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Tech Industry

As e-commerce peaks, services firms get picky

With the market for e-commerce services thriving, many leading e-services agencies are turning away clients with half-baked ideas or less-than-stellar budgets.

If you want a top-tier e-services firm to lead you into the Web wilderness, be prepared to plunk down a few million dollars and take a number in a very long line.

With the market for e-commerce services raging, doors can close quickly for many companies still contemplating their Internet commitment. Many leading e-services agencies--not unlike the hottest supermodels--are turning away some clients with less-than-stellar budgets or vague ideas about how they want to use the Web.

"We're turning down clients," said Bert Ellis, founder and chief executive of three-year-old iXL. "A year ago in our business a $500,000 contract was a whopper, but now we're turning down companies that can't show us they'll spend $1 million over the next calendar year."

Typically, players like Scient, Viant, Sapient, iXL, USWeb/CKS, Agency.com, Organic Online, and others who build e-businesses and craft online marketing strategies for customers, split their time between Web-based start-ups and their bread-and-butter Fortune 500 firms.

Though most e-services firms aren't making the heavy-hitting companies wait in line, they are being picky about which projects they'll take, while at the same time scrambling to bulk up their workforces to keep up with demand. Most are hiring 20 or 30 employees per month, but still can't hire fast enough to handle the increasing workload.

"I don't think they're turning people away for the sake of turning people away," said Drew Ianni, analyst at market research firm Jupiter Communications. But companies are saying no if they have conflicts with a client, lack the staff to cover a project, or even if the price is just too low, he said.

"The reality is, if you're not prepared to spend $2 million to build a site then you're not getting on our radar screen," said Mark Leiter, chief marketing officer at Boston-based Viant, which has a three-month waiting period for new projects.

"There are still Fortune 500s who think that if they allocate a couple of million a year they've got their e-commerce problem solved," Leiter said. "In our view, they're not there yet."

With about 300 employees, Viant uses a fixed-time, fixed-fee price structure--and typically searches for customers willing to spend $50 million to $100 million over five to ten years.

At San Francisco-based Organic Online, the initial time required to take on a new project is typically a month or two, said spokeswoman Cimeron Dunlap.

"We get 500 business development calls each week," she said. "Clients have to have a strong team in place. We like people who have a clear vision of what they want and what their objectives are."

Working at capacity
With 66 clients, 370 employees, and a new chief executive, Boston-based Zefer handles about 50 inquiries a week from dot-coms and bigger corporations, according to Bill Seibel. Seibel, like many e-services start-up executives, defected from a more established systems integrator to join the Web upstart. He previously worked at Cambridge Technology Partners.

"The demand [for services] is tremendous," Seibel said. "I've heard a number of competitors are pushing clients out six months because they're at capacity."

Zefer currently has no waiting list because, as Seibel puts it, if a company can afford to wait six months to start a project, it probably isn't urgent or important enough for the company to tackle.

"We'll be honest with people [and] either tell them we can help them or we can't," he said.

At Cambridge, Massachusetts-based Sapient, a more established e-services company that has worked for Wells Fargo, BankBoston, and Fidelity, there's no waiting list, said Des Varady, executive vice president of the company's e-business group.

However, Varady said the company is now considering allowing clients to "reserve capacity," or let a customer pay in advance to work with a certain Sapient team six months down the road. Firms fear that if and when they get budget approval for certain jobs, the team they want might not be available, Varady added.

"Our clients are innovating on their own, knowing they're dealing with a capacity-constrained market," he said.

Above all the hype, Jupiter's Ianni said top-tier firms should tread lightly with their clients in preparation for a drop in demand after many Web shops are up and running.

"The agencies have to be very careful," he said. "Interactive shops have to worry about not getting too cocky and worry about what happens once a lot of this stuff has been built out."