I remember well when the nascent industry of e-consultants first began ving to
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
, 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
, U.S. Interactive
, and iXL
, 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
again sing for their supper.
Any questions or comments, love letters or hate mail? As always, feel
free to forward them to [email protected].
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