Fool's Eye View

[ April 20, 2000 ]

What Makes A Brand?

By Bruce Jackson (TMF Googly)

Carburton Street, London -- Let's remove all the hype surrounding Lastminute.com (LSE: LMC). Let's forget that just a few short months ago the media were happy to put the company and particularly their young multi-milllionaire founders up on a pedestal, praising them for building a UK Internet company in this age where all big Internet companies are to be found Stateside.

Let's also forget the IPO fiasco. The near doubling of the offer price at the last minute (sorry!), decided on the spur of the moment at a time when the technology share surge showed no signs of abating. The 35 shares allocated per individual retail investor, worth a grand total of £133 at the 380p offer price. The ensuing crash of technology shares. The bounced refund cheques, of which I was a victim. The subsequent media and discussion board vilification of Lastminute.com and its co-founders.

Put all that to one side. Do you find that difficult to do? I don't. That's because the above have little to do with how the underlying business is progressing.

Let me ask you another question. Have you heard of Lastminute.com? Given the results of our recent poll, where over 2000 Fools admitted to applying for shares in the company, the chances are you've heard of them. If you live in London, you couldn't help but see their ads on buses, billboards, lunchbags and taxis. It's all in the name of building a brand name.

AOL

Heard of America Online (NYSE: AOL)? Chances are you probably have. I mean to say, after they merge with Time Warner (NYSE: TWX) they will be worth a cool $260 billion, making them one of the very biggest companies in the world.

Those with short memories may forget all the problems which befell AOL in their early growth phases. Off the top of my head, and in no particular order, I can remember....

• queries over their accounting policies, whereby customer acquisition costs were capitalised and not expensed.
• huge early losses as AOL flooded the country with CD-ROMs, many of which ended up being used as coffee coasters.
• continual Internet access problems for customers.
• the move from per minute to flat fee pricing caused massive upheaval. Customers couldn't access the Internet for long periods of time. If you were lucky enough to get online, you damn well made sure you stayed online, because if you let your connection lapse, it could have been days before you could get back online.
• the threat of free ISPs. Much in the way that Freeserve (LSE: FRE) took the UK ISP market by storm, why couldn't the same happen to AOL in the US?
• their lack of an international presence. (As an aside, and in complete hindsight, I'm sure they should have come up with a better name for a global company than America Online).

Market Cap

$260 billion. After all the above problems, that's the value the market places on AOL Time Warner. Not too bad hey?

Lastminute.com's market capitalisation is currently £255m. Let's assume that of the cash they raised, they still have £100m left in the kitty. That gives them an enterprise value of £155m.

How much would it cost to build a similarly well recognised brand name to Lastminute.com? Why is it that Yahoo! (Nasdaq: YHOO) is the most popular website on earth? Are Lastminute.com the AOL of the UK?

All the above questions may seem somewhat random. But they are connected by one common theme.

Brand.

If you've got the brand name, you're half way to winning the long-term battle.

Related Links

• Fool's Eye View discussion board
• Foolish interview with Martha Lane Fox
Lastminute.com discussion board