RealTime IT News

Scient, Viant, Organic, Oh My!

I remember well when the nascent industry of e-consultants first began parading through the IPO pipeline. Thousands of graybeard Web designers, around since the earliest days of the Net, suddenly commanded respect in the new issues market while investors hoisted the group on their shoulders, minting millionaires of them all. Pioneering companies like Organic had been the creative mind behind Web site milestone's like McDonald's , back when underwhelming Big Mac brochureware was still in vogue.

It all seemed a bit odd to see investors finally giving this group a collective thumbs-up after years of little to no recognition. But as flavors of the month go, e-consultants got the spotlight for a full fifteen minutes, and with it, a crowded field of me-too competitors that only a frothy market could sustain. With the confetti swept up and champagne losing its flavor, it was back to work for publicly-traded e-consultants to try and support those lofty valuations recently awarded by investors.

The exhaustive who's-who list of mouths-to-feed included the likes of Viant , Scient , Sapient , Proxicom , AGENCY.COM , Razorfish , U.S. Interactive , Lante , Luminant , and iXL Enterprises , while a few industry veterans like Andersen Consulting, KPMG Consulting, and marchFIRST also elbowed their way to the feeding trough. While business was booming and many of the newcomers were nearing profitability, the industry's success as a whole was riding the coattails of thousands of vulnerable dot-com start-ups. And that knife would cut both ways.

E-consultants made money hand over fist from the thousands of nascent Internet start-ups looking to establish a sexy Web presence. Egged on by the lucrative cycle of venture capital and public markets, e-consultants began taking on far more business than could be handled. In addition to charging hundreds of thousands of dollars, e-consultants also took equity stakes in many of their portfolio clients in exchange for Web design services, in a sense making them pseudo-VC firms.

Investors have since soured on many struggling publicly-traded plain vanilla Internet firms, and with it, venture capitalists have stopped financing thousands of privately-held companies in similar industries that were the most prominent clients of e-consultants. Like a domino effect, as the money dried up in the private sector, fewer companies could afford to shell out the big bucks for Web services, and the aftermath didn't take long to find its way to e-consultants' bottom lines.

A large number of the aforementioned Web consultants have been quietly slashing and burning next quarter's earnings estimates. Organic, Viant, and iXL have all gone from a projected profit to bleeding losses in the last week, while underwriters and analysts have been busy dishing negative ratings on the group. It's a telling illustration of the dot-com food chain, how quickly bigger fish can become fish bait, and how fragile an environment the new economy can be.

One thing's for certain - the days of e-consultants freely commanding exorbitant cash and equity payments from naive cash-wealthy Internet start-ups has cooled; and with it, a good part of the explosive bottom line revenue growth enjoyed by e-consultants. That should translate into a move toward significant consolidation for this industry that now finds itself with far too many role players to support. And the group of Web designers who went from the doghouse to the penthouse almost overnight are now waking up with a hangover and sagging valuations that will find them ha