Scient Corp. announced that one of its clients, a dot-com company named
Verde Media, had filed for protection against its creditors under Chapter
11. Verde Media owes Scient $2 million for two full months of work; its
shareholders have reportedly promised to pay off their debt, but companies
filing under Chapter 11 typically pay only a fraction of what they actually
previous week another Scient customer, Inacom Corp also filed under Chapter
11. Not even remotely a dot-com, Inacom is number 336 on the Fortune 500,
with 1998 sales of $4,258 million.
Scient and its plethora of e-business service provider competitors (see
TEC's selection model: Business
Service Provider) have been children of the dot-com age. It's hardly
surprising that after the bubble-squeezing market correction there would
be small dot-com companies that are short on cash; a number of larger
ones have already folded and even Amazon recently suffered a 19 percent
drop in its stock price after it received a less than glowing credit quality
has not been, and will not be, the only company affected as the smaller
(and not so small) dot-coms flounder. AppNet Inc. was hurt so badly by
bad debt when one customer folded its tent that AppNet eventually had
to sell itself to Commerce One.
Scient has a fairly high exposure, with an estimated 25 percent of its
clients being dot-coms, there's no reason to assume that the company is
in serious danger. Scient has another dependence on dot-com companies
with its recently launched Internet incubator (see Dot.Coms
Getting Bred By Scient). However, some companies in its space will
suddenly be in serious danger. It's largely the luck of the draw which
ones get hit by one too many bad debts or delayed contracts.
The uncertainty about the financial status of some customers will make
e-business service providers cautious. They will probably seek to do work
for riskier clients in smaller phased units rather than large all-or-nothing
projects. This would be a good way for many companies to work with companies
like Scient, both to protect themselves from any difficulties their ebsp
might run into and because, as in the rest of IT, well-defined phased
projects succeed where others fail.