Easy does IT
The easy empire has built its business on cyber pillars. Karl Cushing takes a look at the success of this online phenomenon.

Offer Stelios Haji-Ioannou a slice of humble pie and he's likely to wolf it down quite happily. After all, this is the man who once declared that the Internet was "just for geeks", then promptly made a fortune by using this new channel to enable easyJet, the no-frills airline he founded, to interact directly with its customers and reduce costs.

The company, founded in 1995, honed its direct approach by getting customers to buy flights, instead of just reserving them, over the telephone. Customers were not used to this approach and the company deliberately set out to change consumer behaviour, using the incentive of low prices. It worked.

The problem was that the contact centre-based system was relatively expensive. So the company set about migrating its customers onto a lower cost channel, the Internet.

The first Web site, launched in April 1997, "was quite basic - a toe in the water", says easyJet's Web manager Simon Pritchard, and carried a phone number that wasn't available elsewhere. It was around this time that Haji-Ioannou made his "just for geeks" comment and proclaimed that the Internet couldn't fill his planes. However, the traffic figures for the site proved encouraging enough for Haji-Ioannou to change his tune and in April 1998 the company started selling on the Internet.

Initial take-up was slow and by May 1999 the percentage of sales carried out over the Internet was still only 15%. Pritchard says people would use the Web site to find prices and flight times and then telephone the contact centre to book. People were unsure of the channel and there were concerns over submitting credit card details over the Web. So the company set about persuading its customers to book online, using "a combination of carrot and stick".

The biggest carrot was cost. The sticks included allowing people to book flights less than one month in advance only on the Internet and putting the best deals online. The Internet site is also the sole focus of the company's public relations drive - it hasn't advertised a phone number in 18 months. "We've very much gone out there and said we're doing the Internet because it suits us and it suits you and explained why," says easyJet's head of e-commerce Alastair Gilchrist.

The approach has worked. By December 1999 the Internet accounted for about 50% of sales. That figure is now 93% and in the 12 months to February 2002 the airline moved eight million people and conducted £350m worth of business on the Internet. And the company is not averse to crowing that it is one of that rare breed of Internet ventures, namely a profit-making one.

As sales rose, easyJet was forced to expand and this is where the company's Internet strategy really took off. As Gilchrist explains, the company could not expand its existing contact centre at Luton Airport as both funds and space were limited. It also wanted to keep everything under its control and in one place, so outsourcing was not an option either. There were added concerns about the scalability, cost and limitations of the contact centre-based model, so easyJet chose to push more traffic onto the Web.

"It's cheaper, more efficient and it's easier to cope with peaks and troughs," says Pritchard, and the company can disseminate real-time information, presented in a "much more logical way".

Easy ascribes its success to its policy of avoiding gimmicks and keeping its business model simple and focused. "We haven't been seduced into some of the new sexy ideas out there that cost a lot and only appeal to a relatively small number of people," says Pritchard. So you won't find flash graphics or additional travel-related content cluttering the site.

The company is loathe to implement technology for technology's sake and hasn't invested in other channels such as SMS or interactive TV. "We were very focused," says Gilchrist. "This was an e-commerce site and we wanted to make it the fastest and easiest way to book a seat online."

Another reason for its success is that airline tickets are one of the easiest things to buy online and there's no fulfilment element, as with a book or a CD-Rom. No ticket is issued to easyJet customers, they simply print out their ticketing details and reference codes and take it to the airport and even this isn't obligatory. And easyJet has benefited from being one of the first airlines to sell tickets online.

The success of its airline venture led the company's charismatic founder Haji-Ioannou to found the easyGroup in late 1998, in an attempt to leverage the brand and further exploit the Internet. James Rothnie, the group's director of corporate affairs, says, "The Internet is the synergy of the easyGroup. It's a great tool for cutting out the middleman as it puts the customer directly in touch with the supplier and if you can outsource some of the work to the customer it reduces some of your costs."

The first group venture, a chain of Internet cafés called easyEverything - since renamed easyInternetCafé - was launched in summer 1999.

"Conventional wisdom said that Internet cafés were obsolete as everyone was already online but we disagreed," says Rothnie. "We decided there was a latent demand out there and we've succeeded by applying supermarket economics to this cottage industry." He says that economies of scale and yield management are two of the group's strengths and it was certain it could make a go of it.

The cafés are visited by two million people a month globally and busy outlets such as the Tottenham Court Road branch in London have about 5,000 visitors a day, says Rothnie. However, he admits that "it's not a profitable company".

He says the company made a big mistake in adhering to the dotcom maxim of "growth before profit" and it expanded too quickly, opening too many branches in the same city and offering too many niche services such as printing facilities and the ability to order coffee when around 80% of users just want to use e-mail. "We were slowly adding complexity and we saw our costs spiralling out of control," he says. Subsequent attempts to put up prices "chased people away" so instead the company refocused on "the fundamental principles of our brand" and cutting costs.

The next venture, easyRentaCar - thus named to avoid confusion over the fact it was renting, not selling, cars and since changed to easyCar - was set up as an Internet-only enterprise in spring 2000. The company claims it was the first online-only car rental service. Although it has since set up a phone line, like easyJet it tries to deter callers by charging 60p a minute and only allowing customers to book more than a month in advance - any nearer the time and they have to book online.

It soon became clear that the nature of this business was going to be more complex than with easyJet as "at easyCar you're actually giving them a £16,000 car and hoping they bring it back undented," explains Rothnie.

This created problems and there were several stories in the press about customers returning cars and then finding that they had been billed for alleged damages to the cars months later. Rothnie acknowledges this fact. "We weren't tight enough on our procedures when cars were returned," he says.

Next up was easyValue, an online cost comparison tool. Launched in November 2000, Rothnie says it is the group's only pure dotcom enterprise. The original idea was to base the business model on advertising revenue and charging suppliers commission but that didn't prove possible. The goal now is to make it a subscription-based service. That'll happen "in due course - once there are enough users and the site is robust enough", he says. In the meantime it is growing the site by adding categories such as flights.

EasyMoney, which Rothnie describes as a "dynamically personalised credit card", had a soft launch in November 2001 and will be marketed properly soon. Users can adapt the card to suit their needs by altering the settings online. Rothnie says the real target market is commercial lending, however, as "that's where the money is," he says.

The initial aim is to build up slowly and acquire customers steadily. It won't try to make a big splash and offer subsidised high rates to attract customers. He says the company has a more efficient cost structure than its rivals so it can offer better rates. This is a cornerstone of easyGroup policy, says Rothnie. It will only enter a market if it feels its cost structure will be half that of its competitors.

The group also runs a free e-mail service, easy.com, and plans to launch more ventures soon. An online cinema ticket booking site, easyCinema, and a room booking service aimed at the youth hostel market, easyDorm, are currently at the feasibility stage. If easyCar, which now has 17 sites in the UK, France, Spain, the Netherlands and Switzerland, breaks even and easyInternetCafé becomes a "cashflow positive business" this year, Rothnie says the group will launch another venture later this year. To speed this process it is looking at franchising out some of its Internet cafés and forming "gravity clusters" in key European cities with the remainder.

Rothnie says the "easy" model's real strength is reducing costs without compromising hardware. "We just remove all the frills and concentrate on the core competence of the business," he says.

And the company never ducks out of a fight. "Remember we started out in the airline industry. We never shy away from competition," he says.

Expect more easy wins in the not too distant future.

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This was first published in April 2002

 

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