The terrible truth about Britain's biggest dotcoms

Charles Orton-Jones asks why it is that we simply can’t produce decent web businesses

The hunt is on for a new head man at Tech City. It will be his job to foster world class dotcoms. And my god, he’ll have a struggle.

Because right now, if we’re honest, we Brits absolutely suck at creating web businesses.

To prove the point I’ve cobbled together a Top 15 ranking of Britain’s biggest dotcoms. The rule is that firms must make most of their money online, so Tesco.com is not included. And they must be independently owned (so, Direct Line insurance, owned by RBS, is not on the list). All industries are included.

These are our top revenue earners, and what do we find? We have a wine merchant, train tickets, retailers, used cars, gambling and insurance.

Hardly cutting-edge tech businesses.

Only the anti-virus maker Sophos and virtual fantasy world Moshi Monsters are genuine high-tech brands. And it’s no coincidence that these are the only two on the list to have a profile outside the UK.

The number one is Swansea-based Admiral Insurance, founded by Henry Engelhardt (an American) in 1993. With online brands such as Confused.com, Elephant and Diamond it can just about be called an online firm.

To rub it in, let’s take a look the best American brands. You may have heard of one or two.

These are the goliaths of the internet. And they are proper dotcoms too, not offline concepts dragged into cyberspace. Amazon has a revenue of $48bn, or £30.5bn, employs 65,500 people and has a market value of a hundred billion dollars.

Now that’s a dotcom.  

Even the tiddler, Twitter, has a truly global profile.

The British list reveals our total lack of ability to compete with Silicon Valley. The only niche we thrive in is gambling. A big reason for this is that online betting in the US is almost completely illegal.

Factor in Gibraltar, where bookmaker Victor Chandler set up shop a decade ago to lower his tax bill, and the UK can be called a world leader. To date, there are: 888, Bwin Party Digital Entertainment, Stan James and 32 Red.

In fact most of the British major chains have an online base out there, including William Hill, Gala Casino, Ladbrokes and Betfred. Full Tilt poker was based on Alderney in the Channel Islands until it hit legal problems. These firms service a global customer base.

Gambling aside, you will struggle hard to find a British dotcom with aspirations to be as big as, say, Groupon. Moshi Monsters is an outside bet to become a world-beater. Errol Damelin: The London tech scene must embrace risk and innovation claims more than 50 million users and its revenue of £62m is unofficial and could be wildly inaccurate.

Newspapers and magazines might be a potential world-beater for Britain; the Daily Mail is the world’s most read online publication after all. But neither it, nor the Guardian, makes money online. The Guardian Media Group has digital revenues of £45.7m, a pathetic contribution to the total revenue of £196.2m. The firm made lost £44.2m last year, and it’s hard to see how the situation can be turned around.

Even the Daily Mail struggles online. Not for viewers – with 99m unique visitors a month it is the world’s most read online paper – but for revenue. In the year to October 2011 the combined operations of Mail Online, Metro newspaper and ThisIsMoney had a revenue of just £19m.

The ad models of the Guardian and Daily Mail are unlikely to work. They haven’t yet, and the virulent spread of ad-blocking software such as AdBlock Plus, which stop the viewer ever seeing an advert, will present serious problems to future monetisation.

The Economist may be our print industry’s brightest hope. The Economist Group made pre-tax profits of £64.7m in the year to March, on revenues of £360.4m. It has 123,000 digital subscribers compared to 1.624m print subscribers. Unlike the Guardian and Daily Mail, it’s not finding it difficult to charge for online content.

What is truly galling is that even on home turf we are dominated by American brands. Of the Top 200 most popular websites in Britain – as ranked by Comscore – only 17 are bona fide British dotcoms (I am excluding government-owned dotcoms, such as BBC.co.uk and NHS.uk, and also online portals of primarily offline businesses, such as JohnLewis.co.uk and PCWorld.co.uk).

The UK’s dotcom vanity

I think it is not widely appreciated just how badly the UK has underperformed in cyberspace. The reason may be the way our under-performing dotcoms garner eulogistic column inches from our credulous domestic press.

Look at GlassesDirect, which sells discount spectacles.

GlassesDirect won Jamie Murray Wells a number of Entrepreneur of the Year Awards. And it is a strong, profitable business with disruptive potential. It comes across as a major player. Revenue? Only £13m. It has not become a global retailer. It has not even cracked our home continent.

Other famous dotcoms garner plaudits without being backed up by big numbers. Firebox.com sells gadgets, and like GlassesDirect, is a well-run profitable firm. Turnover is £14.4m.

Zopa.com was launched with the intention of turning bank lending on its head by connecting borrowers to lenders, cutting out the middleman. It was launched by refugees from Egg Bank. Turnover is £2.2m.

Even our most hopeful contenders have strong foreign links.

Badoo is the closest the UK has to a global social network. With a reputation as the social network for sex Badoo is not short of members, 147m at the last count. But is a stretch to call it British. The founder is Russian, he started the firm in Spain and it is registered in Cyprus. LondonlovesBusiness.com editor Sophie Hobson wrote a great piece on it recently after interviewing the marketing boss, but the fact that it wound up in Soho is more testimony to the UK’s attractive legal and tax environment than our native technical expertise.

Another “almost” British success story is Miniclip, a flash-gaming website for children. Miniclip was started by Rob Small in his London flat and now has a revenue of £20m or more, but he then moved the firm to Neuchatel, Switzerland.

A second reason is that our entrepreneurs sell out.

Natalie Massenet was turning her fashion retail site Net A Porter into a genuinely exciting business with global aspirations. In the end she cashed out for an estimated £50m from the Richemont Group.

Richard Jones, Martin Stiksel and Felix Miller sold Last.fm to CBS. Dave Atherton sold his electrical retailer Dabs.com to BT. Lastminute.com went to Travelocity’s owner Sabre. Gumtree was sold to eBay. The much hyped travel dotcom Dopplr was sold to Nokia.

It is hard to knock the entrepreneurs for selling up (Dopplr was sold for a staggering $200m), but when Jeff Bezos built Amazon he managed to avoid temptation to sell out early. As did Pierre Omidyar at eBay, and Mark Zuckerberg at Facebook.

Millionaires cash in early. Billionaires don’t.

Our incompetence at building world class dotcoms does not apply to any other sector.

Take mobile. Vodafone is a truly global firm with revenues of £46bn. We have Lebara, the virtual network offering low cost international calls with £500m turnover, profiled here.

We have an ecosystem of apps firms and technical service providers keeping the base stations and billings systems ticking over.

In the computer-chip world we have Wolfson Microelectronics (based in Edinburgh) who put its chips into iPods and Xboxes, as well as Cambridge Silicon Radio and ARM. The most exciting British startup I know of is Neul, which will make machine-to-machine wireless chips broadcasting in the unlicensed spectrum. The founding team is an all-star cast from the mobile industry.

Nothing going wrong there.

But in the dotcom space we’ve missed the boat. Unlike the Russians, who have their own social networks Vkontakte and Mail.ru, or China, where RenRen, Kaixin, QQ and Sina Weibo are home grown and exist without American competition, the UK is an open market where American power-houses have successfully monopolised.

The first way to resolve any problem is to be honest about the scale, and the sad truth is the UK is a backwater of the internet.