Scient's Near-Death Experience

October 26, 2000 -- "All right, me buckos!" a pirate has seized the stage. It is Joe Galuszka, billed as the nation's only chief morale officer at a publicly traded company -- and clad tonight in some seriously swashbuckling finery. Eye patched, parrot affixed to his shoulder, he cries out the company cheer -- and the assembled faithful gleefully join in, shaking the gothic finials that adorn the ballroom atop San Francisco's Merchants Exchange Building.

This is a Halloween party, and Scient Corp. parties well. Its troops have special reason for merriment this evening: Amid the carnage littering the dotcom landscape, Scient's quarterly numbers, announced earlier in the week, were strong. The Internet consulting company's stock is in the tank, but its financials are, as these folks never, ever tire of repeating, "On fire!" (Also acceptable: "Awesome!")

"Does anyone know what our revenue was this quarter?" an executive demands of the crowd. A shout comes back: "$102 million!" That's more than double the sales of a year earlier. "What about earnings per share?" The revelers have read the press release: "Seven cents!" Awesome! The company is making money. Not truckloads of money, for sure, but more than most of its e-peers.

Tonight is about much more than self-congratulation, though. This is a party with a message, one that soon will prove unintentionally prescient. And here comes the message now -- just beyond Galuszka, 44, who is dancing his way through the crowd, parrot still shouldered, an umbrella splayed. It is the Scient coffin, weaving an unsteady conga path. A hooded grim reaper, unsteady himself but scythe at the ready, serves as pallbearer. Variously costumed acolytes carouse, New Orleans-style, behind.

Yes, it's a funeral parade. And the coffin is a metaphor. Inside it, well, that's part of the metaphor. You have to use your imagination. Inside, the new economy rests in peace.

That is to say, the new economy is ... dead.

December 7, 2000, the Wall Street Journal

"Scient Corp., amid an industrywide downturn in the market for Internet professional services and mounting competition from traditional consulting firms, said it will lay off 25% of its work force and warned of a loss for its fiscal third quarter."

Those Were the Days

What happens when half of your market vaporizes? When, overnight, the rules that defined how you play the game no longer seem relevant? When you can't give away products that clients begged for yesterday? When, without warning, the essence of your value proposition collapses?

You rethink everything. Quickly.

When the dotcoms tumbled to Earth last spring -- when their revenue models imploded and their stocks collapsed and their money plain ran out -- so did the upstart consultants that had both fed and fed off the online boom. The previous two years had been a wondrous blip, and that blip was now history. Something fundamental had altered the economics of the Internet.

What has changed is this: Internet startups no longer make the rules. Power has shifted, perhaps inevitably, back to the big guys. And those big guys, the old-line, brick-and-mortar giants, aren't panicking as they had before. They still want in on the Internet market -- but not if such a move means paying a fortune for some hastily assembled brochureware or some creaky online outlet store. They want something bigger than that, something thoroughly transformational -- and they don't mind haggling about how much it should cost. Scient and its consulting companions can't make money doing business as they had before.

Ah, before. Before had been good. The Internet consultants had appeared in the waning years of the millennium with New Age monikers such as Organic, Viant, and Zefer. They brought brains and technosavvy to the party. But they also brought buzz and mystery and edge, especially compared with old-line shops such as EDS or PricewaterhouseCoopers. They seemed suited to the Internet, which back then was about nothing if not buzz and mystery and edge. These young strategists, systems engineers, and designers knew how to build hot Web sites -- and knew how to build them fast. And that, clients convinced themselves, was what they needed.

"The Net thing was exploding, and those new consultants traded on fear," says Tom Rodenhauser, whose Inside Consulting newsletter tracks the industry. They capitalized on a company's sense of inadequacy in the face of a major technology dislocation. "Their selling point, basically, was 'YouSuck.com,' and they had presentations that would scare the bejesus out of clients. They said, 'It doesn't matter what industry you're in or where you're located -- we can take you online.' And clients said, 'Wow, they get it.' "