The Big Five

When it comes to e-business consulting services, the days of the traditional Big Five are clearly numbered. With the pressure of SEC regulations forcing the separation of consulting work from traditional audit and tax services, and the emergence of Internet services undermining the need for end-to-end consulting giants, traditional auditing firms KPMG, Ernst & Young and Arthur Andersen have been cutting ties with their IT consulting sides. In some cases, the result has been the creation of smaller, sleeker independent companies that look a lot more like pure-play Internet service companies than they do the staunch old-economy giants that gave them life.

Ernst & Young was among the first to formally shed its consulting business, selling Ernst & Young Consulting to European IT giant Cap Gemini earlier this year. And last month, the company spun out its Ernst & Young Technologies IT arm into an independent ASP called EYT.

KPMG LLP chose a similar route, spinning off KPMG Consulting as an independent, IPO-bound company. Andersen Consulting, on the other hand, fought long and hard for its independence from Arthur Andersen in a recently settled arbitration case.

That leaves Deloitte & Touche and PricewaterhouseCoopers, both of which have also voiced intent to either sell off or spin out their respective consulting divisions.

"The irony is that all those guys are making money hand over fist in the consulting business, but they are being forced by both the marketplace and the regulatory environment to distance themselves from what has been the golden goose," says Tom Rodenhauser, industry analyst with Consulting Information Services, based in Keene, N.H. "None of them are going to be able to hold onto consulting in the future, so they have to get as much money out of it as they can right now."

While the separation will no doubt cut huge chunks of revenue from the parent companies--the SEC says consulting brought in more than $15 billion for the Big Five in 1999--the move to independence will likely help companies such as Andersen Consulting, EYT and KPMG Consulting establish themselves as viable Internet players.

Consider this: E-business services brought in $1.5 billion in revenue for Andersen Consulting last year, while Deloitte Consulting says it's on track to do the same by the end of this year. That's roughly $400 million more than MarchFirst's entire 1999 revenue and $1.33 billion above Razorfish.

But industry experts warn against judging a company's e-savviness based solely on revenue. For example, who's to say an IT service company can't build a legacy ERP system, throw a Web site on top of it and mark it off as a $10 million e-business project, says Cathy Benko, global leader of Deloitte Consulting's e-business practice.

"When it comes to e-business, the numbers are not that easy to come by," says Benko, adding that Deloitte uses a conservative approach to calculating e-business revenue. "In this world of 'e-business as just business,' there are a lot of calls you have to make."

Here's a look at what each company is doing in the Internet service space.

KPMG: To IPO And Beyond
The convergence of Web design and back-end infrastructure has paved the way for companies that have the all-around IT skills to integrate full solutions, says Paul Ciandrini, executive vice president of the high-tech practice for KPMG Consulting, Mountain View, Calif. "Now all business is e-business," he says. "The playing field is kind of changing, but we feel pretty good about where we are right now." Of the $1.96 billion KPMG Consulting made in revenue last year, it says 30 percent--or roughly $590 million--stemmed from e-business solutions. Formed in 1997 as a distinct business unit of KPMG International LLC, the consultancy was officially incorporated earlier this year. It serves some 2,000 clients, ranging from Fortune 1000 companies to small and midsize businesses, dot coms, e-marketplaces and government agencies. KPMG made its formal push into the Web service space almost two years ago, when it acquired a number of smaller shops specializing in projects such as Web design and Java development. The company merged the new acquisitions into a separate company called Metrius. "There are still a number of organizations out there trying to integrate the pure Internet services with what were the more traditional services, but we feel pretty comfortable knowing that we got there about a good year-and-a-half ago," Ciandrini says. "I'd like to say it's because we had a big crystal ball, but it probably wasn't. You know how business kind of anticipates and reacts." Aside from backing from its parent company, infrastructure heavyweight Cisco has a $1 billion stake in KPMG. The integrator also has an e-business alliance with Microsoft to build a co-branded Collaborative Development Lab for creating dot-com businesses. And in May, KPMG took a page out of the Web integrator playbook, filing with the SEC for its IPO. The company has been making a few strategic investments of its own. It's getting behind e-business solution companies such as WebMethods and diving headfirst into the emerging ASP space with Qwest Cyber.Solutions (QCS), a joint venture with Qwest Communications to provide clients with end-to-end Web hosting and application-management services. KPMG, which owns 49 percent of the new entity, lends its Internet methodologies and professionals to QCS and in return has a solid partner for its hosting needs. KPMG attacks the Internet service space via six industry units: high-tech, health care, public sector, financial services, communications, and consumer and industrial markets. Then it further breaks each down into subsegments. "Those businesses are not big businesses," Ciandrini says. "They are the size of the little guys who say they are really nimble." Like other large companies, KPMG Consulting is now throwing its weight behind B2B marketplaces, with clients that include Chevron's Petrocosm exchange for the gas and oil community and TRADE.com. It's also moving into the e-marketing space, managing and automating clients' Internet content for multiple media. "We have made enough investments in different areas and have gotten enough traction to remain and grow," Ciandrini says. "The reality is, I would put my Internet guys against anyone and beat them, and I do."

