E-Services Providers:

Who’s Hot, Hip, Hype, and High Priest?

Susan Scrupski, ITSA

WebSourcing Conference, Atlanta 12/13/99

IT Services Advisory, LLC © 1999

Sorry! Under Construction….

IT Services Advisory, LLC © 1999

About ITSA (IT Services Advisory, LLC)

Dedicated to Research/Publishing/Consulting on the IPS MarketFounded 1999, Susan Scrupski

Blue Ribbon Advisory Board of LuminariesRegular Columnist since 1994. Editor since 1991.

Research Associates:Lisa Maio Ross, formerly IDCTom Rodenhauser, “Inside Consulting” and “The Rodenhauser Report” www.ConsultingInfo.com

Web address: www.ITServicesAdvisory.comInsider News Alerts: www.ITSinsider.com

IT Services Advisory, LLC © 1999

Study ParticipantsAT KearneyArthur AndersenAndersen ConsultingAnswerThinkAppNetCSCCambridge Technology PartnersContext IntegrationDeloitte & ToucheDiamond Technology PartnersEDSEmerald SolutionsFort PointGiant StepIBM Global ServicesiXLKPMGKeane

LanteLogical Design SoltuionsLuminantMcKinsey & Co.Mercer ManagementNerveWireOrganic OnlinePriceWaterhouseCoopersProxicomRazorfishSapientScientUS InteractiveUSWeb/CKSViantZefer

IT Services Advisory, LLC © 1999

Survey Categoriese-Services “One-Stop” Shop: performs all phases of e-Services business from consulting to back end integration (excludes hosting). e-Strategy Consultant: advises (exclusively) on e-Services alternatives e-Designer: emphasizes web design of e-Business solutions e-Integrator: implements e-business solutions including back end integration Web Hoster/ASP: hosts e-Business applications/businesses

E-Services providers: Who are These Guys?

What’s happening in the Sleepy IT Services/Consulting

Marketplace?

IT Services Advisory, LLC © 1999

a.k.a.I-Builders

See 11/8/99 issue of Industry Standard magazine

Systems Innovators Scient, adopted by Yankee Group

Full Service Providers Breakaway Solutions

E-Services/Consultants USA Today Top 100 Internet companies

IPS (Internet Prof. Svcs.) providers

IT Services Advisory, LLC © 1999

A History LessonIT Services was once the dull, sleepy sector of the Technology marketplace.

A “safe haven” for investorsStrong steady growth, generally free from wild swings in the stock market… ZZZZzzzz!.

C/S, Y2K, ERP, and Megadeal Outsourcing were catalysts for growth in the 90s.Management Consultants got Rich(er) reaping big fees off BPR, TQM, Change Mgmt.

IT Services Advisory, LLC © 1999

“Who is Garth Brooks?”• FEBRUARY At the Goldman Sachs Technology Conference : the stark contrast between Sapient and CSC.

• MARCH At the Gartner Predicts Conference; a panel of luminaries including Bert Ellis from iXL, The “Outsourcer.”

• APRIL Dick Brown debut at EDS Securities Analyst Briefing– no comment.

• MAY Karl Kierstead, Lehman Bros., ITS analyst publishes on Razorfish. RAZORFISH! “That’s not an IT Services firm; that’s a grunge band from Seattle…!”

• JUNE At an Outsourcing Conference; a panel question from the audience: “What Impact Will the Internet have on Our Business?”

IT Services Advisory, LLC © 1999

It’s the INTERNET, stupid!The Haves The Have-Nots(Market Cap$)

M

Caution: P E R C E P T I O N Rules!!

IT Services Advisory, LLC © 1999

Median Year-Over-Year Quarterly Revenue GrowthMedian Year-Over-Year Quarterly Revenue Growth

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

12/31/96 03/31/97 06/30/97 09/30/97 12/31/97 03/31/98 06/30/98 09/30/98 12/31/98 03/31/99 06/30/99

IT Services

E-Services

Growth Comparisons

Source: R.W. Baird, 1999

IT Services Advisory, LLC © 1999

Livin’ la Vida Loca!

