IT STRATEGY COLUMN: The tale of two Marthas teaches an Internet lesson to established brands

They’re both blond, rich and well-known. One of them is a household name in the US, the other gets star billing on the UK Internet scene. And their different company models tell us something very important about doing business on the Internet.

But Martha Lane Fox and Martha Stewart are in no sense rivals. For the uninitiated, Martha Stewart is a paragon of homely values in the US. She cooks, she gardens, she designs interiors and she has a whole raft of hints and tips for the homemaker. She’s a sort of uber-soccer-mom – imagine Delia Smith, Carol Smillie, Charlie Dimmock and Selina Scott rolled into one – who has taken her living ideas and built a business empire based on TV and magazine franchises. In the US she is absolutely huge, almost worshipped. She is a brand to die for.

Martha Stewart floated herself last year in one of the most keenly awaited brand-based IPOs of recent times. But the shares, launched at a price of $35 in October, peaked at $39 within days before dribbling down to sit at $26 at the time of writing. That values Martha Stewart Living Omnimedia at a cool $1.4bn (£875m).

Martha Lane Fox (at 26, more than 30 years younger than Stewart) is the co-founder of lastminute.com, which is an Internet site. Lastminute.com enables companies to sell unsold inventory (be that hi-fis or holidays) to customers eager for a cheap deal. It floated at 380p, valuing the company at £571.3m, but ended the first day’s trading at around 490p (a market cap of roughly £740m).

Behind these financial stories the two Marthas and their technology strategies are radically different. Martha Stewart Living Omnimedia has just reported results for the last quarter showing income of $2.4m (£1.5m). Publishing contributed $40m, TV production $11m and, crucially, the Internet and direct commerce posted a year-on-year gain of 90% to show revenues of $15m. Total quarterly sales were $71m (£44m). Annual profit was $11.7m (£7.3m) on revenue of $232m (£145m).

That’s still a bit low given the market cap, but Martha Stewart’s Web site should be the thing that interests us here – 90% year-on-year growth is fairly normal on the Internet, but her site is actually turning a profit out of its one million-plus registered users, which is unusual in cyberspace. The growth prospects look good for the 1,200-plus Martha Stewart branded items on sale there.

Now lastminute.com: for the last reported quarter it sold £4.3m-worth of goods, grossing £409,000 in commissions – a hefty rise on the previous three months. This resulted in an operating loss of £6m for the quarter, but the company remained upbeat, boasting of the future potential of its 1.1 million users (only 28,700 of whom actually bought something – imagine a bricks and mortar retailer settling for that conversion level through a store!).

So, similar market valuations, similar numbers of users on their Web sites, but Martha Stewart is comfortably outpacing Martha Lane Fox on the revenue generation and profits front. And that’s not all.

A visitor to the lastminute.com site who doesn’t buy is worth almost nothing to the company. Martha Lane Fox might argue that the real growth will come when lastminute.com has detailed profiles on its members and can actively sell to people who have a predisposition to buy. But ‘me-too’ rivals could spring up, and the suppliers of last-minute inventory might realise that exploiting their relationships with their customers (like Martha Stewart) is a better way of shifting unsold stock over the Net than letting lastminute.com do it. Hey, they might even use some business-to-business Internet technology and consign the whole idea of surplus inventory to the dustbin of history. Where would that leave lastminute.com?

Martha Stewart, on the other hand, has a multimedia empire to exploit. Her brand is the important thing. So even if a punter doesn’t buy something from Martha Stewart’s Web site, the very act of visiting and interacting with the organisation bolsters all the other money-making activities, such as magazines, TV and branded products.

Martha Stewart is using technology to make it easier for people to help her generate profits, whereas Martha Lane Fox is relying on it for a business. Lastminute.com might be a winner when the dot.com world shakes out, but it’s horribly vulnerable to shifts in its market.

The lesson here is that an Internet strategy makes fantastic sense for established brands, even on a business-to-consumer level (as opposed to the business-to-business Internet strategies which are a real no-brainer for driving down costs). Most companies have brands which would knock the new Internet Johnny-come-lately names into a cocked hat – so why not use them on a medium that has fantastic potential? Most FD readers fall much more convincingly into the Martha Stewart camp than the into the Lane Fox one. And, on the figures alone, isn’t that where you’d rather be?

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