Corporate Makeover

With layoffs looming and profits slumping, straitlaced EDS hopes to attract new customers by designing hip Web sites. What would Ross Perot say?

July 1997By Comments

COLORS AND SHAPES FLASH AND ZOOM across computer screens in a dim, wall-less office that looks like a nerd’s rec room. In one corner sits a somewhat unusual private conference space: a blue Geo with a small refrigerator and a coffeemaker in the hatchback and a phone next to the driver’s seat. Nearby, a table tennis table does double-duty as a conference table. Several of the male employees sport ponytails, and one of the vice presidents wears blue jeans. And, of course, the place and the people are wired to the max: Everyone has a high-speed Internet connection.

This space in the Infomart, the high-tech trade mart near downtown Dallas modeled after London’s Crystal Palace, could be the headquarters of any of a dozen start-ups on the Silicon Prairie (the stretch of high-tech firms along the Dallas—Fort Worth corridor). But what makes it unusual and even daring is that it’s part of Electronic Data Systems (EDS), the Plano-based computer-services company that Ross Perot built, imbued with an ultraconservative image, and sold to General Motors. “People don’t think of us as wild and crazy guys,” admits William R. “Butch” Winters, the president of c2o Interactive Architects, EDS’s fledgling Internet group. But that may soon change. c2o could go a long way toward revising how people think about the company, as well as revving up future profits and dramatically shifting the way business is conducted on the Internet.

c2o (short for “chaos to order”) is a modest but creative offshoot that designs sites for the World Wide Web, and that makes it unlike anything ever tried at EDS. This is a company, after all, that has thrived for decades by managing complex computer systems and networks for big corporate and government customers; for example, in a typical bid for new business, EDS is expected to compete for state contracts when Texas redesigns and automates part of its welfare system. But EDS has stumbled recently in its traditional arena. In 1996 competitors like IBM grabbed most of the big contracts that EDS wanted. Consequently, the company’s profits fell 11 percent in the first quarter of 1997, resulting in a massive cost-cutting plan that could trim up to 9,000 of its 98,000 jobs worldwide. Some Wall Street analysts have said that EDS—which last year had revenues of more than $14 billion—needs to be more nimble and inventive in going after new business.

That’s where c2o comes in. Traditional EDS customers and some not-so-traditional ones are clamoring for a presence on the Internet beyond merely putting up a slick logo and reprinting an annual report on the Web. Savvy companies want to use the Web to market and sell products and give real-time information to their customers. “The whole game of the Internet now is ‘Where’s the money?’” says P. Craig Turner, c2o’s vice president of creative development. “‘Let’s go sell some stuff, let’s control costs, let’s do something that has a bottom-line impact.’” To that end, for a budding roster of clients that includes Hachette Filipacchi Magazines—the publisher of Elle, Car and Driver, George, and Premiere—c2o functions as a kind of one-stop shop for Web-site development. It will match an online strategy with a company’s overall business goals; design or rework Web sites with the latest digital image, sound, and animation technology; and build electronic mechanisms to ensure secure financial transactions on the Internet.

As a next-generation Web-site developer, c2o is at the center of a seismic shift on the Net. To date, the model for Web-site development has been the little guy—sometimes just one or two wireheads working out of a garage or a small office. By contrast, the big guys like EDS have racked up a lot of experience hosting Web sites, which means they run the sites off their own banks of computers, called file servers, and make sure they stay up and running. EDS has hosted about one hundred sites for clients such as Saturn, Mitsubishi, and Pepsi from an enormous facility called the WebVault at its Plano headquarters. But all the while, EDS was lacking on the creative and marketing fronts, which forced it to team up with ad agencies and design firms. Ironically, thanks to the creation of c2o, many of those agencies and firms are now EDS’s competition.

Techies say c2o marks the first time a big systems integrator has jumped onto the creative side of the Internet with a separate staff. “EDS basically broke the mold,” says Josh Bernoff, a senior analyst at Forrester Research in Cambridge, Massachusetts, a leading computer research firm. Not surprisingly, other big systems companies are expected to follow. Forrester predicts that 840,000 businesses worldwide will have a presence on the Internet by the year 2000, accounting for 1.24 million sites that will be increasingly sophisticated and useful. “The Web used to be about image: brochureware, online advertising, marketing,” Bernoff says. “Now it’s much more about online transactions—looking up my brokerage account or buying a sweater from Wal-Mart. Behind that is a system with an enormous database trying to bring real-time data to you.” Not many small companies have the resources to run such a database, so the question of whether big companies will end up controlling Web-site development is a no-brainer. “Of course they will,” Bernoff says. “The question is how.”

