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Services start-ups carve niche in Boston

A new generation of Web consulting firms, which compete every day against larger and better-funded companies, carve out a distinctly urban, Soho-style nook in Boston.

BOSTON--When Christina Costello peers out from her refurbished warehouse office at Web consulting start-up Zefer, her competitors peek back at her from across the alley.

Sometimes the Viant employees--who are prepping to go public--pull down blinds when they head into meetings, says Costello, a marketing associate. After all, if they strain their eyes a little, the gang at neighboring Zefer could practically read the writing on their larger rival's work pad.

Making for even more careful talk in a nearby coffee shop in the city's so-called Leather District, is the fact that the Boston office of Santa Clara-based USWeb/CKS, a $228 million Web consulting company that has grown to 2,250 employees since 1995, is just downstairs from Viant.

Indeed, a better name for this distinctly urban, Soho-style nook carved out between the city's downtown and waterfront--just blocks from the site of the Boston Tea Party--is the Cyber District.

And for the new generation of Web consulting firms, which compete every day against larger and better-funded companies such as $612 million Cambridge Technology Partners and $160 million Sapient, these offices are only a stone's throw from a host of potential customers, who are often building a business from scratch on the Web. The city's swankier financial district, where much of their services work is now in hot demand, is also around the corner.

These start-ups differ from the big five consulting firms and other well-heeled consulting giants in one main way: their focus is pure Web. Unlike many of their grayer counterparts who have spent decades on mainframe or client-server projects, these new firms build systems that enable clients to buy and sell online, handholding customers through the stages of strategic planning, Web design, technology, and systems integration.

Many of these upstart employees say they have no interest in working for larger consulting firms such as Andersen Consulting, EDS, and Computer Sciences--companies that are now scrambling to slap the letter "E" and "Web-enabled" in front of their services offerings.

Even more established industry players are flocking to services start-ups. Eric Greenberg, the former head of Silicon Valley Internet Partners, now heads up Scient, and Bob Gett, former president of Cambridge Technology Partners, runs Viant.

"One real advantage these companies have is they're much more of a magnet for young talent, entrepreneurial talent, and creative talent," said Meta Group analyst Stan Lepeak. But don't underestimate the allure of money and stock options, he added.

"Regardless of the altruistic motives they talk about, it's a greedy lot, coupled with the 'I want to do whatever I want' [factor]," he said. "You don't need to get dressed up, you don't need to bathe, and you have an extremely comfortable work schedule--not that you don't work hard."

With 40 employees and $2 million from a first round of venture capital, the kid sibling among the cyber pack is Zefer, founded by former Harvard Business School students Anthony Tjan, Stephen DiMarco, and Deborah Frieze. Since it opened its office in February 1998, the embryonic firm says its inked contracts with two top management consulting firms, Boston-based retail bank Gordon Brothers Group and the Canadian Broadcasting Corporation.

Meanwhile, Viant, a three-year-old firm with 250 employees and five offices across the country, is one of the Cyber District neighborhood's older start-ups. The three-year-old company has made a South Street warehouse its headquarters since 1996. With $20 million in 1998 revenues, Viant is now laying the ground to go public, as its competitor, Scient, did last Friday.

Wall Street has big expectations for these public offerings, noting there is more than enough work and an industry buzz--led by darling USWeb/CKS--to fuel growth for all.

To be sure, companies are spending on Internet and e-commerce services at a rapid clip, according to Framingham, Massachusetts-based market research firm International Data Corporation. Worldwide demand for Internet services is expected to more than triple from $11.8 billion this year to $43.6 billion by the year 2002--a five-year compound annual growth rate of 57 percent, according to IDC analyst Meredith McCarty.

And since doing business on the Web is so new, and services lines from larger consultancies are not yet established, smaller companies have the opportunity to capture an impressive roster of Fortune 500 customers, she said.

"That isn't always the case in a more established market where brand, reputation, and size come more into play," McCarty said. "This creates more of an opportunity."

"Demand is insatiable," said Wayne Segal, analyst at Credit Suisse First Boston. "When you talk to the customers who are dealing with the Internet and the problems the Internet is creating around the business model there's a greater desperation surrounding that than the Year 2000 problem."

And corporate giants being willing to let a start-up construct their Internet business plan is quite a new phenomenon, Segal said. In Viant's case, those companies are J.P. Morgan, American Express, Compaq, and Lucent.

"You'd be amazed at the number of Fortune 500 companies using $40 million start-ups to control the future of their companies," Segal said.

But Meta's Lepeak said buyers should beware of some of these start-ups that are more about marketing and public relations than real-world experience.

"Show me some clients, show me some real work, and a track record of more than six weeks," he said. "It's not just enough to say this is an exotic new medium and we can do great things."