Glory Days Are Fading Fast for Web Consultant Firms as Bigger Players Muscle In
E-consultants came seemingly from nowhere during the dot-com boom, offering clients the cachet and technical smarts they insisted would reap Internet success. A number even went public, issuing shares that went stratospheric in the late ‘90s Nasdaq.
But e-consulting is on the skids, joining many of the Web upstarts that relied on its services. Industry standouts like Razorfish Inc. and Viant Corp. are suffering significant layoffs, and their share prices have plummeted more than 90% in the past year.
E-consulting’s hook was the notion that traditional business consultants couldn’t understand the Internet. But then a funny thing happened: The dot-coms that were keeping many consultant firms alive either folded or grew up and discovered they needed more sophisticated technical and financial know-how offered by bigger firms.
Those diversified consultant firms--many with large accounting and technology practices to complement their strategy work--are muscling back onto the Net, often after picking up cast-off workers from e-based upstarts.
“People left the Big Five [accounting firms] thinking we’d have more freedom to do what we wanted, we’d get into the more leading-edge technology,” said Quang Nguyen, who recently returned to PriceWaterhouseCoopers after eight months with a private Northern Virginia consultant that he said lacked resources for big projects.
“But the reality is not like that when you join a start-up without much funding.”
E-consulting is a catch-all term for high-tech consulting, and it encompasses a variety of vague, jargony terms like “business solutions provider” and “systems innovation.” Some in the category focus mostly on Internet strategy--designing and managing Web sites--while others do more in-depth hardware and software work.
For most small companies in the field, the past year has been a disaster.
Last month, San Francisco-based Scient Inc. laid off some 460 employees--25% of its work force--and announced plans to close offices. Razorfish, headquartered in New York, said last week it would cut 400 jobs, or 21% of its work force. Perhaps most spectacularly, Marchfirst Inc. has laid off 1,750 workers in three rounds of cuts since November.
Razorfish on Thursday posted a net loss of $158 million, or $1.63 a share, for the fourth quarter of 2000. Boston-based Viant last week reported a quarterly loss of $7.1 million, or 14 cents, down from a 7-cent-per-share profit a year ago.
Viant shares are down from a peak of $133 to under $4 last week; Razorfish has fallen from $57 to under $2, and Marchfirst, based in Chicago, is trading at less than $3 after peaking at $80 in December 1999.
“They were riding a wave, and when the wave crashed they weren’t strong enough to support themselves, and get back and find the next wave,” said Tom Rodenhauser, editor of Inside Consulting Newsletter.
Many e-consultants, Rodenhauser says, were unhealthily dependent on their own venture capitalists, who handed them not only capital but clients.
“A year ago, they were bragging about how much business they were turning down,” he said. “Anybody who has been in this business knows at some point you have to go out and get some business.”
Business has come easier of late to the bigger firms, which include the consulting wings of IBM Corp. and Hewlett-Packard Co., and the Big Five accounting firms.
One of the Big Five got an endorsement of its e-business consulting focus on Thursday. KPMG Consulting, a spinoff from accounting giant KPMG International, saw shares in its initial public offering on Nasdaq climb 30%.
“There’s still a huge amount of opportunity,” says David Yokelson, senior vice president at MetaGroup, a market research company, which also has a consulting division. “However, the big guns are much better equipped to deal with the heavy stuff.”
The heavy stuff includes long-term engagements with “end-to-end providers,” which do everything from setting up Web sites to buying hardware to even joining clients in financing ventures.
“These are big engagements, multimillion-dollar engagements,” says Terrence Tierney, vice president and senior research analyst at US Bancorp Piper Jaffray. “They’re longer term, more infrastructure-oriented.”
The transition hasn’t gone perfectly for the big companies. PriceWaterhouseCoopers, for instance, recently laid off 400 consultants, reversing a hiring trend that expanded its ranks by 1,800 consultants since July. And a bid by Andersen Consulting--since renamed Accenture and the world’s largest business consulting firm--to split off from parent Andersen Worldwide hit numerous roadblocks before being completed last August.
“Our world gets more complicated,” says Grady Means, managing partner of PricewaterhouseCoopers strategy consulting practice. “It’s a much more interesting business as it evolves, but it also requires much more scale and financial stability.”
The e-consultants insist they aren’t dead yet and can offer just as much as the bigger players--if they just get a chance to make their case.
Randall McComas, an IBM defector who heads Scient’s global telecommunications practice, insists Scient still offers clients more than bigger companies and is better positioned to apply dot-com lessons to big brick-and-mortar corporations now serious about e-commerce.
Tierney says the new wave is integrating diverse business systems, something at least some of the smaller companies can handle.
“Anyone that catches that wave will be fine,” he says. “There will be a number of zombies that will continue to trade, but won’t grow. And some will go out of business.”
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