What Happened to the E-Builders?

A year ago it seemed the e-builders outfits like Razorfish, iXL, and U.S. Interactive that combined the disciplines of marketing, strategy, and technology could do no wrong.

That was then. This is now.

Most e-builders grew by giving their stocks to other e-builders in exchange for equity. The e-builders got people and contracts; Wall Street got the hefty competitors it thought it needed.

Now they’re all on their backs. U.S. Interactive last week announced it is laying off 15 percent of its workers, following the lead of iXL. Viant and Organic have both said they’ll “disappoint the Street” this quarter. (This is not a good time to do that.) Share prices that once approached $100 are now under $10, nearly across the board.

Their competitors, meanwhile, are flying high. Consultant PriceWaterhouseCoopers is going to be bought by Hewlett-Packard for $18 billion that’s more than half of what the huge investment bank J.P. Morgan fetched at about the same time. While other system-integration companies like EDS are nowhere near their highs, they’re not rattling tin cups, either. Big ad agencies like Omnicom and WPP Group are holding up pretty well, too.

So what happened? Here are some theories:

  • Clients panicked. Whether or not e-builders were loaded with dot-com clients, big corporations decided they needed more maturity when the market tanked.

  • Lack of follow-up. Once a site was built, e-builders failed to get the maintenance and upgrade contracts they expected.
  • Talent drains. When you acquire companies for the people, it’s important to keep the best ones.
  • It’s not a real business. Technology, marketing, and strategy are completely different concepts best handled (perhaps) by specialists, not generalists. Ad agencies have nibbled on one leg of the industry, system integration specialists have nibbled on another, and there was no leg left for the management consultants, so they grabbed the head and chewed.

A friend I talked with last week had another theory.

“They’re morons,” he said. He explained that the people who launched these companies thought they were clever, not lucky. They lacked the discipline and management know-how needed to turn a lucky streak into a real industry.

There’s some indication the industry may be buying this last argument. When Stephen Zarilli left U.S. Interactive this month, his replacement was a partner at PriceWaterhouseCoopers.

I’m starting to buy this explanation myself. There’s a big difference between building a company and running a big company. This is why entrepreneurs are usually eased out of their dot-com start-ups, almost as a matter of routine. Yet until recently, most of the e-builders were still headed by teams of founders.

Moreover, as projects get more complex, their system integration component rises while their marketing and strategy component falls. System integration takes special skills, as anyone involved in the field will tell you. It takes meetings, coordination, teams, Gantt charts, and discipline.

Until the e-builders get all these things, I suspect they’ll continue to fall. I wonder how many will be left when they get Clued-in?

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