EYT Goes ASP
For James Hunt, CEO of EYT, the realization that the Internet would forever transform the way companies provide solutions came a little more than two years ago when his company was grappling with demand for its "QuickStart" solution. The Chantilly, Va.-based IT service company, formed by its parent in 1996 to focus on enterprise applications, provided each client with an on-site server and a team of specialists to get software applications up and running. Although it was a huge hit, the logistics of deploying dozens of teams around the country were impossible to manage. Then an engineer walked into Hunt's office with a different idea. Why couldn't the company deliver solutions over the Web, hosting applications on its own iron--which is better regulated and more stable than the NT boxes it was managing out in the field? "My first response was that it just wouldn't be robust enough," Hunt says. "So I sat at my desk and logged into a Lawson session at our data center. I was stunned. I was pulling screens up in seconds. We had a couple dozen applications going on in our center and were supporting them all on a single frame. We didn't know we were an ASP, but that's what we were doing." But the biggest change for the company was still ahead. When Ernst & Young sold off its consulting division to Cap Gemini earlier this year, the company decided to roll out the remaining Internet service portion of the firm as EYT, an independent ASP start-up. With $50 million in first-round funding from Charterhouse Group International, Softbank Venture Capital, Interliant and EYT management, the company is now positioned to stake its claim atop the emerging ASP space. "If you imagine that last year we did $77 million and we only penetrated 12 percent of the available Cap Gemini and E&Y engagements, that tells you how big our prospective market is," Hunt comments. In addition to its ASP work, the company has an ongoing Internet service practice for functions including Web design, hosting and delivering applications such as Notes via the Internet. Although Hunt concedes his company's ASP revenue for 1999 was "fairly minor" at $1.8 million, he says that's because the market is still so immature. "If you look at the majority of companies, their true ASP revenue is not very substantial. We understand that and expect it because we think this market is going to grow like crazy. We think our foundation is pretty good to address it."

Deloitte Consulting Joins the Race
Len Prokopets considers the market for e-services a two-year sprint. "Everything kicked off with a lot of hype," the senior manager for the B2B practice of Deloitte Consulting, New York, says. "Now it's time to bring that hype to reality." The strategy is simple: Make e-business the company's entire business. Deloitte strives to do that by transforming existing consultants, establishing distinct units and pursuing new alliances. Deloitte says it can offer clients a full menu of Internet-related services covering technology, strategy and processes, and targeting specific e-business requirements, including things such as e-learning and strategy. For the most part, it directs the bulk of its energy on B2B work, taking on clients in need of major transformations and aligning itself with major platform providers and vendors. According to the company's annual report for 1999, Deloitte Consulting performed more than 100 e-business engagements in 1999, generating approximately $500 million in revenue. Last year, the company's 40 largest clients made up 40 percent of its revenue--up from 33 percent in 1998. Of those 40, Deloitte says nearly half are market-leading companies. In late 1999, Deloitte Consulting made a move to dramatically transform its delivery model, creating what it calls a "mothership/pod" model, in which the larger consultancy spins out separate business units. The company's flagship "pod" was RoundArch, the joint solutions venture it created with partners BroadVision and advertising giant WPP. "This is a pod that lives outside the mothership," Deloitte Consulting's Benko says. "It's a solutions-based start-up that provides a front-end solution--from e-strategy to the technology platform, systems and process integration, and the creative and advertising and interactive marketing elements." Deloitte Consulting also created an internal unit called DC.com to accelerate Internet initiatives and target clients' e-business services and solutions in North America. "It's essentially an e-consultancy--one of those pure plays everybody's talking about," Benko says. Aside from expanding the company's offerings for its customers, she says the appearance of a smaller, savvier entity like DC.com also helps Deloitte in the competitive recruiting game. The company also created a ventures practice in late 1999 for Web-focused spin-offs. Its first project was a joint venture with Chase Manhattan that focused on e-procurement services. In looking to the future, the company's key touchpoint for client engagements will be the supply chain, which it sees as the critical element when deriving value for its clients. "The key moving forward is heavy-lifting," Benko says. "It's an area for which we are very well-known and have been for a long time. It's in our DNA."

