Public services on the rise

A raft of Internet services companies have filed to go public in recent weeks, all hoping to become the industry's next success story.

Kim Girard
Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.
Kim Girard
3 min read
A raft of Internet services companies have filed to go public in recent weeks, all hoping to become the industry's next success story.

In the past two months, newcomers including New York-based Razorfish, Atlanta-based iXL, and Reston, Virginia-based Proxicom, have filed for initial public offerings.

In the meantime, Viant, formerly known as Silicon Valley Internet Partners, is rumored to be planning an initial file soon. Upstart Scient, however, which lured prestigious board members and CEO Robert Howe from IBM's financial services consulting practice, remains privately held.

"Everyone wants to be the next USWeb," said Stan Lepeak, analyst at Stamford, Connecticut-based Meta Group. "And then there's the opportunity to become really rich on an IPO. It's as much about cashing out as it is about building a firm."

Though several of these companies are losing money now, they are backed by heavyweight Wall Street firms buzzing about the big bang from their IPOs amid a Web services market that Cambridge-based Forrester Research estimates will reach $16 billion by 2002.

"From an investor's standpoint this isn't a zero-sum game like investing in software," said David Rauktys, vice president of investment banking at FAC Equities, the investment arm of Boston-based First Albany. "Services firms are going to win."

IXL, which has grown quickly through acquisitions, is underwritten by Merrill Lynch, Donaldson, Lufkin & Jenrette, BancBoston Robertson Stephens, and NationsBanc Montgomery Securities, and plans an IPO of $86 million in common stock. The company has applied to trade the stock on Nasdaq under the symbol "IIXL."

Razorfish, a subsidiary of New York-based advertising firm Omnicom Group, is underwritten by a group led by Credit Suisse First Boston. The company estimated it would raise $50 million with its offering. Omnicom holds a 37.7 percent stake, or 15.9 million shares of the company, while Swedish firm Spray Ventures AB holds a 37.5 percent stake.

Proxicom, which filed to go public last week, is working with underwriters led by BT Alex. Brown, Prudential Securities, Thomas Weisel Partners, and Friedman, Billings, Ramsey & Company.

This new generation of smaller consulting firms move beyond the offerings of traditional Web design shops, rolling together traditional management consulting, the design work of creating sites, the integration functions of building a corporate infrastructure that can scale to huge numbers of users, and the outsourcing capabilities of running it all for a client.

While these companies on their own do not provide all pieces of the picture, their Internet services are expected to fill a growing niche--akin to what successful firms, like Cambridge Technology Partners, have provided to companies making a transition to client-server technologies, analysts say.

"Demand for these services will outstrip the supply over the next couple of years," said Ken Allard, analyst with Jupiter Communications in New York. "The outlook for the need for professional services looks good for the next three to five years."

To IT services giants--including Electronic Data Systems, Computer Sciences, and IBM Global--these small companies are more of an annoyance than a threat, analysts say. Larger firms will likely partner with or buy the smaller players to get what they need to fill out their Web strategy.

Bloomberg contributed to this report.