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In interactive business pitches, a rivalry is escalating between interactive agencies and new competition from system integration companies.

Interactive agencies say they are seeing non-traditional companies like Andersen Consulting, Electronic Data Systems Corp. and IBM Interactive Media in the same client pitches. The clash seems especially prevalent in accounts where back office and technical needs are greater than just Web site design and hosting.

"The design component is so minuscule compared to the back-end component in some of these jobs," said Glenn Meyers, president and CEO of Rare Medium, New York. "Those interactive agencies that can provide a full solution are going to be the winners at the end of the day."


Dana Tower, analyst with Forrester Research consultancy, said part of the reason why the friction is building now is because both Web developers and system integration companies are beginning to add each other's capabilities and battle for the same clients.

"I think there's a year of sorting out there between information technology companies and Web design shops -- what Forrester calls marketing meets IT. . . . The IT companies seem to have the advantage because they have worked with the big [clients] and at least have relationships started and know they can work together," Mr. Tower said.

New York interactive agency K2 Design used to run into systems integrators in pitches, especially in situations where a potential client was trying to outsource parts of its project piecemeal to vendors.

"It used to happen if a company was looking for a vendor and not a strategic partner," said David Centner, CEO of K2. He said the agency now tries to avoid those scenarios by seeking clients who want long-term comprehensive services.

Some Web agencies, such as U.S. Interactive, New York and Philadelphia, which garnered 25% of its revenue last year from consulting, have found a niche partnering with systems integrators, rather than competing with them. "We find ourselves working in tandem with [systems integrators] and augmenting their capabilities," said Rob Kost, exec VP with the consulting and strategic planning division at U.S. Interactive. "We have a specialized expertise that's customized toward delivering the end product."


For instance, consultant Booz, Allen & Hamilton recently hired U.S. Interactive as a subcontractor on various government accounts. Likewise, for its client Network Solutions, a domain name registry, U.S. Interactive developed a marketing and product plan, and hired KPMG Peat Marwick to work on the client's Web site infrastructure.

Still, Mr. Kost said he can see how agencies and systems integrators are clashing in pitches; the industry and the needs of the market are growing so quickly that nobody is sure where territory boundary lines should be drawn. "The pie is growing faster than the parties' ability to subsegment the pie," he said. "It's turning the whole idea of competition on its ear.

"The shape of the pie is changing, too. E-commerce is the word du jour and as time goes by there will be others."

When giant information specialist EDS' interactive agency c2o stormed onto the scene last year, opening its doors with more than 150 on staff, it was unclear how this would affect the parent company's relationship with agencies.

A year later, the Dallas-based c2o has doubled in size and said that it made a profit for the fourth quarter of 1997. But c2o President William R. "Butch" Winters said the conflicts with interactive agencies never materialized because his company is focused on business-to-business projects, leveraging its relationship with EDS and EDS' consulting unit A.T. Kearney.

"It definitely plays heavily into the business-to-business side," said Mr. Winters. Meanwhile, "You have a lot of interactive agencies chasing elusive dollars with Disney and Warner."


Its clients include DuPont Corp., the Detroit Symphony Orchestra and Ziff-Davis' Comdex conference. But c2o said it's also about to announce some major consumer projects.

Similarly, IBM has made inroads in generating interactive projects. "The design piece and the development piece are so often separated out," said Jeff Ramminger, business development executive for IBM Interactive Media. "But we've found that can be very problematic in trying to hand off projects . . . so we've integrated the two."

IBM Interactive Media's clients include Border's Books & Music, Hertz Corp. and Merrill Lynch & Co. About half of its clients initially came for the IBM technology, but others have signed on once they've seen the group's design skills, Mr. Ramminger said. Of the 400 employees in the group, about 120 are visual and design specialists.

While companies like IBM and EDS are the obvious 800-pound gorillas of the systems integrator space, there are also second- and third-tier information technology companies that are competing with interactive agencies.

Mr. Meyers said he believes the fiercest competition will come from medium-sized companies like Cambridge Technologies and Sapient who can afford to compete for modest budgeted projects.

Mr. Tower said, "I guess the deciding question over time is will the client eventually want everything from one place?"

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