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Erase the middleman in one easy lesson

By David Kirkpatrick

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(FORTUNE.COM) -- Stelios Haji-Ioannou does not call EasyGroup, his rapidly growing collection of low-price companies, an Internet business. To him it's more about economics. Each of his firms -- first EasyJet, a hot European airline; then the EasyCar rental and EasyInternetcafe chains; and, in the works, EasyCinema --competes only in industries in which lower prices will cause consumers to buy more, more often.

But Stelios (his nom de biz) is almost obsessed with technology, and only the Internet Age could have allowed him to give birth to his businesses. Stelios belies the conventional wisdom that Internet innovation has slowed. He says it was only around 2000 -- when dot-com stocks crashed--that a critical mass of online consumers came into existence to make his kind of company possible. Clearly we're just starting to understand what an Internet company really is. Stelios is marching through a variety of industries, demonstrating opportunities to take out costs and to continue the assault on middlemen with technology. And he's doing it well. Publicly traded (on the London exchange) EasyJet, with 64 jets and 120 more on order, had revenues last year of $765 million. Private EasyCar and EasyInternetcafe together grossed an estimated $70 million.

His formula is simple: Look for services with high fixed costs, price elasticity --meaning that consumers will typically buy more if prices drop--and the ability to be ordered over the Internet. Then create a frill-free offering that gives consumers few if any choices. EasyJet has only one class of service; EasyInternetcafe ditched its printers because they demanded too much maintenance; EasyCar rents only one class of car and requires that it be returned, clean, to the same location. Says EasyGroup chief technology officer Phil Jones: "We don't aspire to be all things to all people. We do one thing very well at low cost."

The car-rental business is a perfect example. Launched in April 2000, it now has 7,000 cars at locations across Britain and Europe, and plans for 12,000 cars by year-end. Avis and Hertz count hundreds of thousands in their fleets, but Stelios isn't trying to copy the big guys. A typical EasyCar rental center is one person in a van with a laptop connected to the Internet operating in leased space in a parking lot. "I believe we've removed half the cost base of Hertz and Avis by eliminating people and lots," he says.

EasyGroup executives obsess about managing yield. They sweat over the percentage of their assets -- airplane seats, cars, Internet terminals -- in use at any given time. And they tie pricing to those figures. EasyCar rates adjust hourly and range from about $4.75 to $79 per day. The price depends on the percentage of cars booked for the time slot selected--order in advance and you're more likely to get a lower price. Says Stelios: "The skill is to charge enough to never run out of cars. It's a never-ending battle of fine-tuning." EasyCar claims an average utilization rate for its cars of more than 90 percent, much greater than that of a typical rental company.

There's another key to EasyGroup's approach: Use industry-standard, off-the-shelf technology whenever possible. The total IT expenditure so far for EasyCar is less than $3.2 million. EasyJet has kept its costs low by building its own simple and cheap reservation system. "We run our businesses on nothing more than glorified PCs, and in general do it ourselves," says Stelios.

The company learned the hard way the dangers of vendor lock-in. EasyInternetcafe early on signed an exclusive deal with Hewlett-Packard, partly in return for a substantial venture investment and for HP's help in financing tech purchases. The annual cost to support each PC rose in three years to $10,000. Meanwhile, the business lost a total of $126 million. Today, following acrimonious negotiations (HP is no longer an owner), EasyInternetcafe uses simpler, though slightly less capable, systems, and the cost per PC has dropped to about $2,000.

At lunch recently Stelios bubbled over with new ideas. Consumers today are even more interested in low-price services, he says, and the technology that makes it all possible has never been cheaper. He hopes to open the first EasyCinema outside London shortly. It will have few employees; customers will print out tickets at home or from lobby terminals and will be admitted by a bar-code scanner. Pricing will vary not by age but by showtime and how far in advance viewers purchase. Holding him up is the resistance of the movie studios; Stelios says he anticipates a legal battle. Other new ideas include a low-cost hotel chain called EasyDorm, an EasyBus service, and EasyCruise. "It's a great time to have a clean sheet of paper and some know-how rather than a lot of infrastructure already in place," he says. That was a common theme in the late '90s; it's truer than ever now.

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