Nov. 4, 1999

IT Services Advisory, LLC © 1999

Pass the Viagra?

Nov. 4, 1999

IT Services Advisory, LLC © 1999

“CATP Spawns Fine Young Cannibals”

ITSInsider.com

SapientJerry Greenberg

Stuart Moore$5,126 (mil)

ViantBob Gett

$2,553 (mil)

Breakaway SolutionsGordon Brooks$976.12 (mil)

ZeferBill Seibel

$$$$IPO '00

NerveWireMalcolm Frank

$$$$?

Cambridge Technology Partners$1,480 (mil)

IT Services Advisory, LLC © 1999

Index Comparisons

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

10/ 03/ 97 12/ 16/ 97 2/ 26/ 98 5/ 11/ 98 7/ 22/ 98 10/ 02/ 98 12/ 15/ 98 2/ 25/ 99 5/ 10/ 99 7/ 21/ 99 10/ 01/ 99

IT Services IndexImplementers/ Consultants IndexE-Services IndexRussell 2000 Index

Source: R.W. Baird

IT Services Advisory, LLC © 1999

Huh?Firm Last quarter Market Cap* Profitable?

Scient $30.7(mil) $6,674 (mil) NoViant $18.7 (mil) $2,553 (mil) YesProxicom $23.6 (mil) $2,341(mil) YesiXL $63.7 (mil) $3,048 (mil) NoRazorfish $19.1 (mil) $3,319 (mil) YesUSWeb/CKS $101(mil) $4,365 (mil) NoSapient $73 (mil) $5126 (mil) Yes

EDS $4,714.7 (mil) $31,660 (mil) YesCambridge Tech Ptrs $168.1 (mil) $1,480 (mil) YesCSC $2,126.1 (mil) $12,195 (mil) Yes

*12/10/99

*as of 12/10/99

IT Services Advisory, LLC © 1999

THIS IS NOT A TEST…IT’S A REAL EMERGENCY!

Source:Scient

Un-fair competitiveadvantageis still legal.

Source: Scient

Anyone who stands still in

eBusiness eats exhaust.

Source: Scient

IT Services Advisory, LLC © 1999

This Is About… Innovation !

Be the first moverBe the smart moverGo big or go homeOwn mind shareCultivate relationships Dominate or dieCreate a New Bottom Line ™Drive market capitalizationAny-to-Any ™ computing

Strategies For Innovating

Source: Scient

IT Services Advisory, LLC © 1999

eSuccess Indicators

You want to dominate -- think big or go homenot niche.com or wedontwannasuck.com

You are going after a very big market.You can get big market share quickly.You want to wreak channel violence. You can muster the resources to get it done. You accept that your idea is incomplete.You don’t have a detailed business plan.

Source: Scient

IT Services Advisory, LLC © 1999

Premium Valuation Drivers:

ManagementPositioning within the SpacePeople– Recruiting and RetentionPerformance Track RecordMarginsTop and bottom Line GrowthRevenue Per PersonMerits of Growth– Organic or AcquisitionVisibility of Referencable Clients

Source: FBR, 1999Source: Scient

IT Services Advisory, LLC © 1999

Pokémon and IPS vendors

Charmander Charmeleon Charizard

• In order for Pokémon characters to evolve, they must learnspecial tactics and skills in each stage of evolution• In short, experience and ability to learn is the gating factor for both.

IT Services Advisory, LLC © 1999

Skip IPO upside, trading cards!

• Can’t invest anyway

• The market obsession is the same

• The “Fad” will last at least 24 months

• More fun; the parties!, the merchandising!

Razorfish

IT Services Advisory, LLC © 1999

A word of caution…From ServiceSmarts column 5/1/98:

“The ambition worm will turn, and turn badly, if not kept in check. Ambition rewarded time after time breeds arrogance. And arrogance is the unruly adolescent of greed. Arrogance can hurt a company, but greed will kill itevery time.”

Susan Scrupski