Razorfish: A Pure Play Offering Digital Strategy

Vendor Genesis

Razorfish, Inc. is a Digital Business Service Provider (DBSP) founded in 1995 by Jeffrey Dachis and Craig Kanarick. Its motto of "everything that can be digital, will be digital" has carried it forward into many digital technologies, acquired largely through acquisition and organic growth, spread over two main geographic domains - North America and Europe.

In this vendor note, we examine how Razorfish goes about the process of taking on an engagement. We will review in particular its capabilities to perform strategy management consulting, and what exactly it is that the company delivers under this umbrella. In a previous article, "Razorfish Wants to Get its Name Out on Broadband" we discussed Razorfish and its ability to deliver its services, and at the time did not find Razorfish offered true Strategy consulting. In this article, we revisit Razorfish, and clarify the situation, particularly as Razorfish has developed its practices and gone through a number of acquisitions to strengthen its capabilities, particularly in Europe.

For more information on how pure play DBSPs are adding Consulting Strategy to their offering see Strategy: What Digital Business Service Providers Mean When They Say It. There are three phases to the DBSP Consulting Strategy:

Phase I Operational Implementation

Phase II Pre-Release Validation and Testing

Phase III Post Release

Vendor Strategy and Trajectory

Razorfish has developed what it calls User Intelligence . User Intelligence provides Razorfish with the three phases of the Strategy development, composed into four parts, which are:

• Segmentation and Value proposition development
  
  
• Early Usability and value proposition testing
  
  
• Psychometric and Functional Usability Testing
  
  
• Post-launch validation and review

The first two items above correspond with Phase I strategy components, the third and fourth with Phases II and III respectively. In connection with these phases are four functional consulting units consisting of, respectively:

• Strategy - including value needs analysis for users of the business and branding
  
  
• User Experience group which develops the user experience of the website ranging from sounds to other multimedia and image
  
  
• Technology - hardcore architects, systems analysts, and programmers
  
  
• Producers - as with a movie set, these are the people who coordinate web designers and marketing, and orchestrate the creation of the e-business

Currently, Razorfish has 35 people dedicated to its User Intelligence team, with regional centers in London and New York. The expertise of these associates are linked through Razorfish's internal network. When necessary, these core personnel will travel to bolster local teams. Each office generally has at least one proponent familiar with User Intelligence tools and methodologies.

Regional Differences in Services

The user may find that there are regional differences in services largely due to the environment and the way in which the service provider has grown up. In Europe, Razorfish has acquired talent in the areas of strategy through its acquisition of Qb (focused in IT). In the US, i-Cube had acquired Conduit prior to itself being absorbed by Razorfish, which provided Razorfish with digital management consulting expertise. As Razorfish (US) grew up as a creative web designer, it still has that image for many. End-to-end services, however, according to Richard Sparks (Razorfish, London) is more in demand in the US at this time than in Europe. The exchange of skill sets benefits both partners, but the message probably still has to permeate the user community. This is part of Razorfish's challenge, and also makes clear its position.

Another example of a regional difference is in systems integration. Much of the heavy lifting in Europe to integrate customer systems to web-enabled products may be outsourced to other vendors, partly because this may not always be what Razorfish finds value in doing. In the US, Razorfish, since its acquisition of i-Cube, has had a larger capacity to deliver systems integration solutions. Razorfish and other pure plays are keen to ensure their market niche, and will not (or should not) try to be everything for everyone, though this message can get somewhat confused because of regional capabilities and histories.

In theory at least, the internal capabilities of the 'Razorfish global' should appear as one seamless whole. In practice it is not always practical because of cost, time and talent availability. The strategy component is one of the most financially leveragable components of the service offerings, and therefore it can make sense for a vendor to fly in a strategist specialist from another part of the globe for a particular engagement. Technical expertise, on the other hand, may not be worth the added cost, and could also provide service remotely if necessary. Scient, for example, has been known to fly specialist strategists from as far away as Singapore and Japan to the US on major engagements.

Razorfish's attempt to ameliorate the problems across offices takes on familiar tones. Most service providers have instituted knowledge management and control systems to ensure that they even the skill set playing field across their organizations. Setting up core teams to distribute skills among the organization, or encouraging interest / self-learning groups are methods that have been employed. Razorfish has an internal knowledge management system, and claims to integrate acquired companies within 90 days of a signed deal.

Analysis

Razorfish's approach qualifies it for the status of digital strategy. We regard a DBSP as having digital strategy by the following characteristics:

• Defined and documented methodologies An internal practice group consisting of an adequate number of personnel in the region being considered.
  
