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Commentary: Penny-pinching dot-coms hurting Net consultancies

The precipitous drop in Internet companies' stock valuations and the market's subsequent shakeout mean less spending from dot-coms and more cautious investments.

By Frances Karamouzis, Gartner Analyst

The precipitous drop in Internet companies' stock valuations in April--and the market's subsequent shakeout--have meant less spending from dot-coms and more cautious investment overall.

However, the decrease from the Internet

See news story:
Net consultancies feeling heat of looming shakeout
start-up customer segment and the lengthening sales cycles for large-enterprise customers give the market only the appearance of decline.

Many companies are embarking on major e-business initiatives. A number of large enterprises went through fast, tactical e-business projects; they are now focusing on more strategic initiatives, and the next phases of those projects are larger and much more complex. Investment in Web, wireless and network technology within Global 1000 companies is not slowing.

During 1999, enterprises primarily sought out the small consultancies for quick, nimble and focused responses to their need to get an Internet presence quickly, but that is no longer the case. Many of the smaller e-business consultancies, such as Viant, are feeling the effect of the slowdown in dot-com spending. At the same time, they have started to face serious competition from the larger consulting companies such as Andersen Consulting, KPMG Consulting and Deloitte Consulting.

In Gartner's experience, more than 75 percent of enterprises' short lists now combine small and large consulting companies. Many buyers that used to look primarily to companies such as Viant are now seeing similar offerings from the larger competition. The traditional consulting companies have made significant investments to compete effectively in the e-business space, and they now can offer many of the same speed and innovation advantages. In addition, they have more depth and breadth to execute on the larger, more complex projects.

Faced with their own business models and challenges, it becomes appealing for dot-coms to opt for the stability and maturity that the larger companies can provide. Moreover, some of the large companies have stated strategies of targeting the Internet companies. Andersen Consulting has stated that it will place equal emphasis on targeting the dot-com market and large multinational enterprises.

Several other factors contribute to the woes of small e-business consultants. Enterprises have gotten smarter and more focused. Buying patterns are shifting to Global 1000 companies, which are generally more disciplined and sophisticated buyers of services. They shop deals more aggressively.

Moreover, the easy opportunities for work are quickly vanishing. The players will now struggle among themselves to see which are fit enough to survive.

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.