Revenue plague strikes another Net consultant

It has been another rough week for Internet consultants.

Late Wednesday, San Francisco-based Organic said it plans to eliminate about 270 jobs and warned that fourth-quarter revenue will be lower than anticipated, making it the latest in a string of Web consultancies bodychecked by changing market conditions.

The company Wednesday also named a new chief executive to replace founder Jonathan Nelson, who will remain chairman. Formerly at Internet incubator Idealab, Mark Kingdon will take on the chief executive role at Organic starting Jan. 15. Through a restructuring plan, the company expects to realize annual savings of approximately $25 million.

Organic is not alone in its woes. A heap of players in the Internet consulting market have had to slash jobs and implement restructuring plans in an effort to save money and eliminate operational costs.

A domino effect played out last week when struggling Net consultants Xpedior, Lante, Scient and Viant each announced layoffs and cost-cutting measures days apart.

"This is not surprising," Tom Rodenhauser, an industry analyst who heads Consulting Information Services, said in a recent interview. "If you look at Scient's (rapid) growth, managing growth at that level would be incredibly difficult even in the best market. When you have a (sour) market, layoffs are inevitable. You have too many bodies and not enough work."

The market for services such as Web development, marketing and consulting has dramatically slowed after the demise of several dot-coms that were typical clients of Internet consultancies. Though most players said they have begun to shift their focus away from cash-strapped dot-coms to more stable, Fortune 500 client types, analysts said that most companies did not make the shift quickly enough.

Gartner analyst Fran Karamouzis says clearly, many e-consultancies were enticing early adopter customers with a great deal of hype and less substance. see commentary

This week, rivals Razorfish and C-Bridge also issued earnings warnings, and each expects to post a fourth-quarter loss instead of profit. New York-based Razorfish said Tuesday it expects to post a pro forma net loss of 17 cents to 22 cents a share. Wall Street, on the other hand, had predicted the company would post a per-share profit of 2 cents.

Shares of Razorfish plunged after the news of its lower-than-expected fourth quarter. Razorfish shares, which have fallen nearly 97 percent for the year, closed down Wednesday at $1.75 per share.

Organic now expects fourth-quarter revenue to be approximately $26 million, a decline from the third quarter and in line with revenue from the same period a year ago. Analysts polled by First Call/Thomson Financial expected Organic to show $37 million in revenue for the quarter.

The company, which also plans to close offices in Boston and Atlanta, blamed the shortfall on the impact that the difficult market conditions have had on its sales cycles and client budgets.

Organic said its financial position remains strong, with cash balances approaching $75 million at the end of last month and an additional unused line of credit of $15 million.

In light trading Thursday morning, the company's shares were down 9 cents, or just over 8 percent, to $1.06.