set up by nine European airlines By April 2002, Opodo had become the third most important travel site in the UK, but it appears that the lastminute com brand is now well established and it is unlikely to be displaced To help counter this competition, lastminute com completed 14 acquisitions between 2003 and 2005, lastminute com now owns and operates online brands including holidayautos com, travelprice com, degriftour com, travel select com, travel4less co uk, eXhilaration co uk, medhotels com, first option co uk, gemstonetravel com, onlinetravel com and lastminute de 2005 The end of lastminute com as an independent organization In July 2005, lastminute com was purchased by Sabre Holdings Corporation (www sabre holdings com investor), best known as the worlds largest electronic global distribution system (GDS), connecting travel agents and travel suppliers with travellers and also the owner of online travel service Travelocity (www travelocity com) It was acquired for 577 million, including gross debt of approximately 79 million and estimated cash at bank of 72 million Lastminute is now an international e business with separate web sites for the UK, Ireland, France, Belgium, the Netherlands, Germany, Italy, Spain, Sweden, Australia, New Zealand, Japan, USA, Norway and Denmark Questions 1 Explain the business and revenue model for lastminute com and assess the potential for profitability 2 Summarize the measures which are used to assess the effectiveness of an e business such as lastminute com (such as subscribers, conversion rate and total transaction value) How do they relate to each other 3 What action do you consider the founders of the company should take to ensure the future success of lastminute com

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lastminute.com was a European innovation since at launch, no equivalent site existed in the USA. Its business model is based on commission from selling distressed

lastminute.com was a European innovation since at launch, no equivalent site existed in the USA. Its business model is based on commission from selling ‘distressed inventories’ which will have no value if they are not sold immediately. This includes hotel rooms, airline and theatre tickets. In the first half of 2005, the breakdown of product sales (total transaction value which last-minute gain commission) was as follows:

Hotels £96 million
Holidays £163 million
Flights £158 million
Car hire £71 million
Non-travel, e.g. theatre tickets £24 million
Total £512 million

lastminute explain TTV as follows: Total transactionvalue (‘TTV’) does not represent statutory turnover.Where lastminute.com acts as agent or cash collector,TTV represents the price at which products or serviceshave been sold across the Group’s various platforms. Inother cases, for example the reservation of restauranttables, a flat fee is earned, irrespective of the value ofproducts or services provided. In such cases TTV representsthe flat fee commission earned. Where lastminute.com acts as principal, TTV represents the priceat which goods or services are sold across the Group’svarious platforms.Turnover for H1 2005 was £222 million with grossprofit of £83 million. For the Group as a whole, thenumber of active customers increased in the half year to1.69 million compared with 0.99 million in the first half of2004 (71 per cent growth). There were over 10 millione-mail subscribers and 7 million cumulative customers,although not all were active customers. Active customerspurchased 3.6 million items in the half-year, an increaseof 49 per cent over the previous year. This gives anaverage order value of £142 (512 divided by 3.6).

Although the turnover and gross profit of lastminute.com did improve until the point of takeover, it did not achieve profitability in all markets (it did in the UK for its travel business). It did make great steps in reducing its customer acquisition costs which were £7.30 prior to takeover (£5.69 in the UK) in its final financial report as an independent company. Note ‘customer acquisition costs’ are calculated in the financial report as all external media spend divided by the number of unique customers. This is effectively media spend per customer, not customer acquisition costs. Since this figure includes repeat customers it would be expected that this number would fall naturally in more mature markets.

In 2005, lastminute had relationships with 13,600 suppliers including Lufthansa, Air France, Alitalia, bmibritish midland, United Airlines, Virgin Atlantic Airways, Starwood Hotels and Resorts Worldwide, The Savoy Group, Sol Melia, Six Continents, JMC, Disneyland Paris, Kempinski Hotels, English National Ballet, The Royal Albert Hall, The Way Ahead Box Office and Conran Restaurants.

In terms of its brand, lastminute says:

lastminute.com seeks to differentiate itself by generating some of the lowest prices for many travel and entertainment deals, and by packaging and delivering products and services, such as restaurant reservations, entertainment tickets and gifts, in convenient, novel and distinctive ways. It also aims to inspire its customers to try something different. Since 1998 the company believes that it has developed a distinctive brand, which communicates spontaneity and a sense of adventure, attracting a loyal community of registered subscribers.

