It is no longer news that the Internet economy is big business--bigger than the telecommunications industry, bigger than the airline industry. Revenues generated by all aspects of online business exploded 68 percent to a projected $500 billion in 1999, according to The Internet Economy Indicators report issued last October by the University of Texas' Center for Research in Electronic Commerce. Online sales accounted for an estimated $176.4 billion. Yet those figures hide a sobering truth: In the Internet economy, Fortune 500 companies can be outflanked competitively by three geeks in a garage in Dubuque.
Whether the field is retailing (Amazon), travel (Travelocity), mortgages (e-Loan), groceries (WebVan) or almost any other category of commerce, startup Web ventures have challenged traditional market leaders and threatened to turn their business propositions upside down. In a replay of the Biblical story, Web Davids are taking aim at brick-and-mortar Goliaths- -and in many cases have hit the mark.
But now the giant is waking up. Traditional market leaders in every business segment have recognized both the risks and opportunities presented by Internet commerce, and are scrambling to respond with strategic initiatives to open new electronic channels while seeking to protect their existing revenue streams.
When the data glut drove sales of the venerable Encyclopedia Brittannica to an all-time low, the company decided this fall to make content available online at no charge through an advertising-driven Web site--a move seen by some as less a strategic ploy than a desperate bid to retain Brittannica's brand relevance. For every retail visionary like Lands' End, which has boosted sales through a Web site offering a virtual model customers can use to "try on" clothes (and suggesting outfits based on their descriptions of their body type), half a dozen other mail-order retailers are cannibalizing their existing markets by simply sticking their catalogs online with no thought of how to attract new buyers.
Implementing successful online strategies is much more complicated for traditional players than it is for startups. Constrained by existing processes and relationships and encumbered by outdated business assumptions, many traditional corporations are ill-equipped to integrate Internet models into their business strategies. And those who don't get their Internet strategy right the first time may not get a second chance.
strategy and tactics
"Time to market is critical. Companies can be put out of business in six months if they don't get their site up and running," said Justin Behar, an e-business services industry analyst for Gartner Group/DataQuest. "But the reality is that the internal IS shop usually has so much to support already that they can't do it, and no one in-house has the experience to understand how it's going to change their business. So it works best to source it out."
Enter a new breed of consultant- -professional service firms that specialize in creating and implementing Internet strategies for companies ranging from tiny "pure play" startups to Fortune 500 behemoths. These "Web integrators" combine the strategy savvy of high-end management consultants with the technical know-how of IT consultants and the creative fire of advertising agencies. While many existing firms have added Web strategy practices to their traditional services, a new category of firms with names such as Viant, Scient, Razorfish, iXL and USWeb/CKS is dedicated to this booming new market.
"We did an internal study and found an average 10 percent more ROI for the first movers in a market, because they developed the competitive ground rules," said Panna Sharma, senior vice president of corporate strategy for iXL, Inc. "But what is the client's opportunity to innovate when the early movers are already out there? How do you disrupt market momentum? Do you integrate the value or supply chain, acquire talent, do a new brand play, [create] new products or services or let a market mature and place strategic bets on the other players? The bulk of our revenue is in implementation, getting clients online and then transferring that knowledge."
By working with one of these Internet professional services firms, a company can do more than make its online debut. It can use the consultants' expertise in e-commerce and the impact of the Internet on marketing and customer relations to turn its existing knowledge into new opportunities.
"The files you keep on your PC are assets that you and your company have accumulated, and we help you figure out how to leverage them," explains Chirag Patel, manager of the Boston headquarters of Viant, a Internet professional services firm specializing in browser-based and communications technologies. "We look at how to align Internet activities with business strategies--identifying markets, creating cross-selling opportunities within existing markets and reconfiguring products and services to target new markets."
For a field that emerged only recently, Web integration has already sprouted a dizzying array of service providers. In addition to "boutique" firms like Viant, which has 400 employees spread over eight offices in the U.S. and London, it includes giant players like iXL, with 2,100 employees and 22 offices on three continents. Many of these firms are themselves growing by 50 or more people a month. In addition, as the field heats up, classic strategy experts like Andersen Consulting have added design and marketing services, advertising agencies are creating units specializing in online markets, and vendors like IBM and Dell have begun offering their customers advice on the strategic possibilities of their products.
