Digital strategy can impact the entire business operations of the client, and hence a broader strategic (global) analysis of an established client becomes necessary. To provide for this front end, Razorfish is slowly developing the expertise and building its credibility through hiring, sitting on industry panels, and developing processes to fit the new environment. Bringing in industry specialists is always the good move, but it takes referenced clients to help you (who often recommend you to others) really move ahead, as well as an impressive procedure that delivers quick results. Razorfish still has a ways to go before it becomes the natural trusted advisor to CEOs and corporate boards. However, Razorfish claims to having already beaten out the likes of Andersen on a number of occasions.
The other aspect Razorfish brings to the table is its multidisciplinary approach and 'fresh thinking'. In this day of fast changing business environments that rapidly are becoming interlaced with cross-industry technologies, there is a requirement for cross-fertilization of ideas, and hence a user may look at Razorfish to get new perspectives in the digital realm. One example given by Razorfish health industry specialist Mike Parker is the use of wireless digital technology in healthcare: a dentist for example may view a digital reproduction of an X-ray while simultaneously caring for the patient, using a mobile device conveniently located for viewing - the lack of wires being a great aid against clutter. The broader implications of this technology can of course be seen in other areas of Healthcare, health care service providers (doctors, hospitals etc.), heath care delivery instrumentation industries, manufacturers, VARs, etc. to which vertical industry specialists can provide insight.
However, proper processes and management tools need to be developed, proven, and used in a number of engagements if Razorfish is to be a serious contender. Their slow approach is reasonable given that they need to create these tools as well as internal knowledge dissemination structures. Further, as a transcontinental company, Razorfish has equivalent leaders on both sides of the Atlantic who must coordinate their efforts.
There is also a fairly broad line between proper digital business strategic analysis and getting to know a client's business in order to create a website, something the user should be aware of. Razorfish is aware of this issue, and as such it is establishing internal business development programs for its technical and managerial staff.
Thus Razorfish's early successes have and will continue to hamper its ambitions at least in the U.S. market: those successes were founded on their ability to do neat websites, and website building - once done - that could be taken over by less expensive and less sexy outsource organizations or internal MIS departments. Another issue is the persona of the acquired companies. Clients of these companies now have a partner with more to offer than previously, as in the case if I-Cube customers. Hence the need to provide an all round set of services - or at least give the appearance of doing so - is paramount if Razorfish wants to move ahead. In Europe it may have more success through its acquisitions, but in essence, Razorfish has a branding problem of its own. Thus the first and fourth components of the EES - discussed below - are currently out of Razorfish's reach. However, we predict that Razorfish should be able to lay claim to the strategy piece within the next year to eighteen months.
In another direction, Razorfish has a major desire not to be so dependent on a few clients, but the reality is that it will continue to derive a significant portion of its revenues from a limited number of larger clients (probability 90%). However, as the company's revenues grow, the anticipated dependence on single clients accounting for more than 10% of revenue should decline. In 1998 one client accounted for about 25% of the company's revenue. With a revenue growth of over 400% from 1998 to 1999 (due largely from acquisitions), and the size of major contracts almost doubling, at least more new clients are being added. USWEB, another DBSP, reports its contract sizes have about doubled on average, confirming the market is tending toward larger sized contracts requiring more services. However, part of the revenue growth, - approximately 15-20%, was due to a 30% increase in billing rates to some major clients in January 1999. This adds some weight to the likelihood that Razorfish is having some difficulty in leveraging itself into larger contract sizes, though the acquisitions blurs this analysis as does its recent international acquisitions .
Acquisition as a revenue generator is working well for Razorfish. The dramatic revenue jumps (Figure 1) in 1998 and 1999 were largely the result of acquiring I-Cube and Spray respectively, as well as through market growth (an estimate shows about half the year-to-year increase). The larger acquisitions were accounted for mostly through stock option exchanges and some cash. Razorfish's earlier smaller acquisitions in 1998 were cash deals. Another troubling trend is the rising cost of personnel shown in Figure 2. In January 1998, Razorfish raised its rates by 30% to at least one major client, though the apparent modest rise in relative manpower costs is masked by acquisitions and expansions. Figure 1 indicates the impact on the bottom line of Razorfish's acquisitions.
One area where Razorfish can have a major strategic development impact and follow-up long term partnering is with new dot-com companies well funded by Venture Capitalists (VC's). These companies often start with a good business idea, often by someone well versed in the industry. Someone, for example, familiar with the automotive parts industry realizes that this is a perfect industry for an online auto parts mart. This happened in the case of partsdriver.com for which Razorfish built the website and the backend integration. However, translating the idea into a working website means that the strategic concepts must be worked out as the business model is translated into the digital medium. Razorfish's expertise shined in this example, though it is a more confined problem than a complex pre-existing brick and mortar company changing or adding spots to its current organization.
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