Demand for Net services spawns big, new players

By Published on .

Most Popular

Companies are sensing an urgent need to move more--or all--of their businesses online, making Web site development a more complicated and expensive endeavor.

Stepping up to the challenge is a variety of new or repositioned Web developers, presenting marketers with more choices about what type of company should provide their Web presence.

Internet services firms have sprouted like daisies to soak up the demand for advice. Traditional management consulting firms such as Andersen Consulting and advertising agencies such as Young & Rubicam have parlayed their prestigious client rosters into powerful Internet consultancies within their firms.

And hundreds of smaller creative and systems engineering firms have been acquired by the likes of, one of the growing breed of Internet consulting agencies, or rolled up to form new conglomerates with thousands of employees, such as Luminant Worldwide and iXL Enterprises.

"Most of these [Internet consulting] companies didn't even exist five years ago," said Tom Rodenhauser, founder and president of But with the explosion in demand for their services, Rodenhauser said, "none of them has to go looking for clients."

The size of Luminant, a giant, eight-company roll-up formed last fall, was overshadowed within months by the $6 billion merger of Whittman Hart and USWeb/CKS into an 8,000-person company now known as MarchFirst.

These companies offer everything from designing and building Web sites to business strategy, back-office systems development, programming and maintenance of a company's Web operations.

What it means to marketers

The merger and acquisitions trend "has got to worry the client somewhat," Rodenhauser said. "In contrast to the reliability of a firm with a fairly monolithic culture, at post-merger companies, what you get is really the luck of the draw."

Rodenhauser said the wave of consolidations is nowhere near its crest, and that in place of the mega-agencies, the real powerhouses when the dust settles may just as likely come from the ranks of midsize companies like Lante, Groundswell, and Nervewire, that combine an appreciation for fundamental business processes with a stockpile of technical and creative talent, if not the scale of MarchFirst.

Still, despite the consolidation trend, the number of Internet services agencies worldwide has ballooned to an estimated 10,000, a figure one might expect to put downward pressure on prices for services. Instead, there has been a jump in the cost of the average project.

"A year or two ago, I would have told you that if you want to do any sort of Internet venture, plan to spend $1 million," said Peter Kestenbaum, VP-strategy at, an Internet consulting agency. "Today, that figure would be more like $5 million to $10 million."

The reason, however, has to do with more than the growth in the number of prospective clients. Today's clients, Kestenbaum said, are asking for a broader range of services, including sweeping reassessments of company strategy and support in areas like branding, marketing, Web design, as well as inventory tracking solutions and other logistical needs.

In response, most firms have sought to broaden the services they provide. The largest agencies are bidding to become catch-all service providers so they can outlast competition from both traditional advertising agencies and companies steeped in technical areas like systems integration.

Even midsize agencies such as and San Francisco-based Modem Media are trying to compete by branching out beyond their core businesses.

With about 500 employees following its merger last year with Poppe Tyson, Modem Media is best known as an Internet advertising and marketing agency, with clients such as AT&T, Citibank, IBM, Intel, and in Europe. In an effort to hang on to those clients, Modem Media spent $64 million last winter acquiring Vivid, whose strength is in systems integration.

How to choose

How should marketers choose a Web developer in this new environment? The recommendation from agencies across the spectrum: Companies should identify their needs carefully by internal means before seeking outside help.

The most effective way, said Eric Antonow, director of strategy for Chicago-based agency Giant Step, part of the BCom3 Group of Cos., is to commit one staff person exclusively to the task. "The damnation for most companies," Antonow said, "whether small, medium or large, is making these decisions by committee. The key is to entrust someone with the task and let them do it."

Should companies ever take the project in-house? If you have the right IT skills and can afford to reassign staff from other projects, it may make sense, Antonow said.

"But the biggest challenge for most senior management is to recognize both the opportunities and the threats that they face from their competitors if they don't get the Internet right. Too many companies continue to think from their perspective rather than that of the end customer."

Finally, Antonow said, companies should limit the number of agencies that handle their business because accountability is greater when a firm knows it is the only one working on a project.

"When you bring in lots of firms you end up playing general contractor," he said.

In this article: