Hi-tech UK 'falling behind'

By THIS IS MONEY
Updated:

 

The UK risks falling further behind the Germans in the 21st century hi-tech economy, according to a survey published today.

More than one-third (56) of Europe's top dotcoms are German, and they collectively make up 45% of the 200bn euro (£121bn) price tag that accountants PricewaterhouseCoopers have put on Europe's top 150 Internet firms.

Delivering a blow to the widely-held belief that Britain carries the flame for the European Union in the technology sprint with the US, the survey also revealed that while half of German dotcoms are profitable, only 26% of their UK rivals make money.

One of PWC's partners, Kevin Ellis, said while it was difficult comparing the relative strengths of European competitors based solely on a snapshot survey, it was plain Britain lags behind Germany.

Ellis said: 'The German market is significantly larger than the UK, and their companies do appear to be more profitable. It is easier to access and download information in Germany, because their infrastructure is more advanced.'

He said more of Germany was covered by high-speed fibre optic telephone lines than the UK, much of which still relies on the old copper-wire lines where downloading websites takes far longer.

The survey also found that, as the online business world matures, its leaders are adopting more sensible attitudes to spending money on advertising and marketing.

Using a measure known as the 'burn rate' - defined as the speed at which businesses run out of cash and go bust without extra financing - PWC said the average company 'burnt out' after 20 months.

While not sounding a long time using traditional businesses as a yardstick, the 20 month figure seems like an eternity compared with the average 'burn rate' of just 13 months reported last December.

Businesses offering goods and services directly to consumers (B2C) are riskier than those involved with other companies (B2B), because of the need to invest huge sums in start-up advertising costs to gain brand recognition.

B2C firms typically have a 'burn rate' of 15 months, while their B2B rivals survive an average 23 months before 'burning out'.

Ellis commented: 'Against a couple of high profile insolvencies (such as boo.com), internet companies are waking up to the fact that the dotcom honeymoon is long over.

'What we are witnessing is dotcoms throughout Europe beginning to take steps to consolidate their position and regain the confidence of the market, including fundamental business restructuring or seeking appropriate merger partners.

'On the whole, the improving 'burn rates' indicate that management teams are focusing not only on cash management but also on bringing forward their break-even points to take control of their own destinies.'

He predicted that strongly performing parts of the Internet revolution, including software services, were undervalued by investors made wary by high-profile insolvencies.

Toby Jennings, director of the Fletcher Advisory online consultancy firm, added: 'The Internet market is still in its infancy and is therefore high risk.

'Our findings show that share prices still bear little relationship to traditional business fundamentals such as sales, profit margins or 'burn rates'.'

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