Scient Finds That Golden Eggs Can Bite

Event Summary

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 owe.

The 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.

Market Impact

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 report.

Scient 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.

Although 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.

User Recommendations

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.

http://www.technologyevaluation.com/research/articles/scient-finds-that-golden-eggs-can-bite-15913/