Recent events on the stock markets have served to highlight the volatility of e-commerce businesses, and Mike Exon examines the effects of drop-outs on the design sector

Design consultancies that are in denial over the “bubble” would do well to consider the absurdity of some proposals nowadays. Increasingly, prospective clients come in the guise of two-man bands clutching a bundle of venture capital labelled “marketing budget”. In extreme cases, consultancies are being asked to conceive an entire business idea from scratch, this being too much for the entrepreneurs involved. It does not take a genius to see the inevitable failure of many companies before shares are publicly offered. There is something very definitely askew.

This week, Michael Walton, founder and chief executive of Internet consultancy Rubus Consulting is forecasting that seven out of ten UK start-ups will fail. Previous predictions by Wall Street brokers Donaldson, Lufkin & Jenrette, indicate a third of dot.coms will fail, with another third acquired and the remaining third surviving into the long-term.

But how dangerous would a sector-wide collapse of businesses be for the design industry? With so many design groups boldly and publicly “repositioning” themselves to encompass new and convergent media, there is a considerable amount now at stake.

Intro is just one consultancy that has made a big investment in designing for the Internet. Having appointed a head of digital media and built a technical team as “strong as the design team”, Intro creative director Adrian Shaughnessey says he is now consciously making contingencies for a downturn when taking on new work.

“I’m wary of the revolution. We’re turning a lot of work down. You can see the gold-rush mentality in so many cases. We look carefully at companies who come to us and we make sure they are not time-wasters. Most of the good ones share their business-plans with us. That’s usually a good test.”

Intro’s legacy of print and film will always enable it to breathe more easily in the event of a spectacular collapse, says Shaughnessey.

“I never want Intro to become just a new media company. Because we do print and film, we’re always busy in one area of the company. If a real downturn comes in the Web sector, we can fall back on printed literature and moving image work,” he adds.

Another consultancy which has taken the opportunity to enter the arena is The Partners. New media partner John Guy offers hope for when the dust has finally settled.

“I think the situation is moving away from the madness, and very short launch times. One of the things I am noticing is that there is increasing emphasis being put on the branding [of start-ups] as the market becomes more saturated with competitors.

“Although seven out of ten dot.coms might fail they are still going to be replaced – often by players from the world. Then we are going to get people who have more understanding of the importance of brands,” says Guy.

However, some consultancies working with digital-based clients have consciously avoided repositioning altogether.

The business development director of London branding consultancy C Eye, Mark Pinder, is concerned about the relaunched Siegelgale kind of approach (DW 10 February) which ties the consultancy’s future to one market area, e-commerce. “The bubble will burst,” warns Pinder.

“It would have been very easy for us to position ourselves purely as specialists in e-strategy. We are asked once a week to look at creating on-line brands by people ranging from FTSE 100 companies to loonies who just want a domain name and are in search of becoming millionaires. Most we turn down. Only if they really believe in their venture and the creation of a long-lasting brand will we get involved,” says Pinder.

C Eye managing director Gary Riley adds there is a danger of consultancies increasingly offering strategic advice based on nothing but technical know-how. “This is not the way to approach branding issues,” he says.

Siegelgale UK managing director Peter Gilson is not jumpy about the recent stock market fluctuations, however. “There is clearly still a big demand for disintermediation [the introduction of new media channels] in the new media field. There is still a lot of business out there,” he says.

“If you’d asked me a year ago what the biggest questions for brand consultancies were, I’d have said the economy, or people not really understanding branding. Now it’s how to sift through the volumes of proposals, and not getting caught up by taking equity instead of payment,” says Gilson.

Lambie-Nairn has not needed to change its core philosophy to deal with changing technology over the years. Lambie-Nairn creative director Brian Eley is quietly confident about the future of screen branding, despite the transformation of analogue TV. “Digital TV will not require the consultancy to wholeheartedly change its focus,” he says.

“Lambie-Nairn has kept abreast of technological developments in TV. Digital TV services will have to market themselves as brands, just like their analogue ancestors. The need to create emotional bonds with viewers doesn’t change,” says Eley.

The thrust of recent concern is not about whether the latest hi-tech revolution is sustainable. That much is assured. The concern is over the ripple effect through the design sector from those dot.coms which fail. It won’t be as simple as whether consultancies have or have not repositioned for digital media. It will depend on the decisions made by individual consultancies and the amounts risked. Hopefully those agreeing to take equity instead of payment will be able to write off any failures – for some failures now look inevitable. forecasts by Rubus Consulting

– 70% predicted failure rate of start-ups within 12 months

– Gift websites like flowers, chocolates and wine most at risk of failing

– Venture capital companies are beginning to shun Internet start-ups

– Bulk of proposals are in business-to-consumer, not business-to-business projects.

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