The dot.com that survived and may even make money

Two years after Lastminute.com floated, the company is coming close to breakeven

Martha Lane Fox says she can scarcely believe it is two years since she and Brent Hoberman floated Lastminute.com in what became the defining moment of the dot.com boom in Britain. "It feels odd that it's that long," she says. "So much has happened."

Indeed it has. It was two years ago today that Lastminute floated on the London Stock Exchange valued at £733m, an astonishing figure for a loss-making company that had only been founded 23 months before. Such was the clamour for the stock that private investors were restricted to just 35 shares each. Since then, of course, the dot.com boom has been and gone, taking with it high-profile names such as boo.com, clickmango and Webvan. But Lastminute is still with us. It is a shadow of its former stock market self but it is still around, still fighting. It is the dot.com that survived.

"It was all a bit surreal," Martha says with the rapid, breathy tones that even graced Question Time when she was the pin-up girl of the internet generation. "But it was tough too. I was 26 and probably a bit naïve. I went on one radio station and they asked me how it felt to be the most hated woman in Britain. It was incredible."

It has certainly been a rocky ride. From their high of 487.5p in those early days Lastminute shares sank like a spent rocket as the internet bubble imploded. They fell as low at 18.5p meaning those "lucky" private investors who picked up shares at the float found their holding worth just £6.47. Recently though, they have started to rise again and now stand at 57.5p, valuing the company at £100m.

So why is Lastminute still around? Partly it is due to the fact the company floated at the peak of the market (the Nasdaq market in the US had topped out on 10 March). This enabled Lastminute to raise £113m to see it through the internet winter which followed.

Ms Lane Fox seems hurt by the suggestion that her business has only survived because it raised more money than anyone else. "Of course the cash is important but I think we've seen some spectacular examples of companies that raised large sums and then frittered it away," she says.

"We were very early into the space and it's true that you do have a first-mover advantage. But, also, it's a really good idea. And I can say that because it wasn't mine [it was Brent Hoberman's]. It is a really good use of the Web and it doesn't need a big offline business to support it."

Analysts tend to agree with her. One internet analyst said: "They came to the market at the right time but it doesn't matter how much money you've got if you can't control your costs and can't grow your top line. They've got a good business model and good brand awareness. They got an awful lot of free PR and they leveraged that into being able to spend less on marketing. Also the travel business lends itself to the internet in that there is no physical product to distribute. It's not like Webvan [the American internet grocer] where you have to go out and buy a fleet of delivery vans."

With £35m in the bank and a cash burn rate down to £2m a month there is a serious danger that Lastminute will become that rare beast – an internet company that makes money. Analysts forecast the group's core operations in the UK and France will be profitable by the end of this year. The whole group is expected to bounce into the black by the end of next year.

But it still may not be enough to guarantee an independent future. Analysts feel a takeover, either by a mainstream travel agency business or an internet portal, may prove to be Lastminute's fate. "It is not out intention to be bought," Ms Lane Fox says. "We are still really determined to make this work. We think we can act as the consolidator rather than being acquired."

Some of Lastminute's early contemporaries have not been so lucky. QXL, the online auction house, saw its shares surge to 744p but now they trade at just at little more than a penny. 365 Corporation, the sports and entertainment site, is changing its name to Eckoh and no longer describes itself as an internet business. Gameplay, the once high-flying online game company, has sacked all its staff bar two directors and is now a stock market shell.

And what do we have left to show for the UK internet boom? Analysts point to an internet infrastructure that would not have otherwise existed but not much else. Michael Steibe, internet analyst at Morgan Stanley, said: "The main lesson is that there is no such thing as a free lunch and that business models have to make money. People just got carried away."

As for Martha Lane Fox, she is now two years older at 28, two years wiser and still living in the same flat in London's Notting Hill and driving a Volkswagen Beetle. But she is also slightly frustrated that the downturn came so soon. "When the US market started to go down, we lost confidence very quickly, she says. "We didn't give the new businesses the support they needed."