The demise at the end of last week of Totalise brought the curtain down on an experimental era in which free shares were used as a substitute for marketing spend.
Totalise, which launched in the summer of 1999, began life as an ISP (Internet service provider), but soon expanded into a host of subsidiaries and services. These included online flower selling, car importing, a cheap-rate telecoms provider, a branded credit card and a virtual shopping mall.
Relying almost exclusively on word of mouth and free shares as an incentive for using its services, Totalise managed to attract a claimed 140,000 customers by the middle of 2000. With its shares listed on the unregulated Ofex market, the share price peaked at more than £1.50.
With a view to making its shares more tradable, and using them to expand the business further, Totalise listed on the more regulated Aim market in the autumn of 2000. However, the bursting of the stock market bubble had already reduced its share price to less than 30p.
Inviting customers to take an unprecedented financial risk, Totalise used the listing as an opportunity to raise fresh funds, offering shares at 22p. The company hoped to raise about £8m, but in the event only managed £2m – most of this from founder and chief executive Peter Gregory.
With profitability out of sight, and growing scepticism about “dotcoms” – especially over-ambitious mini-conglomerates – Totalise’s Aim-listed shares continued to plummet. Apart from a couple of brief upward surges, they remained stuck at about 4p for much of the time. With City market makers quoting 5p to buy the shares and 3p to sell, Totalise was virtually untradable.
Its shares were finally suspended at the end of January, after Totalise failed to meet Aim’s reporting deadline for its interim accounts. Last Friday, the company issued a statement saying it had gone into administration, with a number of its services and assets quickly bought from the receivers by Spans Partners – a company controlled by Gregory.
In a statement to Totalise customers, posted on the Totalise.net website, Gregory refers to the “successful growing Internet businesses under the Internet brand” and regrets that “their profitability was not enough to support the holding company.”
Gregory plans to continue expanding these businesses under his new company and promises to “find ways for all shareholders to be involved if they wish to be.”
He adds: “I will focus on improving the businesses in the short term. Once we are happy with customer service levels, I will work on giving those who own shares purchased in Totalise at IPO (initial price offering) or on the open market a similar shareholding in the new company.”
But such promises, like the millions of “free” Totalise share certificates, are surely not worth the virtual paper they’re written on.
Gregory, an abrasive character who was not shy to let customers know what he thought of them while the share price was riding high, became increasingly elusive as the company’s fortunes changed. Attempts to contact him this week proved futile.
Gregory’s early strategy with Totalise was based on a combination of two powerful trends: demutualisation, which gave bank and building society customers “free” windfalls; and rising stockmarkets that ultimately led to the bursting of the Internet bubble.
For a while it seemed free shares could seriously challenge traditional marketing spend. Totalise was not alone in this approach; other ISPs, notably BlueCarrots.com and TheMutual.net, also tried this tactic.
Meanwhile, companies such as Lastminute.com encouraged a distorted customer base by luring “registered users” with the incentive of guaranteed shares – albeit paid for rather than free – in the run-up to flotation. That preferential treatment cost Lastminute’s customer-shareholders a small fortune as the share price plunged to a fraction of its original figure.
Gregory will, of course, argue that he is the main loser from Totalise’s collapse. But he also stands to gain a great deal from his phoenix-from-the-ashes deal, which should see viable Totalise businesses, such as Flowers2send.com and Eurekar.com begin anew with lower overheads.
The question that must worry him is this: will disfranchised shareholders still want to be customers?