A French company, which is behind brands such as Christian Dior, Hennessy and Hine Cognacs and Dom Perignon, plans to evolve into the biggest and most organised European based Internet incubator.
Group Arnault, the private holding company of French businessman Bernard Arnault, which controls the luxury group LVMH Moet Hennessy Louis Vuitton, is building a name for itself by investing in an array of Internet ventures, particularly those that can work as well in Europe as in the US (see Newswire 5 July).
LVMH also owns Desfosses Group which comprises leading media properties, French financial newspaper La Tribune and financial magazine Investir. LVMH additionally controls DFS, the leader in luxury goods retail.
Of late, Arnault has invested in about 20 Web companies, most recently establishing a company to pursue Internet investment opportunities in the European marketplace. (Cambridge, MA-based Forrester Research predicts that European on-line sales could reach $69 billion by 2001, the equivalent of 1 percent of Europe's economic output.) The new company will be capitalised initially with e500 million. [email protected] will create links with other European players such as Vivendi, a world leader in utilities and a major player in construction and property, and in communications.
[email protected] will take strategic positions in Internet operating company investments with attractive growth potential. It will make investments in European Internet companies and the European subsidiaries of US Internet companies as well as facilitate their working together where synergy or other benefits can be achieved, the company said in a statement. It is anticipated that [email protected] will offer shares to the public, though no details were discussed.
"As we have become actively involved in Internet companies, we have put together an outstanding combination of talented people to help identify, invest in and cultivate the development of Internet companies throughout Europe," Arnault said in a statement. "This is an exciting, and, we believe, unique opportunity."
Group Arnault has emerged as one of the most active Internet and ecommerce investors in the US and Europe. Its investments, even now, include portfolio participation in public companies such as @home, the largest provider of high speed Internet access over cable; Cisco Systems, the worldwide leader in networking for the Internet; e-bay, the online auction site leader as well as strategic stakes in more than 20 start ups and fast growing companies.
Yet, while attempting to pursue this strategy, Group Arnault has decided to stop talking to the press about its strategies, according to Michael Freitag, a spokesman for the company. However, in earlier interviews with the US press, Michael Dodd, a partner in LVMH Technologies, which is a funding vehicle for Group Arnault, said, "Europe is really ripe, especially with the advent of the 'free' ISPs."
He noted that, in spite of the company's focus on the area of business-to-consumer companies, future investments are likely to include other types of interests such as community and content sites, as long as they are "portable to Europe." What the company is looking to do is replicate US web sites in Europe, but, he declined to name the firms that are being considered.
Under the company's investment umbrella are start ups such as Datek Online Holdings, the fourth largest on-line brokerage, which also attracted investments by Microsoft co-founder Paul Allen. Datek provides individual investors with direct access to the financial markets such as free real-time quotes and account information and electronic order processing capabilities that provide fast trade executions and confirmations.
Electronic commerce pioneer, 1800-Flowers.com, a flower and gift website, is also an investment of the Group. 1800-Flowers.com has redesigned and restructured its Web site into new distinct shopping categories, flowers and plants, garden works, home decor, gourmet foods and specialty gifts, to reflect its emphasis on e-commerce.
Another start up, Planet RX.com, markets pharmaceutical and health care products over the Internet. The LVMH Group, along with News Corporation, E-Trade and others, recently participated in a $50 million investment in PlanetRX.com. The company plans to use the funding to embark on a major branding and marketing campaign which includes television and radio advertising. PlanetRX.com delivers products ranging from prescriptions to personal care items to the latest medical information.
Online grocer and drugstore start up Webvan.com, is also part of the company's portfolio. Webvan.com, which began selling groceries and over-the-counter drugs over the Internet less than two months ago, has raised a total of close to $400 million. It recently sold a 6.4 percent stake in the company, totalling $275 million, to investors.
