: internet enterprises :

We substantially accelerated the pace of investment in our internet activities last year, although we also remained very selective about the projects and initiatives which we were prepared to support. The impact of this higher investment can be seen in both the sales and net investments attributable to our internet enterprises in the course of 2000.

Pearson’s internet enterprises are discrete services which generate pure online revenues and which incur costs that are capable of separate identification. They are concentrated in the FT Group and education, and an analysis of their performance in 1999 and 2000 is shown below:

The biggest area of investment last year was FT.com, which spent heavily on marketing in order to raise awareness of the brand. This strategy appears to have been successful, with substantial growth in both unique monthly users and in monthly page views (see page 28). We expect the net investment in FT.com to be substantially lower this year as revenues, and particularly non-advertising related revenues, should again show a dramatic increase, while costs associated with marketing and tech-nology support will be much lower.

Our principal initiative in the education field is Learning Network, our consumer education portal. Learning Network’s revenues were very small in 2000, as the portal was only launched towards the end of the year. We expect a much higher level of revenue in 2001 as Learning Network converts the already very substantial level of traffic to the site into customer relationships and revenue.

The accelerated investment is already driving up revenue in this area – last year internet enterprises contributed revenues of £45m and we are looking for a good deal more this year. Our confidence in the revenue growth prospects, coupled with our ability to manage costs aggressively at short notice, have encouraged us to project break-even for the FT Group’s internet enterprises as early as the last quarter of next year, and break-even for Learning Network just 12 months after that.

We have established a number of specific performance indicators for these businesses. We focus heavily, for example, on the quality and loyalty of the internet audience as measured by the number of pages viewed during a visit, the average length of stay on the site and the frequency of return visits. We set targets by reference to these indicators and continue to fund the businesses only as the milestones corresponding to these targets are achieved.

As these businesses become established and demonstrate their viability, the more familiar and traditional financial measures – revenue growth, profit and loss, and cash performance – become relevant and are used to assess performance. We have reported on the financial performance of our internet enterprises as a separate item within our operating profits, to provide greater transparency to shareholders. The internet is becoming increasingly integral to all our businesses. As our internet enterprises mature the distinction between them and our more established activities will become less appropriate.