IDC: Net service firms catch IPO fever

IDC: Net service firms catch IPO fever

Internet service firms are going public at a rapid rate as they try to keep up with growing demand for more sophisticated Web projects, according to a recent report from International Data Corp.

Nine Web services companies filed for initial public offerings (IPOs) during the first half of 1999, all indicating their intention to grow in order to meet customer demand, Pooneh Fooladi, an author of the report, said last week.

"The complexity of Internet projects is increasing," Fooladi said. "The projects they work on are no longer front-end Web designs. They're end-to-end projects where you need to do back-end solutions such as integrating the new site with the existing system."

Internet service firms were defined by IDC as those that provide all services -- from systems integration to Web design -- associated with the development of an Internet or e-commerce site.

To win and keep customers, these companies are seeking to hire more people with varied skills. Often, the acquisitions are fueled by funds generated from IPOs.

"If you can't staff a multimedia project, you'll be locked out of deals," Fooladi said. "Companies are acquiring a wide array of skills so they can capture Internet service projects."

The nine firms filing for IPOs -- AppNet Systems, iXl Enterprises, Modem Media, Poppe Tyson, Proxicom, Razorfish, Scient Corp., US Interactive Inc. and Viant Corp. -- boasted an average revenue growth rate of 455 percent between 1997 and 1998, she said. That red-hot rate resoundingly topped the 71 per cent average revenue growth of the overall Internet services market, according to Fooladi.

The eight firms said they sought the additional funding to help them increase personnel, sales and marketing, she said, adding that buying skills and technology is a common growth strategy in the industry. In one example, Razorfish, which is best known for its creative design skills, is using new funds to acquire i-Cube, a systems integrator.

"When a client comes to us, they don't have to piecemeal a project," said Len Sellers, managing director in the San Francisco office of Razorfish, which is headquartered in New York. "Our clients are increasingly large and global."

The report is called "Internet Services Firms Going Public: What is the Market Impact?"

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