Razorfish: Service Providers for the New Economy

MUNICH (05/01/2000) - Web design and e-business consulting firm Razorfish Inc. offers one of the most sought-after types of services today: competent, speedy and flexible support services for companies setting up digital businesses.

Computerwoche reporter Gerhard Holzwart spoke with Razorfish founder and Chief Executive Officer (CEO) Jeffrey Dachis about his company's strategy and perspectives.

CW: The market your company is involved in is still very young -- with all the unknowns that go along with this. Many IT companies are reluctant to forge alliances with newcomers like Razorfish. What kind of company is Razorfish -- a multimedia agency, an Internet service provider, a software provider?

Dachis: We understand what remains after all the hype, what modifications the old industries will have to make. We have developed at such a breathtaking pace that at times we had to redefine ourselves on a daily basis. But kidding aside:

Razorfish is nothing more than a provider of professional services. It could be that this disappoints you, to know that we are no different from a traditional management consulting or accounting firm, an investment bank, or a systems integrator. We offer know-how at a fixed hourly rate.

CW: What does this have to do this with the dot-com mentality adopted by your company?

Dachis: I admit that it is delicate for us to be thrown together with traditional service providers. This is about the last thing we want, because our goals, visions and structures distinguish themselves tremendously from those of the old economy. I only use this comparison when I want to emphasize the seriousness of what we do. Let's agree on one thing: Razorfish is a provider of digital solutions. We introduce the corresponding tools into the company, and in doing so, provide added value. When we do that, we deal with whole control system operations, therefore undertaking re-engineering procedures.

CW: This sounds a lot like a new facet of traditional management consulting.

Dachis: I would not simplify it in this way. Our service offering is a very complex and hybrid combination of strategic management skills, IT and implementation know-how, and we claim to deliver the highest design quality.

Just so there are no misunderstandings, we do not simply putter around a Web site, making changes. We do however, when it is appropriate, get heavily involved in the logistics, accounting, merchandise management systems and warehouse management of our customers.

CW: Does that make Razorfish an ERP (enterprise resource planning) service provider with a modern model?

Dachis: I have fundamental problems with labels that stem from an old world. We make all the relevant company data transparent for digital business - both in terms of the companies and their customers. Coincidentally, today the topic of discussion should have been the Internet and the PC as a terminal. Tomorrow, the mobile phone will be the hot topic -- Web-capable mobile phones and PDAs (personal digital assistants), for example. It is anachronistic to still philosophize about relevance or non-relevance of an Internet agency. In the same way, it is not advisable any longer to keep using the terms e-business and e-commerce. The Internet has established itself as a reality, a daily business.

We help companies survive in it.

CW: It will also be interesting to see how a company such as Razorfish can secure its future. A former startup that now employs almost 1500 people must above all cope with such big growth, while at the same time taking a large step as a full service provider in the so-called New Economy. How do you actually attract the many specialists needed for your personnel-intensive business?

Dachis: By living what makes us most attractive for others: a passion for the digital revolution. We work with a lot of young people who grew up with the Internet, game console, or other high-tech toys. We understand what remains after the hype, and what modifications old companies must make. We can explain the new business models that will win the game, because they are faster, more efficient and economical. Service provider for the New Economy - that describes it rather well.

CW: Nevertheless we want to know how you will control your own growth and link it with your own culture of the underdog.

Dachis: For one thing I assume that we have not lost anything because of our large growth, in terms of our culture. On the contrary: We have gotten stronger because we have more people who think and feel alike. In addition, we use traditional tools, for example in the area of knowledge management. And we inspire a team spirit -- the biggest value we have. Name another company that can successfully send all its employees to Las Vegas for three days and tell them, ''Let's have fun.'' CW: And what do you do when one day Razorfish has 15,000 employees instead of 1,500?

Dachis: At the time of this event, we had around 1,200. But we will also find a fitting place for 15,000 people.

CW: Do you see the danger that your company - with continued success - could suffer the same fate as other prominent IT firms like Hewlett-Packard (Co.) or Compaq (Computer Corp.), who at one point had to admit they had become slow and out of date. Do you really think that you can keep maintaining the image of an Internet startup much longer?

Dachis: I have never seen Razorfish as an Internet startup. We jump-start others into the New Economy, and have understood faster how to do this. And success confirms that we are right. In addition, I see no comparison between us and Hewlett-Packard and Compaq; these are just two unimaginative hardware companies. A more fitting comparison would be to EDS (Electronic Data Systems Corp.) or Andersen Consulting Inc. However, let's take Andersen. They are adding thousands of employees every year, but their growth rate is only between 10 and 20 percent.

CW: This is exactly what I'm talking about.

Dachis: We do have the ambition to grow between 300 to 400 percent every year.

