PHILADELPHIA
EUSINESS o philadelphia.bcentral.com
JOURNAL
Tech
Consultingfirms wane amid dot-commeltdown
PETER KEY
STAFF WRITER
There was a time last year when the
Philadelphia region appeared primed to be-
come a hotbed of Internet and e-business
coruulting.
Fast-growing Internet consulting firms
U.S. Interactive Inc. and Omnient Corp.
had their headquarters in the area. And
Breakaway Solutions Inc. and Alswerthink
Inc., although based elsewhere, had pur-
chased area companies that they planned
on making a big part of their e-business
consulting efforts.
Then came the dot+om meltdown Now,
U.S. Interactive is banJarupt and gone from
the area, Omnient is gone, period, and
Breakaway and Answerthink have reduced
their work forces by 30 percent and 8 per-
cent, respectively.
What does all that mean for the area?
Not a lot economically but plenty in terms
of lost prestige. Also, the firms that have
made it through face a radically changed
market.
On the other hand, these problerrs are
urriversat so it's not as though some sort of
Lnternet+onsulting-services gap has opened
between Philadelphia and other places. For
example, U.S. Interactive competitors Ra-
zorfish Inc., which is based in New Yorlg
and MarcMirst Inc., which has based in
Chicago, have seen their stock prices plum-
met from above $55 to around $2.
Also, the troubles experienced by both
Breakaway and Answerthink haven't
caused the companies to alter their commit-
ment to the area. Breakawav and Answer-
TECHMONTHLY
Finding new ways to consult Answerthink lnc. PresidentAllan Frank.
think still employ about 120 and 200 peo-
ple, respectively, in their Conshohocken of-
fices.
Finally, although a lot of pure Internet
companies have gone away, the Internet,
and the willingness of businesses to use it,
has not. As a result, although Internet-re-
lated information-technolory spending has
slowed considerably, there's still plenty of
it.
That means two things: First, most of the
people laid off by consulting firms as a re-
sult of the dotcom downturn should have
little trouble finding jobs. Second, there is
still plenty of business for IT consulting
BOBFLEISCHHAUER
/ BUSINESS
IOURNAL
firms to do; it's just not the same kind of
business that many were doingbefore.
Jeff Zinser, a vice president with technol-
ogy recruiting firm TexceL/Iriad Group,
said that although the shakeout among In-
ternet and e-business consultants seeurs
unique because of its size, it's typical of
what happens when a technolory becomes
mainstrearn
Back in about 1992 "Internet technolory
belonged to the technologist, which essen-
tially meant that if you warrted to irrcorpo-
rate the Internet into your business, you
had to go to a consulting firrq" said Zinser,
who heads Texcel/Iriads Plvmouth Meet-
JANUARY 1, 2001 83
26-FEBRUARY
ing office.
Since then, he sai4 the companies that
were the consulting firms' clients "have
learned how to do a lot of the Internet tech-
nologies ... themselves. They've gotten
wiser in purchasing, they understand what
they can and can't do better than the con-
sulting firms and they can bring in-house
whatever they want."
One result, he said, is that the market
for Internet-related technolory jobs is still
the same size, but the jobs are in different
locations. Rather than being with the con-
sulturg firms, they're with the companies
that used to be the consulting firms' q.rs-
tomers.
Another result is that many of the con-
sulting firms that were poorly run or had
ruurow specialties or client bases have ei-
ther failed or are struggling to survive.
Ctrief among those are the socalled Inter-
net professional service firms, such as US
Interactive and Omnient. Their specialties
initially were in designing the so-called
front end of Web sites, which is what visi-
tors to a Web site interact witlr.
When Web sites contained mostly infor-
matiorl that was fine. But as they became
more e{onrmerce and e-business oriented,
it became a problern Customers no longer
wanted their Web sites to look nice; they
wanted them to be able to accesstheir data-
bases and, in many cases, the databases of
customerb and suppliers as well.
"Ttrey need to be able to connect the en-
tire supply chain from front to back office,"
said Michael Fliedenberg, publisher of In-
SeeCONJULTING, PageBl8
Consulting
FROM PAGE83
formation Week magazine. Consultants
that can't help them do that, Friedenberg
said, "will have a tough time surviving."
