Fortune Magazine
A year ago, a lot of people dismissed USWeb/CKS. The San Francisco startup had been on an acquisition binge, using its stock to scarf up dozens of smaller rivals in the Web-design and Internet-consulting businesses (the clunky name comes from its biggest merger, between Web-design firm USWeb and Internet ad agency CKS last December). Then-CEO Joe Firmage defends the mergers as a "talent grab" aimed at creating the biggest Internet professional services firm on the planet. But critics derided USWeb/CKS as an egregious example of an Internet meteor with a pumped-up valuation and little more. It was hard to see how all those pieces would ever add up.
Enter new CEO Robert Shaw. From an austere office in the corner of the company's warehouse headquarters in San Francisco's trendy South of Market area, the 51-year-old Shaw is out to bring order and discipline to the squads of young consultants, Website designers, writers, Unix programmers, advertising people, and e-commerce experts who bustle around trying to help clients like Chevron, Walgreen, Harley-Davidson, and Sears establish themselves on the Web. "The challenge," says Shaw, who was recruited from Oracle last fall, "was to move from a charm bracelet to a Swiss watch."
In his year as boss, Shaw has come a long way toward melding 48 firms into one big one. Not only has USWeb/CKS maintained its No. 1 position in Internet consulting against hot startups like Scient, Proxicom, and Viant; but Shaw has also positioned the firm shrewdly against giant, old-line consulting companies like EDS, Booz Allen, and McKinsey, which all want a piece of the Internet consulting action.
Most of the firms that USWeb/CKS swallowed were small technology consultants focused on the Internet. The bulk of the company's creative talent comes from CKS, a 650-person advertising outfit that was among the Internet's largest, with clients such as Apple Computer, Citibank, and General Motors. USWeb/CKS added high-level strategic consulting expertise only recently, with the acquisition in September of Mitchell Madison Group. Founded in 1994 by 30 ex-McKinsey consultants, MMG had grown to 550 professionals focused on financial services, telecommunications, and health care. "It was a perfect match with us," says Shaw.
Many of the CEO's moves to unify the company involve business nuts and bolts. He instituted common billing procedures, put in common financial software, and spelled out common methodologies for solving client problems. The combined effect of such workaday changes has been huge: USWeb/CKS now functions more like a coherent whole and can take on larger clients and projects. "Today 80% of our clients are served by more than one office," says Shaw. "Our top 30 clients are north of $5 million [in contracts] each." In the third quarter, the firm posted revenues of $139 million, more than double those of the same period last year. Excluding $64 million in noncash charges related mainly to acquisitions, the company posted earnings of $12.2 million.
In many ways, Shaw seems made for the job. During six years at Oracle he built the software giant's 300-person consulting business into a 15,000-person, $2.5-billion-a-year operation. Before that he'd headed Booz Allen's San Francisco office and Coopers & Lybrand's information-technology practice. Besides knowing how to run a traditional consulting operation, Shaw, it turns out, revels in the diversity of Internet consulting, a business in which a project may involve nearly as many artists and marketers as computer programmers. "I spent a lot of time interviewing him, and I found out he really dug the creative side," says Chairman Mark Kvamme, the adman who headed CKS before it merged with USWeb. He says Shaw has emerged as "one of the largest proponents that we need a full, integrated offering of services."
Offering a panoply of services -- advertising, application programming, strategic planning, Web design -- is what distinguishes USWeb/CKS from many of its competitors. Clients like the idea of one-stop shopping because it speeds their transition to the Web. Instead of going, say, to McKinsey for an e-commerce strategic plan, Razorfish to have a Website designed and built, Andersen Consulting to have the site integrated into the company's existing enterprise software, and Modem Media. Poppe Tyson for an Internet advertising campaign, a client can get it all at USWeb/CKS. "Companies don't have time for that anymore," says Shaw.
Here's what USWeb/CKS did for Williams-Sonoma. The upscale specialty retailer hired the company a year ago to construct Websites for each of its brands, including Pottery Barn home furnishings and Williams-Sonoma kitchenware. The tricky part was that orders placed via the Web had to be processed and shipped by the company's existing $500-million-a-year catalog business. This meant linking new Web-server software to Williams-Sonoma's IBM AS/400 minicomputers running 13-year-old applications. Says Patrick Connolly, executive vice president and general manager of Williams-Sonoma's catalog and Web businesses, USWeb/CKS "had some people in their Minneapolis office who had spent years working at IBM on the AS/400. We didn't find that combination of technical, retailing, and creative talent anywhere else." Once the new software was working, USWeb/CKS began rolling out the Websites -- for a bridal service in June and for Williams-Sonoma kitchenwares in October; the Pottery Barn home furnishings site is due next spring.
"These guys became very dedicated to our project," says Connolly. "They knew more about our products than I do. I don't think we could have attracted that sort of talent to do it ourselves."
Helping older companies move onto the Net is the main reason USWeb/CKS and other new Internet consultants like Scient, Proxicom, and Viant have emerged. The market for Internet professional services is expected to grow from $4.6 billion in 1998 to $43.7 billion in 2002, according to IDC in Framingham, Mass. The lure of such growth has attracted older and larger consulting firms that largely missed the first Internet wave. "They were fat, dumb, and happy doing big ERP projects," says Shaw. "But these guys are starting to figure this out." The prospect of competing against the likes of EDS explains why it was important for USWeb/CKS to get big fast, he says: "To compete with those guys you're going to have to have some scale." USWeb/CKS now has 4,100 employees: including 550 in New York; 450 in San Francisco; 250 in Los Angeles; 200 in London; and 200 in Silicon Valley. Much of the recent growth in head count comes from hiring rather than acquisitions -- 400 people in the last quarter.
Despite Shaw's efforts, investors remain largely unimpressed. USWeb/CKS stock has edged up only slightly in 1999. The company's market capitalization of $3.1 billion is less than six times revenues, a multiple far smaller than those of smaller rivals like Viant and Scient. Analysts say the stock is relatively depressed for several reasons. The firm's equity structure is unusually complex, the result of all the acquisitions and the stock deals promised to key personnel at the acquired companies. The acquisitions also resulted in a much larger stock float than at comparable companies, so there is no scarcity factor to push up the stock. There has also been controversy and confusion over accounting practices, such as the company's methods for amortizing goodwill. And investors retain doubts that all the acquisitions have resulted in a cohesive whole. In sum, Shaw figures, investors are still saying, "Show me." He may well have the company ticking as finely as a Swiss watch on the inside, but he'll need a while longer to buff up the outside so that more investors will give it the time of day.
**Reprinted from Fortune Magazine, December 6, 1999