George Pitcher: The old-world economy lends a crutch to the new

The dot-com crash proved that e-commerce isn’t all it’s cracked up to be, but with the help of Unilever it might have a fighting chance in future, says George Pitcher

We old fogeys who chuntered during the dot-com boom that there was no such thing as a “new” economy can afford to have felt insufferably smug these past 18 months or so. If anything is proving robust enough to stand up to world recessionary pressures, it is the industries of the allegedly “old” economy.

Today, I’m struck by how it is these apparently old-economy dinosaurs which, far from facing extinction, may be the source of capital funding for fledgling industries – Internet enterprises presumably among them.

They don’t come much older in the UK economy than Unilever – the Anglo-Dutch conglomerate that would doubtless have been sneered at a couple of years ago by the pony-tailed dot-com brigade for its embarrassing array of global brands, such as Omo, Bird’s Eye, and Lipton Teas (though doubtless there were spotty dot-commers who enjoyed its Magnum ice creams).

But I gather that Unilever is to launch an independent venture-capital entity, with the purpose of developing ideas that don’t fit into its core foods and personal care businesses.

True, Unilever’s recent diversifications have hardly been at the cutting edge of online technologies. A home-cleaning business called Myhome has been sold, and a chain of barber shops under its Lynx brand have smacked of something rather old-fashioned for the weekend, rather than something more virtual and modern for the working week.

But Unilever has long been rumoured to have an eye for using its corporate clout to tap into venture-capital funds for the purpose of investing in Internet companies. And such an arm’s-length arrangement would serve the interests of the core businesses by being protected from the vicissitudes of pioneering technologies, while early-stage businesses would benefit from the corporate stability that a leviathan such as Unilever brings to the market.

There is something of a track record in this sort of development. Last month, Unilever’s arch-rival, Nestlé, announced a science and technology venture-capital fund to invest in sectors as unproven as the Internet, including genomics and other life sciences.

Nestlé’s fund stands at about &£85m, which by remarkable coincidence is about the same sum of money that the wretched hosed away before its collapse last year. There is a book called Boo Hoo out at the moment about Boo and its frightful owners, which is almost too painful to read. We are asked to feel sorry for the Boo executives and their ridiculous fashion company. But let’s remind ourselves that it was other people’s money that they spent so wantonly.

Established old-economy leviathans such as Unilever and Nestlé may prove altogether more worldly-wise and less impressionable than the notorious “incubator funds” and gullible investment banks that inflated the dot-com bubble at the turn of the millennium.

And the value of their development of these sunrise industries might be precisely in their determination to maintain that standalone relationship with them. While early stage enterprises will have to justify their existence to old-economy executives – who know all about brand management in highly competitive markets, not to mention cash-flow economics and distribution models – there are undoubtedly stabilities to be enjoyed that independent entrepreneurialism could only dream of.

In this context, it’s mildly amusing to note that shares in, the online bucket-shop, rose last week on the news that it is losing a couple of million quid less than it was. To put the detail on this, pre-tax losses for the quarter to end-September fell by &£2m to &£11m – and the shares rose a little over 4p to 36.75p, which is perhaps more than a shade off its 500p issue price at the height of the dot-com boom.

Lastminute has proved to be one of the more robust of the online ventures and is one of the more logical offers to the Internet market. But I doubt its investors, given their time again, would adopt the same developmental model, which amounted to little more than flotation on the back of hubris.

Far better would have been long-term development under the wing of a limited number of investors – the kind of options that the Unilever and Nestlé funds offer.

Almost no one has suggested the Internet is a bad idea that the market just doesn’t want, like the Sinclair C4 or Lymeswold Cheese. It clearly is one of the most potent routes to market for future commerce.

It’s just that the capital markets grew over-excited about it a couple of years ago. Now the rather more patient and long-term old economy is taking over the investment cycle. And one of the old economy’s characteristics is caution.

There was some surprise last week when J Sainsbury presented its comparatively upbeat interim results – operating profits up by more than ten per cent to &£366m – with e-commerce as a separately accounted item.

E-commerce cost J Sainsbury &£29m, which would have made profits look less good. But this kind of presentation is part of a new psychology that should be encouraged.

Dot-commery, or any other sunrise industry (such as genomics) for that matter, is not a core economic activity in itself. It is a part of the old economy’s future efficiencies and growth potential and needs careful transparent nurturing.

The signs are that the likes of Unilever, Nestlé and Sainsbury are recognising this and it’s encouraging that they are doing so.

George Pitcher is a partner at communications management consultancy Luther Pendragon


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