PricewaterhouseCoopers Management Consulting
PricewaterhouseCoopers Management Consulting's first formal push into the Internet service space came in 1996 when it saw a new breed of Web integrators emerge with the skills to design and build Web sites quickly. What those competitors couldn't do was integrate those sites with a client's overall business strategy, says Stewart Morick, e-business leader for the Americas for the New York-based company. So PricewaterhouseCoopers created its first formal Internet strategy entity, called the Global E-Business Group, with separate divisions for the Americas; Europe, Africa and the Middle East; and Asia-Pacific. Concerned with end-to-end solutions, the group created a methodology surrounding four solution sets: e-markets, business-to-enterprise solutions, dot coms and "e-transformation" services. On top of those, the company built specific service offerings, including call centers, e-procurement and e-logistics services. The transformation, which continued into 1997, also included setting up a continuing education program and e-business career path, vendor alliances with more than 140 leading e-business companies and the creation of a "network of excellence" set of databases for all of the company's citations, white papers and new ideas. PricewaterhouseCoopers says it builds internal competencies and vendor profiles to fit each area so it can automatically locate the right kinds of employees, vendors and teams to meet specific needs. That way it can build customized solutions for clients under tight deadlines, while still providing them with an overall vision for their company's future. "We know all the touch points, and we know how to unplug [products], what overlaps and where they fit," Morick says. Going forward, online exchanges are a big part of PricewaterhouseCoopers' plans for growth. General Motors recently tapped the company to build its new TradeExchange industry portal. In the dot-com space, the company has done exchange work for Broadband.com as well as NewWorldsNetwork.com for the telco industry. Its other bet is on "e-transformation" services--bringing Fortune 1000 and other larger companies to the Internet. "We are just touching the tip of the iceberg," Morick says about B2B and exchanges. "Design and develop and exchange is all relatively easy. It's getting the suppliers, vendors and members, and putting them into the system, maintaining the system, marketing [it] and making it run, that is going to be much larger." The company is also on the lookout for new "ripples"--emerging technologies or solutions destined to become a full-fledged wave of new, exciting and lucrative opportunities. "We are trying things out in our sandboxes like m-commerce [mobile] and some of that stuff," Morick says. "We're trying to get the early adopters--the visionaries--of a lot of this before it turns into a wave. That way, we can ride the wave; we don't have to follow."

An Andersen Divided
Although its road to independence was certainly bumpy, Andersen Consulting may be in the best position to succeed in the new economy, analysts say. That's because the New York-based consultancy, which recently won independence after a bitter two-year arbitration case with parent Arthur Andersen, finally has the opportunity to chart its own course as a separate Web service company. "The predictable outcome is that [the split] allows Andersen Consulting to expand what it was already doing," Consulting Information Services' Rodenhauser says. "It's not going to recast itself as some big behemoth with thousands of people. It is really going to become a collection of smaller groups and become much more aggressive." In a report to shareholders, Andersen Consulting CEO Joe Forehand called 1999 a year of "transition and transformation" for the company. Its newest mission statement: helping clients create their future. The company says it made $8.9 billion in revenue for 1999, with e-commerce projects accounting for $1.5 billion in 1999. It works with roughly 4,500 clients globally, including Fortune 500 and Global 100 leaders in areas such as telecommunications, utilities and banking. The company's strategy has included a renewed focus on its core business, as well as the launch of AC Ventures, a venture capitalist unit to invest in new economy companies. The unit has plans to invest up to $1 billion globally during the next five years. Andersen Consulting has also created Dot-Com Launch Centres, which it describes as "post-incubation" sites to help funded e-commerce start-ups and spin-offs expand their operations. "The importance of the Launch Centres was to catalyze our activity in the dot-com launch space," says Larry Leisure, managing partner of the firm's Global Business Launch Centres. "Before we had really just had a Global 1000 focus, and Joe [Forehand] believed it was critically important that we play a much larger role in serving these future Global 1000 companies and accelerate activity in that space." The company has also been expanding its strategic alliance with e-business players, including a partnership with Microsoft and the joint formation of Internet services company Avanade, as well as partnerships with some 175 vendors, including Asera, Blue Martini and Commerce One. Arthur Andersen, however, may be in for tough times ahead, says Rodenhauser, who called the company "damaged goods" in the consulting world. Although the auditor gets to keep the well-known Andersen Consulting name for its own IT services--which means Forehand's Andersen Consulting has to find a new names--like most of its Big Five classmates, it still has to face SEC scrutiny over its combination of tax auditing and professional services.