iXL Announces Layoffs as Consulting Business Slows Down

The success of iXL Enterprises(IIXL), like other Web consultants, has depended heavily on business from dot-com firms. Even if Internet companies didn't solicit the consultants' services, big global corporations, feeling the competitive pressure from dot-coms, surely would.

The Atlanta-based company appeals to those fears on its own Web site. "Blink. A dot-com company is after your market," a message on the site reads. "Click. Your customers are buying online right now. Bang! The starting gun for transforming your business has been fired."

Decision-makers beyond the Internet world are listening, but they don't hear any gunfire. As Internet companies dry up, burn through cash and scale back their electronic-commerce endeavors, the world's largest companies are following suit.

As a result, iXL, along with other Internet builders like Viant(VIAN), are struggling after months of heady growth. Now, less than 10% of iXL's business comes from dot-com customers, and iXL insists on payment from Internet firms up front, said Bill Getch, an iXL spokesman.

The problems for iXL continue to rise to the surface. It said late Wednesday that it expected to cut its 3,000-person workforce by about 12%. And less than a week ago, the company warned it likely would report lower revenue as well as a loss in the third quarter, and added that its president, William Nussey, had resigned.

The recent developments contrast sharply with iXL's rapid growth. The company, which acquired Tessera Enterprise Systems, a consulting company, in October, has watched its workforce double over the last year. Meanwhile, it has opened offices in most major U.S. markets, as it continues with operations in Britain, Germany, Spain and Japan.

"What's happening to iXL is happening to a lot of companies," said Eric Ross, an analyst at Donaldson Lufkin and Jenrette, the Wall Street firm that underwrote iXL's initial public offering. "But right now, it's happening more severely to iXL."

So iXL, perhaps more quickly than some of its competitors, is tightening its belt and preparing for new demands in a market still poised for growth. "iXL has responded to the weakness in demand better than most companies have," Ross added. "They are correcting the problem instead of letting it linger."

Mirroring iXL, Viant, based in Boston, said last week that it, too, would probably post a third-quarter loss, as opposed to a predicted profit, because of a diminished appetite from Internet companies, which in turn has lulled bigger corporations into complacency.

Amid all the disappointing news, investors have battered shares of companies that develop Web sites. Shares of iXL fell 50 cents, or 7%, Thursday to $6.44 and are well off their 52-week high of $58.75. Viant, once as high as $63.56, dropped another 25 cents Thursday to $7.88.

Instead of merely designing Web pages, companies like iXL are helping companies to integrate suppliers, distributors and customers, enhancing their electronic-business capabilities. And as corporations capitalize on a less competitive environment, taking more time to make Internet commerce decisions, Web consultants are moving to offer more sophisticated services.

"It's not as sexy as designing Virgin Atlantic's Web site," said Christine Overby, an analyst with Forrester Research. "But that's where the huge opportunity is." In February, iXL unveiled a $50 million contract to expand the Virgin Group's Internet site, Virgin.com.

In the future, the company may provide more technical help. An effort to enhance online worldwide reservations for Delta Airlines(DAL), another client, is a good example, iXL's Getch said. "There's still a lot of work out there," he added.

Overby suggested that the demise of the dot-coms is only one factor complicating consultants' attempts to get back to their once-lofty levels. Alternative services, from smaller consultants as well as companies like IBM and Andersen Consulting, are adding stress, she said. Consolidation in the industry, some say, is inevitable.

"They are blaming the hiccup on slacking demand from large companies," she said. "They say dot-coms are no longer a threat," she said. "But I think it's less about dollars shrinking and more about demand flowing into channels that weren't there before."

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