Lastminute.com – an international dot-com survivor

This case illustrates the fortunes of lastminute.com, a start-up which used the Internet to introduce an innovative service. The case describes the service and its growth. Success factors in achieving growth and threats to growth throughout the history of the company are described.

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 on which lastminute 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 transaction value (‘TTV’) does not represent statutory turnover. Where lastminute.com acts as agent or cash collector, TTV represents the price at which products or services have been sold across the Group’s various platforms. In other cases, for example the reservation of restaurant tables, a flat fee is earned, irrespective of the value of products or services provided. In such cases TTV repre­sents the flat fee commission earned. Where last- minute.com acts as principal, TTV represents the price at which goods or services are sold across the Group’s various platforms.

Turnover for H1 2005 was £222 million with gross profit of £83 million. For the Group as a whole, the number of active customers increased in the half year to 1.69 million compared with 0.99 million in the first half of 2004 (71 per cent growth). There were over 10 million e-mail subscribers and 7 million cumulative customers, although not all were active customers. Active customers purchased 3.6 million items in the half-year, an increase of 49 per cent over the previous year. This gives an average order value of £142 (512 divided by 3.6).

Although the turnover and gross profit of last- minute.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, bmi british 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 or travel agency. Enhancements in 2001, to help increase conversion 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 front- end.’ 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 Opportunities tO 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 last- minute.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.

Source: Dave Chaffey (2010), E-Business and E-Commerce Management: Strategy, Implementation and Practice, Prentice Hall (4th Edition).

One thought on “Lastminute.com – an international dot-com survivor

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