The face of the Web consultancy sector changed immeasurably during 1998. While last year’s bloodbath of closures or mergers among groups was often described as “consolidation”, in fact, the changes that came over the industry were not due to a simple downturn, but often a misreading of the market.
The one which set the tone for the year was Webmedia, one of the oldest independent groups in the UK. In January last year it closed with losses of more than 1m, with major shareholder Megalomedia losing 710 000. The principal directors, Peter Beech and Steve Bowbrick, continued to operate the Webmedia Group as a consultancy, but with more than 20 people made redundant, the writing was on the wall for the rest of the sector.
The US consultancy incursion into this country was brought about mainly because many UK groups could not afford to pass up the chance of a capital injection of funds. Even if they were not in the red, most UK groups ran on revenue, while in the US there is a substantial venture capital sector not available in the UK for an emerging market like multimedia. For those groups that sold-up, there are advantages to being part of an international group: easier access to skilled staff; lower overheads; more resources; and the opportunity to shift project work around via the Net.
Certainly, small Web groups have continued to proliferate, but not at the same speed as when the Internet took hold in 1994. In late 1996, the UK & Irish Internet Company Directory (at http://www.limitless.co.uk/inetuk/) listed 560 pure Web design consultants in the UK. In November 1998, this was put at 871.
At least some of the closures last year were because the Web design market, as a pioneering, entrepreneurial sector, has rarely had the appropriate business skills. In April last year a survey found seven out of ten corporate customers were “discontent” with their Web group.
In the main, poor account management has been a problem. As multimedia has moved up the corporate agenda, away from the IT department and into marketing and sales, Web groups have either had to develop the ability to talk at board level or take a more production-led role, allowing consultants to fill the strategy gap.
Prices for Web sites rose last year, but this was accompanied by an increase in the demands of clients for more sophisticated solutions. Smaller groups worked on accounts worth less than 50 000, while the lion’s share of the market remained in the hands of larger groups able to command accounts of over
250 000. The top ten agencies can now pitch for accounts worth between 500 000 and 1m – indeed, a handful of US-backed groups will not entertain accounts worth less than 1m, especially as the average US contract is in the multiples of millions.
The profits to be made from on-line media remained difficult to pin down. In 1997 on-line ad spend was commonly estimated at just over 4m – this grew to about 15m last year. Hardly the stuff of a boom, although this is set to rise to 30-40m. E-commerce revenues, however, were predicted to pass 400m.
These kinds of figures provoked their own shake-out. Consultancies which could not offer e-commerce services and integration with a client’s existing business quickly found themselves dumped in favour of those that could. Few small groups can hope to offer full blown e-commerce solutions to large clients, especially against systems integrators like ICL and IBM which both set up dedicated in-house multimedia departments, although they have some chance in the small business sector.
Pressure is also coming from the movement of the Web away from a fairly flat offering – like corporate Web pages – into integration with existing business systems and Intranets. Digital TV is also likely to impact this year as groups without the resources to create interactive TV programming come under pressure. The software market too is now coming up with solutions which can manage a company’s on-line presence, so a
consultancy is less required to perform site updates.
Pitching remains as competitive as ever. Consultancies have become more adept at hunting down new business, while ad agencies often hold the hands of clients during the pitch process. In fact, Deep End Design, Real Time Studio and Good Technology, have all put in satellite teams into above-the-line ad agencies, but this is rare and work is generally put out to pitch.
The new look of the sector in 1998 was characterised by a drift towards consultancy on the one hand versus TV-production style “Web shops” at the other. Only the larger groups like ModemMedia.PoppeTyson, Razorfish, and Agency.com appeared to want to play in the “one-stop shop” strategy and production services market.
The planning and buying of Web advertising became a service which many groups had to either offer in-house or outsource. Clients are slowly realising that it is no longer enough to build a site and hope visitors will come – it has to be promoted. Many siren voices in the publishing world are calling on clients to stop investing in Web group built sites in favour of on-line advertising and sponsorship.
What’s the future? The sector has come a long way from the era when the likes of Webmedia was founded in a cafÃ© basement. Today groups are either able to play in the one-stop market of strategic consultancy or they are not. Many who started off writing HTML are now writing Java code, or planning and buying ad campaigns or writing business strategy briefings. Interactive TV will certainly be a huge market if groups can get it right – and trials for WebTV, and British Interactive Broadcasting (Open) are starting as you read this.
The emphasis now is on making money out of ideas, not code or HTML. Few consultancies now fool themselves that the design and production of Web pages will be their only bread and butter – unless they are exceptionally good. It won’t be long before that kind of service is available from your local print shop.