marchFIRST, Inc.

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marchFIRST, Inc.

311 S. Wacker Drive, Suite 3500
Chicago, Illinois 60606-6621
U.S.A.
Telephone: (312) 922-9200
Toll Free: (800) 426-7767
Fax: (312) 913-3020
Web site: http://www.marchfirst.com

Public Company
Incorporated: 2000
Employees: 8,500
Sales: $1.13 billion (1999 pro forma)
Stock Exchanges: NASDAQ
Ticker Symbol: MRCH
NAIC: 541810 Advertising Agencies; 541512 Computer Systems Design Services; 541611 Administrative Management and General Management Consulting Services; 541613 Marketing Consulting Services

marchFIRST, Inc. was created on March 1, 2000, by the merger of two firms that provide electronic commerce and information technology (IT) consulting services, Whittman-Hart Inc. of Chicago and USWeb/CKS of San Francisco. Upon its formation, marchFIRST had 8,500 employees in 64 cities and 14 countries worldwide. For 1999 it had pro forma revenues of $1.13 billion.

Specializing in Information Technology and E-Business Solutions: 1984-99

Robert Bernard established Whittman-Hart Inc. in 1984 to provide computer services related to IBM’s mid-range computers. Throughout the 1980s and 1990s, the company developed an expertise in business systems integration. It eventually became a leading provider of IT (information technology) and e-business solutions. It focused on mid-size companies and divisions of larger companies, a niche market where it faced less competition. The company was organized into five business units: solutions strategy, network enabled solutions, interactive solutions, packaged software solutions, and custom applications.

At the end of 1997 Whittman-Hart employed more than 1,900 consultants, up from 844 at the end of 1996. Nonetheless, it was facing a shortage of high-quality consultants and programmers. For fiscal 1997 the company had $173.5 million in revenue. For fiscal 1998 Whittman-Hart had sales of $307.6 million, a 69 percent increase over 1997. Earnings rose 88 percent to $18.8 million compared to 1997. During the year it opened new branch offices in Atlanta and Minneapolis and completed four acquisitions. At the end of 1998 the company’s workforce had grown to 3,000 employees.

In March 1999 Whittman-Hart acquired Waterfield Technology Group, based in Boston. In May it acquired POV Partners Inc. of Columbus, Ohio. The company was pursuing a strategy of opening new branch offices every 90 to 180 days. During 1999 it opened offices in St. Louis and Pittsburgh. Each branch that Whittman-Hart opened grew quickly.

In October 1999 Novell Inc. announced it would invest $100 million in Whittman-Hart for a six percent ownership interest. Novell hoped the alliance would increase the use of Novell Directory Services (NDS) in e-commerce and other tasks by the 2,000 small and midsize companies that were Whittman-Hart’s clients. Under the alliance Whittman-Hart would develop custom solutions using NDS software, which managed and directed traffic on computer networks.

During 1999 the company’s revenues benefited from more demand for its e-business services, including front-office applications and customer-relationship management systems on the Web. It acquired several companies to strengthen its e-business services, including Four Points Digital LLC, Fulcrum Solutions Ltd., and BALR Corp. By the end of 1999, 90 percent of the company’s projects were related to electronic commerce. In 1999 Robert Bernard, 38, made Fortune’s first list of the “40 Richest Americans under 40.”

USWeb, Focusing on Web Site Design and E-Commerce: 1995-99

USWeb was founded in 1995 by three former executives of Novell Inc.—Joe Firmage, Tobey Corey, and Sheldon Laube—to provide Internet-related services. They raised $14 million in venture capital and went public in December 1997. The firm was headquartered in Santa Clara, California.

USWeb needed to grow quickly to take advantage of the opportunities in electronic commerce and the World Wide Web. Before going public the company enlisted existing Web-design firms as affiliates to operate under the USWeb brand. By mid-1997 USWeb began buying its affiliates and grew to more than 1,000 employees at the end of 1997. Over the next two years USWeb acquired more than 35 smaller companies.

Late in 1998 USWeb merged with the CKS Group Inc., an advertising and marketing firm based in Cupertino, California, that USWeb acquired for stock valued at more than $540 million. In November 1998 Robert Shaw, former executive vice-president for worldwide consulting services at Oracle, replaced USWeb cofounder Joe Firmage as CEO of the new company to be formed by the merger of US Web and the CKS Group Inc. The new company was originally to be called Reinvent, but the name USWeb/CKS was used instead. It had about 1,800 employees when the merger was completed in December 1998. For fiscal 1998 the company reported a loss of $188.3 million on revenue of $228.6 million, compared to a loss of $50.7 million on revenues of $114.3 million in 1997.

Firmage, who was to be the new company’s chief strategist, stepped down after his beliefs that space aliens have influenced modern technology became known. Firmage revealed he was working on a book about how modern technology was reverse-engineered from an alien space ship recovered at Roswell, New Mexico, in 1947. He also set up a web site called Kairos and invested $3 million to establish a nonprofit group, the International Space Sciences Organization. In 1999 Firmage formed a start-up Web development company called Intend Change with USWeb/CKS president Tobey Corey and other former USWeb/CKS executives. USWeb/CKS was one of several backers of the new company and would provide its technology as part of the partnerships Intend Change hoped to establish with other Internet start-up companies. Intend Change also hoped to partner with Fortune 500 companies seeking to establish Web-based subsidiaries and divisions.

Among the projects USWeb/CKS handled in 1999 were a new ad campaign for Fujitsu PC Corp. for its LifeBook notebook computers; the development and launch of Jenny Craig’s web site; and the launch of Walgreen Co.’s full-service e-commerce web site that included an online pharmacy.

