Levi’s Web design shop Obsolete closes doors>

Too many Web shops, too few clients and loss-leading business methods are among factors contributing to the failure of companies like Obsolete. Remember to bookmark our Website address: http://www.marketing-week.co.uk/mw0001

Is there life after Levi’s? For Website design firm Obsolete apparently not. Reports from the US earlier this year of a scaling down and realignment of Levi-Strauss’s Web strategy has now been followed by the winding up of its lead European company, Obsolete.

The decision by directors Kim Bull, James Stephens and John Bains to go their separate ways may strike some observers as curious. After all, budgets being committed to site construction are growing, and Obsolete’s track record of two years’ worth of work for Levi’s would surely generate significant interest among potential new clients.

But to many inside the industry, the winding up of Obsolete is indicative of the tough times even well-established Web agencies now face in the battle first of all to win and then profit from new business.

For two of Obsolete’s directors, that fight for new business will go on, but under different flags. John Bains has established niche Web consultancy Lateral, while Kim Bull has been appointed creative director of Zero Degrees, a youth and packaged goods-oriented Web design group within the well-established Corsellis Montford group.

According to Daniel Moffat, fellow director of Bull’s at Zero Degrees, the winding up of Obsolete was amicable. “The directors just wanted to go their own ways,” he says. “Kim wanted to branch off and help develop this new business.”

But Moffat agrees there are “growing pains in the industry” within the world of Web design despite the increased budgets being allocated to the sector by advertisers.

Eamonn Wilmott, managing director at Online Magic, blames these growing pains on the rush of new entrants into the Web market. Too many firms are now making cut-throat and “unsustainable” bids for business in a desperate attempt to win one big, prestige client.

“At my last count, there were 343 Web companies out there, all are looking for a good client name,” he says. “Some people just want to be in a cool, exciting industry. But for many, their businesses are definitely being built on sand. I can’t say when and how, only that a shake-out is inevitable.”

Meanwhile, some clients are beginning to realise the cheapest quote is not necessarily the best, says Wilmott, leading to a healthy market in Website “rebuilds”.

But the loss-leading approach by many start-up outfits is continuing to generate a serious imbalance in the market, says Wilmott. For many firms, it may actually be uneconomic to spend several thousand pounds on detailed pitches for business where margins on a typical budget of 75,000 are already tight.

“Sometimes clients are inviting half a dozen Web companies to pitch with detailed proposals for a build which may be worth only 50,000 or 60,000,” he says. “It’s quite a nasty situation right now for businesses trying to expand their client base.”

According to Ajaz Ahmed, director of new media agency AQKA, the rise and fall of “boutique” Web designers such as Obsolete – originally renowned for its work on the “indie” music scene – will continue. He believes there will be a shift away from boutiques towards more market-focused Web shops.

“Obsolete had this look to its work, and that’s why people went to it,” he says. “There will always be room for boutiques, if you have unique creative ability. But the industry has to mature and grow, and work more closely to the way other marketing disciplines work.”

Chris Perry, managing partner at DNA Communications, agrees that clients are expecting more marketing and managerial competence, as well as creative excellence, from Web designers. This means employing more staff and bigger overheads.

According to Wilmott: “We are moving away from an era of two, four, six or eight-man companies to an environment which demands staffs of 20, 30 or 40 to ensure a roster of clients is well serviced. And that takes horrifying amounts of money.”

But Perry warns bright Web designers to avoid taking on unrealistic overheads which cannot be justified until they win sufficient additional business – at a profit.

“There’s going to be a huge period of rationalisation,” he says. “And there will be more entrants. But these people will have to be good to survive. I estimate 30 to 40 per cent will fail.”

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