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September 13, 1999

Need For Speed Drives Boom In E-Business Services

Big companies, niche players both have roles in growing market

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aced with the imperative to do E-business or die, the pressure on IT managers has never been greater to re-imagine, re-invent, and re-architect their companies' IT strategies and deployments. The need for speed--and for emerging Internet skills and sensibilities--has led many businesses to look to E-business service providers for help.

The U.S. market for E-business services, including consulting, IT outsourcing, software development, and systems integration has grown from $7.01 billion in 1998 to approximately $10.3 billion this year according to Dataquest. And with the growth in E-business accelerating, the market is expected to mushroom to $59 billion by 2003.

Given that phenomenal growth, it's no surprise that there are hundreds of E-business service companies, including dozens of new entrants into the market. Still, there are no clear leaders in terms of market share, with the players ranging from well-known companies such as IBM and Cambridge Technology Partners to smaller but growing niche players like AnswerThink Consulting and Scient.

CEOs know they must introduce E-commerce to their business strategy, but many are not sure how, which is driving them to consulting and services companies, analysts say. "There's confusion in the CEO ranks on whether they need to change their business model and systems structure in order to do this, and CIOs are also stepping back and re-evaluating how to move forward in a dot-com world," says Steve Ashley, a senior VP at Robert W. Baird & Co.

The United States Tennis Association knew that it needed outside help when it wanted to make match scores and statistics more easily available to the media and general public over the Internet. The company turned to IBM Global Services for help. Under the project, the USTA wanted to post U.S. Open match scores, calculate statistics on the Web, and distribute that information around the grounds at the USTA National Tennis Center in Flushing Meadows, N.Y. In addition, the USTA needed IBM to help it use Web technology to supply information and graphics to television broadcasters and to distribute tournament data through information stations located around the National Tennis Center. As an extension of this information-processing system, IBM installed the programming interface, equipment and networking infrastructure to allow real-time tournament results, statistics, and other data to be transferred to the official 1999 U.S. Open Web site.

IBM implemented everything from its own PCs and servers, to networking and storage equipment. The USTA says IBM was objective in its choice of technologies. "IBM works with us year-round to build a solution that best suits our requirements. Their focus has always been to give us the right solution using the best of IBM technologies and the best of others' where required," says Pierce O'Neil, the USTA's director of marketing. For example, he points out, this year, the scoring application is running on Linux, the open-source operating system.

But analysts maintain IBM's proclivity for using its own products on consulting and integration projects has given some potential customers pause. "The upper and middle market tends to think IBM is too tied to hardware and software offerings, and while it doesn't always recommend its own products, it has been known to lose deals by insisting on some of their technologies, such as Lotus Notes," says Bob Parker, service director of E-commerce at ARM Research.

Those criticisms don't appear to have hampered IBM's Global Services business, which saw second-quarter revenue, including maintenance, jump 15% to $8 billion. Excluding maintenance, services revenue increased 19% to $6.7 billion for the quarter, which ended June 30.

Sandra Robinson Photo by Aaron Fineman However, customers sometimes find a better match with smaller niche players. In fact, the USTA decided to turn to AnswerThink Consulting when it wanted to overhaul its Web site to attract new members and retain existing ones while lowering costs and increasing revenue. The result is a renovated Web site that gives members access to tennis statistics for the 50,000 USTA-sponsored leagues. Also, customers can now register and pay for league memberships via the Internet. "The manual way of registering for tournaments and getting a USTA membership would not support our growing membership," says Richard Schelling, acting IT director for the USTA.

Analysts say AnswerThink's strength lies in its ability to blend a specialization in process implementation and creative issues, while remaining relatively neutral on products, since it isn't tied to particular hardware and software. Its strategy appears to be paying off: for the quarter ended July 2, the company reported revenue of $49.5 million, up 80% from $27.5 million in the same period of 1998. Net income was up 114% to $4.2 million, or 12 cents per share, up from $2 million or 6 cents per share last year.

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