Leading the way was San Francisco's Razorfish with its purchase of CHBi in May. This was followed by Agency.com increasing its stake in Online Magic to 100 per cent. A flurry of further deals followed: USWeb bought e-commerce specialist Xplora; iXL bought Denovo and Green Cathedral and, the new CHBi Razorfish merged with Sunbather in October. Even the backing of a maor UK owner may be no protection. Traffic Interactive, part of Abbott Mead Vickers advertising, has been taken over by US giant Omnicom. Not all the buyers are from the US, though. Britain's Real Time Studios, backed by the European media group Havas, bought up AMX Digital. Havas itself took a 40 per cent stake in Web designers Zinc.
The rush to buy here is partly an outgrowth of what has already happened in the US. The 1,000-strong consultancy USWeb has grown over the last four years by buying dozens of American Internet companies. It bought up Xplora for its electronic commerce skills and blue-chip clients, such as BBC Worldwide. iXL's UK purchases were part of an expansion into Germany, Italy and Spain. Razorfish wanted an in to British design talent. Agency.com already had a significant stake in Online Magic and after the takeover Online Magic pulled out of New York to focus exclusively on Europe.
Nick Jones, an analyst at Jupiter Communications, says it is difficult to draw up a definitive list of major British Web design agencies as many major studios are part of a larger advertising or marketing agency. But he and other observers agree that the number of larger independents is declining, either via foreign acquisition or developing closer relations with British ad agencies.
Those who have sold say they did so to gain more funding and access to the expertise and contacts afforded by the foreign corporations. CHBi had been open to offers for 18 months before the Razorfish deal. Its directors were anticipating consolidation in the market, and knew they'd have to find finance for new staff and to invest in such technologies as interactive television.
"There was a lack of investors in the UK taking the market seriously," says Mark Curtis, of CHBi. He has no regrets about teaming up with a US partner. "We can draw on international case studies and on staff worldwide to convince clients we can handle a job." Razorfish also helped with access to funds to merge with Sunbather and the expertise to manage the integration easily.
Malcom Garret, a founding partner at AMX Digital, says his firm talked to iXL while seeking a new investor, but finally preferred a deal with Real Time Studios. AMX, he says, found itself doing a lot of research and development, but needed a dedicated R&D budget. Now AMX has increasing contacts with other companies in the Havas group.
Consequences for the remaining independent UK Web houses may be far-reaching. Even the larger ones face competition from British-based rivals that are now divisions of enormous communications corporations. Online Magic and Razorfish-CHBi-Sunbather, for instance, share a common investor, Omnicom. One of the world's largest advertising organisations, it has an annual revenue of $3.1bn, employs more than 27,000 staff and includes among its clients Apple and Nike.
What such giants have at their disposal is more than enough capital to invest in the latest technologies and to ride out any worldwide downturn with plenty of specialists to offer even the largest clients all their Internet solutions. Much of the British industry operates on a very small scale. Companies of about a dozen people are typical, and many of these operate in loose associations with even smaller specialists.
Can UK independents compete? Two independents see reasons to be optimistic. Richard Davies, managing director of Good Technology, is sceptical of how much the Americans will benefit from their takeovers. "You're buying people without much of a client base. It's a short-cut without much life in it, as the people may leave for British hot shops."
Alex Bennett, business director of Bluewave, says that what the Americans are buying is an understanding of the local market. He points out that the US companies often have clients that in turn have European subsidiaries, so they need a European network to service the clients' subsidiaries, too.
But how can smaller British companies square up to the US giants? Good Technology aims to compete purely on its strength in new media production, rather than trying to be a "one-stop shop" for all of a clients' requirements. Davies compares the positioning of his company with producers of television commercials. They establish strong relationships with advertising agencies to get access to big-name clients for whom they can do top-quality work for a good margin. That leaves the agencies with responsibility for strategy, brand development and the planning of online ad campaigns.
Some, meanwhile, are already taking the battle to American shores. Bluewave has recently set up a New York office, with its managing director, Richard Latham, in charge.Bluewave already does business with the delivery firm TNT and the European division of Reebok, which should open doors in New York. "British design," he says, "is already a worldwide export."
However, Nick Jones cautions, when major British software firms opened offices in Silicon Valley, they found they were "just another software company" in the US.Reuse content