In early 1999 USWeb/CKS launched a new e-services division for outsourced application services covering electronic commerce, communications and knowledge management, customer relationship management, and back office. These applications, which ranged from entry-level to enterprise-level, could be integrated into a company’s existing business systems. They were offered on a subscription basis.

In the second quarter of 1999 USWeb/CKS acquired international technology consultant Case Consult, which added 140 employees in Belgium, Luxembourg, and the Netherlands. Case Consult specialized in building Internet applications for businesses. USWeb/CKS had acquired five Internet services companies in Europe and established its own office in Norway. The company was seeking to expand its worldwide business development efforts and had more than 550 employees in eight European countries. Meanwhile, USWeb/CKS moved its headquarters from Santa Clara to San Francisco in the summer of 1999. For the second quarter of 1999 USWeb/CKS exceeded $100 million in quarterly revenue for the first time.

Around this time Rick Markovitz, former senior vice-president and general manager of BBDO Worldwide’s interactive division, joined USWeb/CKS as a partner for integrated marketing communications. Through integrated marketing communications, USWeb/CKS offered its clients the opportunity to develop their brands through interactive advertising and marketing campaigns.

In September 1999 USWeb/CKS acquired Mitchell Madison Group for about $300 million in stock. Mitchell Madison was a consulting firm with about 550 consultants specializing in banking, investments, and communications. Following the merger, Mitchell Madison cofounder Tom Steiner became president and chief operating officer of USWeb/CKS and a member of its board of directors. He replaced USWeb cofounder Toby Corey, who remained as a strategic consultant.

In October 1999 Microsoft announced it would invest $67.5 million in USWeb/CKS over the next three years and purchased a $15 million warrant to buy one million USWeb/CKS shares over the next five years. The two companies planned to open a technology-development lab in Redmond, Washington, later in 1999. As part of the agreement, USWeb/CKS would develop, host, and manage custom e-commerce, knowledge management, customer-relationship management, and back-office application using a software infrastructure called iFrame based on Microsoft’s Digital Internet Architecture (DNA) 2000. Microsoft would receive royalties on sales of the iFrame platform. For the third quarter of 1999 USWeb/CKS revenues reached $138.9 million, more than double the same period in 1998.

Company Perspectives:

In the new economy, sustaining industry leadership and competitive advantage requires a radically new level of business integration. marchFIRST leads this revolution by combining the disciplines necessary to win the digital economy with the global scale and reach needed to take on leading-edge challenges worldwide. At the core of marchFIRST is a multidisciplinary focus that helps clients build visionary business models, brands, systems, and processes.

In December 1999 USWeb/CKS introduced IAMcommerce (Internet Application Management), a set of consulting, strategy, hosting, and integration services for enterprises that wanted to set up e-commerce sites. Customers would pay a $25,000 base fee and a monthly subscription fee based on the amount of processing required. As a customer’s e-business expanded, it would pay a larger monthly fee, an approach dubbed “pay-as-you-grow.” The applications could be customized for individual customers and integrated with back-end systems. The service was expected to be available in mid-2000.

At the end of 1999 USWeb/CKS had a market capitalization of $3.1 billion, less than six times revenues. The company’s stock was relatively depressed, due to a complex equity structure resulting from nearly 50 acquisitions—many of them involving stock deals—over the past three years.

Creation of marchFIRST Through Merger: 2000

When the proposed merger of USWeb/CKS and Whittman-Hart was announced in December 1999, investors were taken by surprise. The market capitalization of the two companies, initially around $5.88 billion, lost a combined $2 billion following the announcement, a drop of almost 23 percent. Whittman-Hart’s stock plunged 31 percent, while USWeb/CKS’s shares fell almost 14 percent.

On March 1, 2000, the merger was completed. Robert Bernard, chairman and CEO of Whittman-Hart, became the new company’s president and CEO. Robert Shaw would serve as chairman. The new Internet professional services firm had more than 8,500 employees in 64 cities and 14 countries worldwide. A formal brand launch for marchFIRST was planned for the summer of 2000.

In addition to providing professional services related to electronic commerce and the Internet, marchFIRST introduced other initiatives. One was the launch of Blue vector, a venture capital organization that would invest in new companies and new technologies. The second was a new global practice, the Corporate Partnership Practice, that would seek out clients and build partnerships among Global 2000 companies and executives.

The market for e-commerce services in North America alone was projected to grow to $80 billion by 2003. With its global network of offices organized into five geographic operating units, marchFIRST was positioned to capitalize on the growth opportunities of the Internet and e-commerce services market. Its clients represented a wide range of industries, including manufacturing, distribution, healthcare, transportation, financial and business services, retail, and communications.

Principal Competitors

KPMG Peat Marwick; EDS; Andersen Worldwide; McKinsey Consulting & Co.; Scient Corp.; Razorfish Inc.; Proxicom Inc.; Sapient Corp.; iXL Enterprises Inc.; AppNet Systems Inc.; US Interactive Inc.; Viant Corp.; Cambridge Technology Partners Inc.; Keane Inc.; MPL2.com Inc.

Key Dates:

1984:: Robert Bernard establishes Whittman-Hart Inc. to provide computer services to mid-sized companies.
1995:: US Web is founded by former executives of Novell Inc. to provide Internet-related services.
1998:: USWeb merges with the CKS Group to form USWeb/CKS.
2000:: marchFIRST is created by a merger of Whittman-Hart Inc., based in Chicago, and USWeb/CKS, located in San Francisco.