The merger of two struggling Web consultancies will enable the combined firm to offer more resources to clients but won't necessarily ensure financial recovery because its services may still be out of reach for some customers in the current slumping economy.
Revenue Free Fall
Last week, New York-based Web consulting firm Scient Corp. and Atlanta-based interactive agency iXL Enterprises Inc. said they would merge in an all-stock deal, which is expected to close by December. Both were among the crop of Internet consultancies that quickly acquired new clients during the Internet boom but whose revenues plummeted as the economy slowed.
In a statement, the companies said they will become subsidiaries of a new parent company in New York and operate under the Scient name.
Last week, both iXL and Scient announced revenues for the quarter ended June 30 that were significantly lower than the same period last year.
Other Web consultancies, including Cambridge, Mass.-based Sapient Corp. and New York-based Razorfish Inc., have also been plagued by financial losses and layoffs in recent months.
IXL Chairman Bert Ellis said that the consulting industry suffers from "significant overcapacity" and that "consolidation must happen" in order to attain a "more efficient cost structure."
By combining their expertise in Web design and Web consulting, iXL and Scient could offer more comprehensive services to clients, said Keith Landis, a senior vice president at Carlisle, Pa.-based Campus Door Inc., which provides student loans. Scient provided business strategy and IT consulting and support services to Campus Door until the end of last year.
Campus Door found that once it was up and running, it no longer needed Scient, particularly because Scient's services were "not the cheapest," said Landis.
Santa Monica, Calif.-based online mail services company Stamps.com Inc. stopped using iXL at the end of last year because hiring a consultancy isn't cost-effective compared with handling things in-house, said Dave Dreyer, Stamps.com's director of marketing. He said Stamps.com no longer needed the "same level of expertise" to develop an interactive marketing strategy because the number of new customers it acquires has remained steady.
The experiences of Stamps.com and Campus Door indicate overall demand for Web consulting is falling because of the economic slowdown and because many companies have already established Internet strategies, said William Martorelli, an analyst at Hurwitz Group Inc. in Framingham, Mass. As a result, many Web consulting firms have been struggling financially, he said.
Though merging could improve the merged company's financial situation by eliminating redundancies, Scient needs to "broaden its capabilities beyond Web implementation" projects in order to remain in business, said Martorelli.
Reporter Linda Rosencrance contributed to this report.