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Friday, 1 September, 2000, 18:29 GMT 19:29 UK
Start-ups threaten corporate giants
QXL home page
UK's 'most promising': Top-rated start-up QXL
One-third of the UK's top companies will be overtaken by new economy firms within three years, say analysts who have ranked QXL as the country's most promising internet site.

The transformation of business practice wrought by the internet will force corporates to improve productivity, review employment practices and embrace new technology in order to survive, Gerry Mulvin of strategy consultants Bain & Company told BBC News Online.

UK's top internet start-ups
1 QXL: auction site
2 Lastminute: leisure bookings
3 Sportal: sports news and shopping
4 Orchestream: software provider
5 Gameplay: games portal
(source: e25)
The inability of even established companies to introduce the necessary reforms will lead to a huge shake-up of corporate rankings, he said.

"I see 30% to 40% of companies in the FTSE 100 being replaced within two to three years," Mr Mulvin, vice-president at Bain, told BBC News Online.

"Replaced not necessarily by companies, but companies which understand the new economy."

He was speaking following the publication of the fourth e25 index of top UK internet start-ups, which ranked auction site QXL ahead of Lastminute and Sportal.

Highlighting value

Competitiveness improvements would be needed to offset the success of business-to-business exchange sites in allowing costs of similar goods from throughout the globe to be easily compared.

"What the exchange sites do is take out the inefficiency in price differentials between companies," Mr Mulvin said.

"We feel that every company, and I mean every company, needs to reduce prices, or raise productivity, by 20% to 30% to stay competitive... and counteract this."

Corporates would need to review employment practices to ensure the hiring and retention of staff able to understand the nature of the changing economy, and the impact of developments.

"When you have a competitive and fast-changing marketplace, you need to have managers who can realise what is going on, and react quickly and integrate change quickly," Mr Mulvin said.

"These kinds of people are difficult to find and keep hold of."

Staff rewards

Companies with traditional employment practices should improve the "job satisfaction and job enrichment" they offer employees, and create a culture of "corporate entrepreneurship".

... and e25 June dropouts
Icollector: auction site for collectibles. Concerns over competition and low profile
Elateral: e-marketing. Worries about low revenues and lack of concept development
Freecom: e-tail software. Concerns over strategy, and poor press.
"It is the companies which can recreate the excitement of working for a, the dynamism and creativity, which are going to be the most likely to succeed."

The scale of the changes to come can be gauged by considering the number of new web protocols - ways of accessing the internet - waiting to be exploited.

These include broadband, which will allow television quality pictures to be transmitted fast online; voiceover IP, enabling internet-based telephones; and bluetooth wireless technology, which will see household functions such as heating and front-door entry controlled over the net.

"The internet [revolution] has not even started yet," Mr Mulvin said.

Fastest wins

Companies exploiting the internet effectively include hardware manufacturer Dell, which has used telecommunications to cut out the traditional retail route, taking purchases online, making computers to order and then shipping them quickly to customers.

Dell's share price has risen 7,000 times in the past three years, while Compaq's has stayed flat

Gerry Mulvin
Bain & Company
"Dell avoids the cost of having money tied up in stock, and because its supply chain is so effective, it can deliver within five days of order," Mr Mulvin said.

"Traditionally it has taken 50 days.

"This is why Dell's share price has risen 7,000 times in the past three years, while Compaq's has stayed flat."

The e25 index, run by Bain and Management Today, ranks start-ups according to their performance and potential, and praised QXL for its strong management, successful flotation and position in a promising sector.

Auction sites

Patrick Manning, head of Bain's e25 team, said: "We think the potential for auction sites it quite large, and there is room across Europe for two or three major players.

"E-bay is probably going to be first, but QXL has the potential to be second or third."

Lastminute, winner of the first e25 index a year ago, rose to second place following its acquisition in August of France's largest online travel company, and its growing presence in Europe.

Third place went to Sportal, a sports portal, and operator of the website for the Euro 2000 football tournament which recorded 77 million hits in one day in June, and is said to have taken the record as the world's busiest site.

Fallers included Interactive Investor International, which has lost key staff members, business-to-mobile provider RealCall, over revenue concerns, and Mondus, which organises buying collectives and is expected to climb back up the index following a financing deal last month.

Bain claims the loss of only eight firms from the 25-member index over the year supports the authority of e25, which uses criteria including concept innovation, financing, profile and traffic to rank companies.

Winners and losers

While, the most high profile UK start-up to collapse so far, was ranked ninth in the first index, it was downgraded to 24th because of lack of revenue, and had left the e25 by the time of its receivership.

Boo's new US owner, Fashionmall, is planning to bring it back online in the autumn - but much revised.

"The index is partially predictive," Mr Manning said. "It goes some way to predicting winners and losers."

Lessons to be learned from the index so far were the importance of being first to the market and that, contrary to the comments of many observers, many business-to-consumer sites would succeed.

Mr Mulvin said the fallout from the collapse of some firms would continue, as ill-conceived start-ups inevitably faltered.

"We expect more failures among companies which were backed by investors throwing money at ideas with no rationale behind them."

He said it was still not too late to launch a start-up, but that it had to be based on a good idea, and be backed by good management willing to stay five to 10 years in the company.

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See also:

18 Aug 00 | Business
Online auctioneer knocks down price
16 May 00 | Business
QXL in German merger
31 May 00 | Business
QXL upbeat despite losses
14 Aug 00 | Business
Lastminute nets French rival
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