MarchFirst Woes Mounting

A handful of boutique Web integrators continued their collective death spiral last week with announcements of more dismal financial news and layoffs—all this amid a growing reluctance among clients to continue working with the shaky companies.

Topping the list, Chicago-based MarchFirst Inc. last week began a third round of layoffs that could result in as many as 3,500 jobs being cut—half the companys remaining staff. The news sent MarchFirst stock into a tailspin that stopped only when NASDAQ officials stepped in to halt trading at around 15 cents per share last week. According to sources, the company is being broken up to be sold in pieces.

At one time one of the largest boutiques with 9,400 employees and 72 offices, MarchFirst—the merger of back-end integrator Whitman-Hart and Web design company USWeb/CKS—has consistently lost money and has lately been shedding clients.

Williams-Sonoma Inc. once considered MarchFirst a "strong strategic partner," according to Shelley Nandkeolyar, vice president of the e-commerce division of Williams-Sonomas Pottery Barn. But as the news from MarchFirst got dire, the San Francisco home furnisher "felt somewhat concerned about its reliance on a single development partner," Nandkeolyar said.

Williams-Sonoma is now working with smaller, specialized contractors and is looking to move some development work in-house.

MarchFirst is not alone in its misery. Organic Inc. last week said it will cut 300 employees, or 35 percent of its work force. Viant Corp. last week went through its second round of layoffs, with 211 jobs being cut. Proxicom Inc. managed to hold out only until recently, when it announced its first round of layoffs at 227 jobs.

In addition to jitters about the stability of the integrators, the loss of key consultants is scuttling some projects. Harrahs Entertainment Inc. hired MarchFirst for a project last summer, but when the boutique lost its point person on the project, it lost its shot at any follow-up work, according to David Norton, vice president of loyalty marketing for Harrahs, in Las Vegas. The gaming company has since picked Sapient Corp. for additional work on its Total Rewards program site.

"We felt Sapient had enough bandwidth and revenue that they would be a solid player. We thought theyd be a good long-term partner," Norton said.

Industry observers agree that Sapient—even though its had its own layoff of 700 employees—is among the more stable boutique players.

But the real corporate confidence appears to be moving to large professional services companies, such as Electronic Data Systems Corp. and members of the so-called Big 5.

"The big brand names are growing at a 10 [percent] to 15 percent rate and arent having problems retaining talent," said Dean McMann, CEO at the Ransford Group, a professional services consulting company in Houston. "The nonbrands are crumbling."