The same is true for consulting firms
that depended on dotcoms for much of
their business. By now, nearly all the ones
that are left have tried to switch their
focus to helping big bricks-and-mortar com-
panies deal with the Internet.
Some, Iike Omnient, made the switch too
late. But even those that made the shift in
time to survive face fierce competition be-
cause all their competitors made the same
shift. Additionally, because of the size of
the customers they are chasing, they find
themselves competing against giant con-
sulturg firms, such as Chicagobased Accen-
ture (formerly Andersen Consulting),
which have a much larger portfolio of ser-
vices.
Although it's relatively new, Answer-
think is in a good position to win those
kinds of battles, because it was founded by
former partners of KPMG Peat Marwick
to be a full-flavor IT consulting firrn As a
result, said Answerthink President Allan
Frank, although the company took a hit
when the dotcoms faltered, it's in much
better shape than many of its more special-
ized peers.
"Even at the peak and heyday (of the In-
ternet boom), dot+oms were never more
than 15 percent of our business," said
Frank, who works out of the company's
Conshohockenoffice.
That was still enough to cause the
Miami-based company some pain Its stock
is around $6 per share, significantly off
from the 52-week high of $AO.S8it reached
around this time last year. Also, in Decem-
ber, the company laid off 150 of its 1,800
people, including about 25 in the Philadel-
phia area, bringing its employment here to
about 200.
StiU FYank said, Answerthinkis pressing
ahead with plans for its global center for
technolory services training and educatiorq
which will be part of the Millenrdum com-
plex being built by O'Neill Properties
Group in Conshohocken
In fact, the dotcom downturn may wind
up making the center larger than it other-
wise would have been. Frank said that
some markets in which Answerthink was
thinking of opening up offices it now has
decidedto serve from this area.
"The growbh we have will focus more into
the Philadelphia region than others," he
said-
Breakaway was mum on its plans for
Philadelphia. But the company didn't lay
off any of the roughly 120 employees at its
Conshohocken office, which it obtained
when it bought WPL Laboratories Inc. in
mid-1998. problems - it decided to exit some un
Breakaway, which is based in Boston, itable business areas last quarter and
may not be as bullish on the Philadelphia an $89.5 million after-tax charge as
area, as Answerthink, however. When it sult - but they didn't stem from the b
arurounced plaru to lay off an additional ing of the Internet bubble.
200 people in December, it attributed its 'We did see a little bit of a slowing
problems, in part, to a dry-up in business in all companies in implementing indu
from companies in which Wayne.based In- specific solutioru, but I don't think
ternet Capital Group Inc. has a stake. had the drastic effect that a lot of
ICG, which owns a stake in Brealaway, companies have had because we're
responded a few weeks later by providing dot+om company and our focus hasn't
the company with secured financing, on the dotroms," said Kristine Gro
though neither company would reveal the public relations specialist \Mith the firm
amount of the financing. That arurounce- The slowdown that Unisys saw ha
ment helped boost Breakaway's stock price, fected all IT firms, not just those
which had been trading below $1 to slightly cializing in the Internet or e-busi
above $2. One reason for it was that as dot<
One reason Breakaway's local operations appeared out of nowhere by the d
escaped the job+uts ax was because they traditional companies felt they ha
focus on systems integration. That is ex- get on the Internet quickly and s
pected to remain a hot area as comparries furiously to do so.
seek to tie more areas of their operations With many dot<oms dying by the
together, as well as to the Internet and side, traditional comparries are now
their suppliers and customers. more cautious in their Internet spen
That should bode well for the region, But while everyone agrees the gold
which has a number of small to midsize in- days for Internet and e-businesscons
tegration shops, including several that are firms is over, few doubt that spending
making pushes to go national, such as business will stabilize and resume gro
Berwyn-based esdvio and West Chester- albeit at a slower clip.
based Visalien Lrc. "The market for e-business consultt
It also, of course, is home to Blue Bell- still the opporttrnity that everyone s
based Unisys Corp., which decided about said Tom Rodenhauser, who runs Co
two years ago to shift its focus to e-busi- ing Information Services LLC, w
ness. The company since has run into some tracks the consulting industry. e