This does not mean that at Razorfish we have more than a thousand people running around aimlessly. We are represented in seven countries and eleven regional centers, and we see ourselves as a global player. This presupposes a minimum of organization. But it must be effective. Therefore, our worldwide expansion is structured horizontally according to skill sets and vertically according to industries. Each of these skill sets includes a maximum of 50 employees that each represents the entire know-how of the company. By doing this, we ensure that we can operate independently of the large corporate structure when it comes to strengthening business units and project responsibility.

CW: Is there a characteristic profile of your customers?

Dachis: We were never so arrogant as to refuse a job. But a manufacturer of bathroom mountings, to use a somewhat vivid example, will not be the focus of our attention. We concentrate mainly on large-scale enterprises - in industries in which the focus is on digital business. Take for example the banking and insurance sectors, where it is not so much about improving competition through the help of the Internet, but on surviving in the new economy.

CW: Apropos competitive capacity, what is the much talked about unique selling point of Razorfish?

Dachis: We have a global presence that none of our competitors can provide.

U.S. companies such as Proxim and US-Web/CKS have no leg to stand on in Europe; companies like Pixelpark, Cable New Media or Icon Medialab are not represented in the U.S. market. In addition, we can immediately begin building an integrated strategy and technology consultation, while the others must first work on Web design, systems integration, or their e-business services in an attempt to become full-service providers. And we have 700 specialists in our development team, which is bigger than many of our competitors. Last, but not least, we saw early on the huge growth potential of emerging markets such as mobile Internet and WAP.

CW: In particular, the European market has seen a lot of consolidation among Web agencies and service providers. Is there not a danger that additional mergers will create a new, more potent competitor?

Dachis: I think that I have just described at length our very good position on the market. In this respect, we do not have to hide from anyone.

CW: Not even from Bertelsmann subsidiary Pixelpark, which has declared its world market aspirations?

Dachis: I consider Pixelpark chief Paulus Neef a friend and colleague. To announce aspirations is one thing, but another to actually put them into practice. By looking at the price development of the stocks, you could see what the analysts thought of the merger plans of Pixelpark and the Swedish agency Cell Network. Here, the alliances were only based on business numbers. But one cannot simply buy sales. This does not work because ultimately, it comes down to team spirit and culture. The ideas, coupled with the enthusiasm of the people -- these things are decisive in the case of a service company. Viewed in this way, Pixelpark's misfortune when the merger failed was luck in disguise.

As far as the consolidation of the market is concerned, which can also be observed in the U.S., I can tell you very clearly: Razorfish will remain one of the top three leading providers in the world market.

CW: But you have not exactly been reluctant about acquisitions in the past. You even made a deal to buy the integration specialist I-Cube for about US$700 million.

Dachis: That was a reasonable purchase because we gained some missing know-how too, and it did not result in direct competition to us.

CW: If I understand you correctly, you are categorically ruling out the takeover of companies that represent direct competition.

Dachis: I would not put it exactly this way. If the choice is to eat or to be eaten, our preference is clear. At the moment however, this is not a realistic scenario, at least with respect to the evaluations of companies on the new markets (in Europe).

CW: Pixelpark and SinnerSchrader have - according to their business figures - a market capitalization you can only dream of. Is this what you mean?

Dachis: I would make a somewhat more realistic appraisal of the substance of companies. You can look at whatever you want: sales, profit, cash flow, productivity per employee - none of our competitors is better in any of these areas, in fact quite the opposite.

CW: How do you want to counter the current negative atmosphere on the stock market?

Dachis: We will continue to go about our job in a professional manner. Analysts are like lemmings, chasing after trends. Yesterday it was the Internet hype, today it is the great hangover in the Web business. However, Razorfish will always belong to the group of companies earning money on the Internet.

Therefore, I don't worry about the mid-term development of our stock.

CW: Can you support your forecast with concrete numbers? Where will your company be in three years?

Dachis: I must be cautious so as to not irritate the investors. But I can imagine approximately 10,000 employees and a billion dollars in sales -- including us being in the black.

CW: We are sitting here at the German Razorfish subsidiary in Hamburg. Just one floor beneath us is an Arthur Anderson office. An interesting neighborhood, don't you think?

Dachis: I assume you are referring to the existing competition between large consulting firms?

CW: You yourself earlier compared Razorfish to Arthur Anderson and EDS.

Dachis: But only in a broad sense. We determine the trend, the others lag significantly behind. We have long arrived onto the hallowed halls of the big companies. Here of course we also encounter the so-called Big Five. But when they open the door to leave, we march in. What appeals to the young freaks, where does the Internet generation go to have fun and success? And where do the clients turn when they want to enter the digital business? I don't need to answer these questions. Go down to the next floor and look around. Then you can give me the answer.

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