New kids on the digital block
By RICHARD POYNDER
1 March 2000
There is a new race in cyberspace. As corporate enthusiasm for e-commerce grows, technology companies and consultancies are jostling for a slice of the lucrative business of re-engineering corporate IT systems for e-business.
The identities of the early leaders are raising eyebrows. The large systems integrators and "big five" management consultancies might have expected to win the bulk of this work. To their chagrin, however, they are increasingly finding themselves elbowed aside by a new generation of smaller companies.
A recent report published by ITEuropa.com, the research company, has christened these upstarts "interactive architects". According to Max Hotopf, editor of the report, their unique competitive edge is based on their ability to provide expertise not just in the specialist IT skills needed to integrate corporate back-office systems into e-commerce applications, but also in marketing and strategic consultancy, as well as web design.
"Until recently people tended to specialise in just one of these areas," says Mr Hotopf. "There was no one capable of offering all three."
Many interactive architects, like US Web/CKS, Agency.com and Razorfish, are US corporations that have expanded overseas. Others, such as Berlin-based PixelPark, the French Le Studio Grolier and UK-based Blueberry New Media, are local companies serving national, or regional, markets.
In addition, there are a handful of European companies - mainly Scandinavian - that also harbour global ambitions. "Sweden's Icon Medialab and Framfab are the two largest interactive architects operating in Europe today," says Mr Hotopf. "They have grown on the strength of the Nordic market, and now see a huge opportunity to go international."
Most started out as small creative agencies specialising in the design of corporate "brochure ware" sites. But as their clients have embraced e-commerce, so they have acquired new competencies. "We began as a web design company in 1991," says Christoph Geier, executive vice-president for systems and technology at PixelPark. "But we soon realised that our customers were going to need to integrate the internet into the overall strategy of the whole company, and that this would require us to expand into strategic consulting and IT as well."
With their broader skill-set, interactive architects now frequently out-pitch their larger competitors. "We often find ourselves up against large consultancies like McKinsey; and we often win contracts against them," says Dr Geier. "This is because they have to team up with a systems house like IBM, whereas we can offer a one-stop shop, and a more integrated approach."
According to Mark Curtis, European vice-president for skills and vision at Razorfish, interactive architects also bring a more modern strategic perspective. "The vital component that we offer is a digital vision," he says, "whereas many traditional companies still use an industrial-age model of consulting: they have yet to grasp the full implications of the digital economy."
The new generation also better understands the need to mould technology to the user experience, says Ian Black, head of communications at BAe Systems, who recruited Razorfish to help develop BAe's web activities. "We found Razorfish to be more focused on what we are very passionate about, which is that it doesn't really matter how good the technology is, what matters is how you interface that technology with a human. Systems integrators are generally hopeless when it comes to graphical interfaces, or general purpose public access on the internet."
Conscious that they are being left behind on the digital high road, however, systems integrators and management consultants are determined to catch up. "These larger companies have been caught napping, which is going to hurt them," says Mr Hotopf. "But they now recognise that they have to develop these new skills themselves, or acquire them."
Last December, Cap Gemini announced that it was launching a new 1,000-person e-business unit designed, said Pierre Hessler, Cap Gemini board member, to "beat the pure players at their own game".
In the same month PwC, the consultants, bought a 50 per cent stake in Evisor, a Belgian web designer, and in January International Business Machines announced plans to build a portfolio of global "Centres for IBM e-business Inno-vation".
The aim, says Lee Morgan, director of e-business services for the distribution sector, IBM Global Services, is to create small, self-contained environments in which the full range of competencies needed for develop ing e-business applications can be effectively brought together, and become "as fast and as nimble as the new interactive architects".
He adds: "I wouldn't disagree that some of these new niche players have made some significant inroads, and won some significant business, but IBM defined e-business a few years ago: we built this space, and quite frankly we are going to claim it back."
However, not everyone is convinced that, in the long run, the wide spread of skills espoused by interactive architects can be efficiently delivered by one company alone.
"Certainly e-commerce applications demand a very wide skill set, and today there are companies trying to provide all of those in a one-stop-shop environment," says Heather Stark, principal consultant at Ovum, the research company. "But there are highly skilled specialists in each of the component areas competing for the business, so they will need to demonstrate best-of-breed capabilities in each area."
John Lythall, managing director of IS Solutions, a UK-based systems integrator, believes that interactive architects are a short-term phenomenon, engendered by the state of flux introduced by the web.
"While things seem to be coming together now, the market will split again," he says. "There will be at least two types of business: one for the technology, and another more marketing and media-oriented. The IT component of e-commerce will pass back to the systems integrators."
Whatever the future holds, these new companies are growing at breakneck speed today, with the leading companies experiencing year-on-year sales growth of 60 per cent, and more. "The problem we face is that of handling all the business coming in," says Bjorn Westerberg, managing director of Icon Medialab, Sweden. "We are experiencing huge demand from so many different customers, and the projects are getting bigger all the time."
This explosive demand has triggered consolidation, with new deals being announced practically every week.
"I expect to see a lot of acquisitions in the near future because all the players in the market are going to have to grow very rapidly, and given the speed of development it won't be possible to do this through organic growth," says Dr Geier, "So 2000 will be a very important year for the development of the industry."
Ironically, with large interactive architects such as Razorfish and Icon Medialab already employing more than 1,000 staff, and traditional players acquiring the skills they lack, there could soon be little to choose between old-style systems integrators and consultancies, and the new interactive architects.
In the short-term, however, rising demand, coupled with a finite pool of skilled personnel, suggests that the battle will be fought as much over staff as over contracts. "The most important thing for our management team is to nurture an attractive culture in order to ensure that people want to work at Icon Medialab," says Mr Westerberg. "We have a lot of large companies in Sweden, and the war for talent is becoming extremely fierce."
In fact, staff retention could well prove the key to survival, says Mr Hotopf. "The winners will be those companies who have the culture to attract and retain staff."