The North American market for e-business consulting services in 1999 was about $10 billion and growing by an average 52 percent a year, faster in the financial services and communications industries, Behar said. By 2003, he added, the North American market alone is projected to be at least $59 billion, and the global market close to $80 billion.
"Everyone's putting a stake in the ground in this space because there's such huge opportunity," says Geoff Kerr, senior partner in corporate communications at US Web/CKS, one of the earliest Internet professional services firms and, with 4,000 employees and 50 offices in 13 countries, one of the largest. (At press time, a $5.7 billion acquisition of the company by systems integrator Whittman-Hart had been announced but not yet completed.)
All the major players present themselves as end-to-end providers, starting with high-level strategy and continuing through both deployment and ongoing management. Although companies may want a consulting firm to do all the hand-holding and most of the work, analysts who track this field say none of the players are truly one-stop providers, and choosing a Web integrator on that basis may be precisely the wrong decision.
"Few of the boutique firms have significant vertical industry competency," cautions Stan Lepeak, an analyst at Meta Group in stamford, Conn., who specializes in knowledge management and services firms. "The large traditional providers who say they can do everything may also be stretching the truth because they may have the bulk of their expertise in an office other than the one the client is working with. A potential client shouldn't get confused between the firm's reputation and the abilities of individual people from the local office," he adds.
Size, services, and reputation are important, but while companies can hire consultants to help build process and methodology, in the end they bear ongoing responsibility for the results. Success isn't a flashy Web site, an online ordering process that dovetails with existing fulfillment channels, or even a jump in revenues. Real success encompasses the ability to monitor and adjust strategy and implementation even after the consultants have left. In this sense, working with an Internet services firm is an opportunity to capture knowledge about how to measure brand awareness, customer loyalty, and other new business metrics as well as how to design an attractive page and integrate existing business functions with a browser-based interface.
To get the most out of the exercise, Lepeak said, think of the process less as hiring a service and more as a mentoring and training exercise.
"Before you even enter into the consulting relationship, define what you need to gain from the interaction," he explained. "Then as you go through the project, make sure you're filling out a template for process and deliverables. You have to capture this information so you can propagate it to all parts of the organization. This doesn't mean the consultants should give you their methodology for free, but it does mean you have to look at it as a joint effort. If you don't learn how to do it yourself, you're in big trouble."
The right Web integrator will come into the relationship with a solid process for knowledge transfer already in place. Consultants at iXL, for example, start by meeting with top executives to discuss the future of their industry, then bring in venture capitalists and other experts to discuss issues inherent in e-commerce. Only after that do they develop a joint team drawn from the client's management, technology, and marketing departments to manage the strategic process, coached along by iXL, said Sharma. At US Interactive, another large Web integration firm, each client has its own secure extranet where a project management tool called Capture tracks where the project stands, who's involved, and how knowledge is being transferred.
It's also a positive sign when the consulting firm encourages a free flow of information among its clients (while still, of course, protecting their competitive secrets). Most of the e-strategists make a point of arranging formal meetings among their larger and smaller clients, often throwing external business experts and venture capitalists into the mix to maximize the creative ferment.
At Viant, this practice is taken to its logical conclusion: client teams work with the consultants at Viant's offices rather than vice-versa. "This allows our employees to stay and work with other Viant employees instead of being sent to unknown places where they don't feel like they belong," said Chirag Patel, general manager of the firm's Boston and Chicago offices. "It provides client satisfaction as well, because clients get to meet other clients as well as consultants on other projects. This cross-pollination and knowledge-sharing gives us significant leverage in the resources and the intellectual capital we share across projects, creating a lot of creative collaboration which ultimately increases the value we create for our clients."
Leveraging knowledge resources may turn out to be one of the greatest advantages that large companies can bring to bear in their Internet shootout with nimble Web startups. By focusing on the unique advantages of traditional market leaders, strategic Web integrators are beginning to help them turn the tide in the modern-day battle of David and Goliath.