And eloan, a leading provider of online mortgages offers a variety of loan products for home financing. The company, which has relationships with more than 70 lenders, has strategic partnerships with more than 40 companies, including Yahoo!, E-Trade, CBS Marketwatch and Telebank. The company went public in June.
One of the first to bring the auction industry online in 1994, the UK based online auctioneer, icollector, is also included in the group's ensemble. Their electronic version of auctioneer's catalogues, which displays antiques and collectibles, is now home to more than 200 auction houses, dealers and galleries. The site includes online auctions, auction catalogues, reference and entertainment channels and a free newsletter.
Group Arnault also recently acquired a 40 percent stake in leading UK retailer Kingfisher to launch libertysurf, the leading Internet access service in France. And the company recently announced the introduction of sephora.com, to be launched in September, which promises prestige beauty products on the Internet.
The company has also invested an undisclosed amount in Boo.com, a UK based online sports retailer and has acquired nearly 27 per cent of the shares MP3.com which recently made a public offering. Group Arnault, along with PetCo, has taken part in a $66 million investment round in Petopia.com. In addition, Group Arnault has an undisclosed stake in on-line luxury goods company, Ashford.com.
"The European market presents a major area of untapped opportunity," Arnault said in a statement.
Analysts agree the French company's timing is right on target. "On-line commerce in Europe is in its infancy, but there is a battle coming for the hearts and minds on consumers on-line," Jupiter Communications analysts wrote in a report. "The next one to two years will be the crucial phase for the establishment of an on-line brand in Europe."
Noah Yasskin, an analyst for Jupiter's European Internet Strategies, advised companies to adopt "free to air" strategies, (free access, unlimited use) to take advantage of the continuing market growth. Jupiter estimated that the number of total on-line households in Western Europe will triple over the next five years, increasing from 14 million households (nine percent penetration) at the end of 1998 to 47 million households (31 percent penetration) by 2003.
"This increase will narrow, but not close, the gab between Western Europe and the US in terms of total households online. Only by being in the right position to gain market share now will Internet businesses be profitable later," Yasskin said.
According to a report from Morgan Stanley Dean Witter, companies and investors across Europe need to develop Internet strategies now if they do not want to lose business in coming years.
"Europe today is where the US was two to three years ago, with Net penetrations rates of about 10 per cent," Steve Winram, analyst at Morgan Stanley said.
Winram said the first companies to take advantage of the opportunities in the Internet business will be those to benefit most, given how quickly the medium is developing. "Next to being first, companies also need to have a well-established strategy for the Internet activities," Winram said.
Even though the current regulation of Internet commerce in Europe is an unclear mix of overlapping and contradictory laws, new, diverse regulations are expected to create a framework for the Internet economy. In many ways, Group Arnault resembles firms like US venture firm CMGI and Japan's Softbank, who appear to have pioneered an Internet business model ideally suited to the economics of the industry.
As an incubator of Internet assets, both CMGI and Softbank are unique. Some of their businesses were internally developed and are still wholly owned and operated. In other firms, the companies are, essentially a venture capital investor, with stakes ranging from less than 10 percent to more than 50 percent.
"This is a developing trend of what's happening in the Internet space," said Blaine Mathieu, an analyst with market research firm, The Gartner Group. "The synergy is to join different web groups to create consumer solutions, disparate companies under an overall umbrella."
Mathieu pointed out that in this way losses are associated by ownership and companies can share resources and talent back and forth. "In the hot Internet market, that's important," he said. "It's definitely what CMGI is doing and it sounds like what Group Arnault is doing. A lot of venture capitalists are doing similar things."
He added that this trend has been developing for a few years and that it's a good strategy. "It's a trend that has been building and we see no end to it. The companies have made strategic, early stage investments in start ups with potential for high growth. But the big payoffs come when the companies go public."
Answering a question from US reporter, J. B. Tellio, who heads the Internet group for Group Arnault-LVMH, wrote in an email, "we expect to be the dominant European player in the Internet field, like CMGI or Softbank."
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