  
• Demonstrated applications of the methodologies which have made a difference to at least two clients
  
  
• At least two out of the three above strategy phases are covered
  
  
• Additional points are given if there are measures of the effectiveness of the digital strategy

In moving to strengthen its hand in the strategy realm, Razorfish has taken the route of acquisition and integration. This has positives and negatives. On the positive side acquisitions mean that Razorfish has quickly gained expertise and has been delivering services. The negative side is the need to quickly integrate and disseminate skills throughout the company, and ensure there is one 'face' to the company's offerings - this is particularly difficult across continental distances and consequent markets environments. This can be particularly daunting if two similar organizations are acquired with dissimilar processes. It may take some time to sort out and integrate processes into the 'Razorfish' set of methodologies. However, this is not expected to be a major technical issue for Razorfish given its past history. More importantly are the cultural divides that must be bridged. To date, Razorfish seems to have accomplished this well.

Razorfish has recognized further that to deliver services in particular industries it must gain and/or import the experience. Its latest endeavor is in the Travel & Tourism industry where it completed an engagement with Thomas Cooke. With a few more engagements under its belt in this area, Razorfish will undoubtedly have the competency for this vertical industry. In Thomas Cooke's case, part of the User Intelligence gathered was how people buy tourist packages and travel plans. The information becomes part of the expertise available to the client for future relationship development, and to the industry vertical expertise. Eventually, with a few more engagements of this nature under its belt, Razorfish will be able to lay claim to expertise in the travel booking industry, and will create a Travel Industry group. Once the latter is formed, Razorfish can truly present a compelling competitive case as having digital Travel Industry vertical expertise.

As Razorfish and other pure plays develop, we predict they will find their niches and reputations just as the legacy management consultants formulated their capabilities and brands 20-30 years ago. We only hope they keep their innovative cultures!

BOTTOM LINE

Vendor Predictions

Razorfish will continue to develop along well planned lines into a number of vertical industries, notably healthcare and travel, and will build up its strengths, rapidly expanding in Europe and Asia. In order to achieve this however, it must continue to generate high revenues, and to acquire its way to new markets and talent.

The acquisition path is expensive, with a direct effect on net earnings, and potential share dilution. Hence we expect expansion to slow as a need will be apparent to show better earnings to shareholders. It is still relatively weak, with a 4% to 7% net return on revenue. The variation is in large part due to Razorfish's continuing reliance on a few clients contributing significantly to its income (ranging from 10% to over 20% in any given quarter). Further, internal adjustments must be made to ensure smooth operations as the company continues to absorb its acquisitions and unify its offerings throughout the company. This is something Razorfish is effective at, claiming it can integrate an acquisition within 4-6 weeks, though we think this is not quite true. Training alone in the 'Razorfish way' must take longer than this, and there is the need for cultural integration.

With time, Razorfish may find itself facing a stiffer market as other organizations ramp up services (such as Andersen, Cap Gemini Ernst & Young, Deloitte, KPMG, and so forth). However, we believe it will hold its own, partly because the legacy consultants have in the past soured their reputation in this area with many of their users. Also the reputation of pure plays as specialized digital business developers has a better track record. This is based on a limited TEC survey of 18 experienced and senior executives who were (and are) clients of one or more DBSPs, including clients of the legacy consultants. Most of these senior executives have had multiple engagement experiences with legacy as well as pure play companies. In some cases, they have used both legacy and pure play companies on one engagement, generally utilizing the legacy companies for either the strategic goal setting or the heavy legacy lifting work.

We believe there is a trend to the specialized pure plays, however, when it comes to digital strategy. As digital strategy increases its role in the business development of a company, so should the tendency toward the pure play involvement increase. Further, the pure plays, as illustrated by Razorfish, are moving to more comprehensive coverage of the strategy realm, depending on the market niche and brand they want to develop.

Like many vendors of its genre, Razorfish suffered the indignities of the Internet stock crash in March/April, but if it continues its current course, it will gain in value. Currently, Razorfish is trading at about $15-$16 on NASDAQ. In February/early March, the figure was in the $45-$55 range.

User Recommendations

In selecting your vendor for an engagement that is to include strategic elements as defined in this article the user should ensure:

1. That the vendor has well defined and documented processes
   
   
2. That the data the vendor gathers is utilized for your benefit, at least within a fixed grace period
   
   
3. That you can continue to benefit from the feedback from the vendor. Sometimes, sharing data in the industry is a means of collecting intelligence to understand where you sit. Your service provider can never grant exclusivity to you in your industry, of course.
   
   
4. That the service provider supplies the strategic elements you want covered in entirety. Make a checklist of your requirements. If the service provider cannot cover all elements, seek a second source, or ask the service provider who they recommend. If the service provider is used to outsourcing in this area, it means they are also are familiar with their own holes, but at least should be able to resolve the issue prior to an engagement start. It also generally means you are dealing with an honest provider with outsource associations, and further, that you need not single source everything. However, check out the suggested outsource company.