At 30 September 2001, there were over 4 million registered subscribers, with a total transaction value on the site of £124 million. Of these subscribers, there have only been 536,000 customers since inception. However, lastminute.com is working hard at increasing the conversion rate of new subscribers to customers. This increased from 5.5% to 13.9% between 2000 and 2001. The preferences of users for the type of service required are held on a database and then matched against the offers of suppliers to the site. The choice of suppliers is one of the key differences between an intermediary site such as this and one hosted by a single supplier ortravel agency. Enhancements in 2001, to help increaseconversion rate included:

9 times faster image download time;
completely redesigned home page and navigation;
smarter search capability including a mapping search tool to find restaurants, hotels and entertainment options in your local area;
200% product supply increase with over 100,000 offers available at any given time;
new ‘MySpace’ category with personalized offers and e-mail alerts;
new ‘Staying In’ category with food and in-home entertainment delivery options.

The company was founded by Brent Hoberman, 31, and Martha Lane-Fox, 27, both Oxford graduates. Hoberman suggested the idea in 1996 while working at Spectrum, a company specializing in new media strategies. At the time, Lane-Fox said that the idea was too complex and would need thousands of suppliers to be effective. Hoberman and Lane-Fox raised £600,000 to get the company going and achieved many high-profile backers such as France Telecom, Deutsche Telecom, Sony Music Entertainment, the British Airports Authority and Intel and venture capital company Arts Alliance Advisers. One problem was the domain name which had been registered by a Sardinian businessman. Both founders were adamant that their site had to be called this and the Sardinian was happy to sell it for several hundred thousand pounds. This can be compared to the owner of Jungle.com, a Californian who sold it for £235,000 to the site’s founder.

The company hoped to use the money from flotation to increase access to the service by offering access to its service by WAP mobile and has signed deals with BT Cellnet and Orange to help achieve this. Other site improvements will also be made – Lane-Fox has been quoted as saying ‘We’ve spent a lot of money improving the back-end, but we want to do more with the frontend.’ The improvements to the ‘back-end’ have been necessary to avoid problems with customer service. Writing in Computer Weekly, 2 March 2000, Anne Hyland reported that several customers had money deducted from their account without purchasing any products from the site. For example, Charlotte Brett, a London customer has had £50 deducted from her account on three occasions in January and February 2000. The money was recredited to her account, but Ms Brett was quoted as saying ‘I am a very angry customer; in my experience they have failed on the three key areas of technology, customer service and Internet capability’. Brent Hoberman said the problems were caused by its third-party credit-authority firm.

What of the future threats and opportunities for the company? In a Guardian interview with Jamie Doward on 27 February 2000 Lane-Fox was asked about the threat of a major ticket site setting up its own site. Lane- Fox dismissed this possibility: ‘Companies can’t do it on their own web site because they fear cannibalization’, and she says of first-mover advantage: ‘you still have to set the company up and we’re starting to get critical mass in Europe’. lastminute.com have opened offices in London, Paris, Munich and Stockholm to help achieve this. Towards the end of 2001, nine European airlines including Air France, BA, KLM and Lufthansa responded to lastminute.com with the launch of Opodo (which stands for OPportunitiestO DO (www.opodo.com) which has been set up by nine European airlines. By April 2002, Opodo had become the third most important travel site in the UK, but it appears that the lastminute.com brand is now well established and it is unlikely to be displaced.

To help counter this competition, lastminute.com completed 14 acquisitions between 2003 and 2005, lastminute.com now owns and operates online brands including holidayautos.com, travelprice.com, degriftour.com, travel-select.com, travel4less.co.uk, eXhilaration.co.uk, medhotels. com, first-option.co.uk, gemstonetravel.com, onlinetravel.com and lastminute.de.

2005: The end of lastminute.com as an independent organization

In July 2005, lastminute.com was purchased by Sabre Holdings Corporation (www.sabre holdings.com/investor), best known as the world’s largest electronic global distribution system (GDS), connecting travel agents and travel suppliers with travellers and also the owner of online travel service Travelocity (www.travelocity.com). It was acquired for £577 million, including gross debt of approximately £79 million and estimated cash at bank of £72 million. Lastminute is now an international e-business with separate web sites for the UK, Ireland, France, Belgium, the Netherlands, Germany, Italy, Spain, Sweden, Australia, New Zealand, Japan, USA, Norway and Denmark.

Questions

1. Explain the business and revenue model for lastminute.com and assess the potential for profitability.

2. Summarize the measures which are used to assess the effectiveness of an e-business such as lastminute.com (such as subscribers, conversion rate and total transaction value). How do they relate to each other?

3. What action do you consider the founders of the company should take to ensure the future success of lastminute.com?