Services firms see Europe as next cash cow

Scient and others are among the Net services companies following venture capitalists to Europe, hoping to score serious contracts from companies moving onto the Web.

Kim Girard
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.
3 min read
Net services company Scient achieved an important victory last week when its new London office inked its first deal with a large financial firm.

Like many Net services companies that are following the venture capitalists to Europe, San Francisco-based Scient hopes to score serious contracts from companies that are moving onto the Web.

The European market is marked by two appealing characteristics: Demand is high for Web services, and there are relatively few suppliers.

"E-business is accelerating over there faster than anyone has ever seen," said Christopher Lochhead, Scient's chief marketing officer. Scient is looking to add to its 30 employees in London and is planning additional expansion in Europe.

"People want to play in the dot-com economy," he said.

The Internet services market in Europe is expected to grow 46 percent annually to $28.6 billion in 2004, up from $4.2 billion last year, according to International Data Corp. Nearly 50 million Europeans now have access to the Web, with 17 million going online for the first time in the past year, according to Forrester Research.

Most U.S.-based services firms will focus on connecting businesses to their partners and suppliers via the Web. In addition, demand is growing for wireless applications, an area where Europe is considered more advanced than the United States because the market has one unified wireless standard.

Interactive company Agency.com, for example, recently launched an interactive TV unit in Copenhagen that will deliver services to British Airways and others.

IDC analyst Pooneh Fooladi estimates that about 10 percent of revenues for Net services companies come from European clients, a number that is expected to increase to about 13 percent this year.

"The market (in the United States) is still in its infancy, but the next land grab is the European market," said Susan Scrupski-Miranda, head analyst for IT Services Advisory.

Scient is not the first services firm to stake an e-business claim in Europe. Consulting firms such as Andersen and KPMG have a huge international presence, though the bulk of their business in Europe has focused on more traditional consulting. Small to midsize firms--including USWeb/CKS, Proxicom, iXL and Razorfish--have also entered the European market by acquiring firms or opening their own offices.

Proxicom recently opened its fourth European office, in Rome, and landed a multi-million dollar e-commerce deal with French car manufacturer, Renault.

In 1998, digital services company Razorfish made a big European move, merging with Swedish firm Spray. Its clients include major corporations such as Nokia and Electrolux. Razorfish in 1998 also bought UK-based CHBI to create CHBI Razorfish. Last month, Razorfish acquired Qb International Holding.

Meanwhile, USWeb/CKS has aggressively pursued business in Europe. Last April, the company bought Case Consult, which expanded its European work force to more than 550 employees in eight countries. Case Consult has more than 140 consultants in Belgium, Luxembourg and the Netherlands.

In January 1999, USWeb/CKS bought Sysicom, a French networking and computer security products integrator.

USWeb/CKS, which plans to merge with services firm Whittman-Hart, has offices in France, Luxembourg, Switzerland, England, the Netherlands, Germany, Norway and Austria.

"Roughly 20 percent of our revenues comes from Europe, and that's growing very dramatically," said Rob Bailey, an associate partner at USWeb/CKS. The company reported $511 million in revenues last year.

Earlier this week, Boston-based Breakaway Solutions, which focuses its e-commerce hosting and consulting services on the midsize market, opened a London-based office, a year ahead of plans.

Breakaway, which already operates data centers in several locations across Europe, said it views international expansion as a huge opportunity. The company is also targeting Ireland and Amsterdam, said Adam Sholley, Breakaway's vice president of marketing.

Meanwhile U.K.-based Virgin Group has handed iXL a whopping $248 million contract to help build a portal that will connect all of the company's businesses--a diverse list that includes music, airlines, autos and financial services. iXL has offices in Germany, Spain and England.

While competition from local companies in Europe exists, Scient's Lochhead argued that U.S.-based companies have more experience building Web businesses.

"They view Silicon Valley and America as being ahead," he said. "We built e-businesses here, and they want the…Silicon Valley halo."