EDS took a novel but necessary approach to answering that question when it quietly launched c2o in January. The company structured it as a “cultural breakout” free from the legendarily conservative corporate culture of its parent. It is independent in the sense that it can pursue new customers on its own rather than relying on other divisions of EDS. With its brightly colored workspaces and open layout, c2o is a vastly different world from EDS’s ultramodern corporate headquarters, where employees occasionally get lost in the labyrinth of cubicles. But the most important distinction is how people look. EDS has long been known for almost militaristic dress codes left over from its days under Perot, when men couldn’t wear beards and the standard uniform was a white shirt, blue suit, and conservative tie; it was only this past January that the company decided to let women wear pantsuits to work (in fact, the code name for c2o while it was under wraps was “Wingtip,” a tongue-in-cheek jab at the style of shoes favored by straitlaced executives). But Internet businesses tend to be more relaxed. “We need to allow a culture that won’t repress that,” says Gary Fernandes, EDS’s vice chairman. “If not, we’ll be out of the market.” Since c2o will pursue online publishers, entertainment companies, and other creative types as clients, it’s doubly important that it have its own strong creative identity. EDS has “a great professional image,” says Craig Turner, “but if you’re negotiating with an entertainment company in California and they see white shirts and dark suits, they’ll think it’s the FBI or the IRS coming.”

Indeed, embracing creativity is a recognition of reality in the Web business. Anyone who has spent time surfing the Internet has encountered awful graphics on some Web sites or waited minutes on others for a painfully slow page to appear on-screen. In such cases the technology doesn’t matter; yet as Bernoff notes, many companies have made the mistake of either shoving people into a group and saying, “You go do the technical thing,” or simply turning over the task to the information systems department. About two thirds of Web development is based on ideas rather than technology, so companies trying to expand into Web-site development need people with creative credentials. At EDS, for instance, most of the twenty people currently working at c2o’s Infomart space (another 180 work out of Plano) were hired away from outside interactive or marketing firms—even as the rest of the company considered downsizing to cut costs. Several key managers, including Turner, came from the Dallas office of Eagle River Interactive, a small firm that has developed Web sites for American Express, Compaq Computer, Sony, and McDonald’s. Turner himself has won several Clio and Addy awards honoring his work in commercials and advertising.

It was that kind of track record that attracted the attention of Hachette Filipacchi, c2o’s only announced client so far (c2o has other deals in the pipeline, some for contracts worth tens of millions of dollars, but nondisclosure agreements prevent them from being discussed). Actually, EDS had worked with Hachette for several years, hosting the online editions of its magazines, but the responsibility for designing them fell to a New York firm, @Radical Media. When Hachette finally decided to shop around for a new Web developer, c2o proposed a look for the Elle and Car and Driver Web sites that best matched the look and feel of each magazine, says James Docherty, the president of Hachette’s new-media group. For the Elle site, for instance, c2o suggested a complete makeover that made it easier to navigate, down to the number of clicks of the mouse it takes to call up certain articles or to access popular features like the supermodels gallery. On the old site you had to scroll down a long list of options to get to the supermodels gallery; now, when you click on a graphic on the  Elle homepage, you can immediately learn about Cindy Crawford’s hairstyle or other beauty matters. If one mouse click versus several seems like a distinction without a difference, consider that return trips to a Web site are the ultimate goal, since Web advertisers pay based on the number of page views—and traffic on Hachette’s c2o-developed sites is at an all-time high.

From medicaid systems to cybersupermodels: Such a change was inevitable at a place that owes its existence to the opportunities created by changes in technology. When Perot founded EDS in 1962, the company designed and installed vast networks that combined hardware and software from many sources. Its expertise in assembling systems for manufacturers attracted the attention of General Motors, which bought the company in 1984 and became EDS’s single largest customer. EDS’s other big source of business has been taking over crucial but unsexy data processing operations or entire departments of big banks, blue-chip corporations, and government agencies in a practice known as outsourcing. Along the way it has built the largest global private communications network in the world, which it monitors from a control room in Plano that looks like the Pentagon’s War Room, complete with a giant screen that displays world maps crosshatched by a grid of lights. EDS’s contracts for such work typically are worth several hundred million or even billions of dollars and last for as long as ten years. But that core business has had its ups and downs, as the first quarter’s dismal returns showed. Moreover, EDS and GM split in 1996, and EDS’s sweetheart deal with the automaker is no longer a sure thing, since GM is putting up more and more of its computer work for competitive bidding.

c2o, though still small, could make a difference in retaining such customers and attracting new ones to EDS, analysts say. “It’s an absolutely essential move for them to keep control of their client base and future revenues,” Bernoff maintains. Indeed, Bernoff’s colleagues at Forrester Research estimate that the worldwide market for Internet work contracted out to companies like EDS will nearly quintuple from about $2.2 billion this year to almost $10.4 billion by the year 2000. At the moment, EDS’s Internet-related business represents only about 0.5 to 1 percent of the company’s annual sales, but EDS executives see it becoming bigger and bigger. “It will touch everything we do,” vice chairman Fernandes says.

And while it’s doubtful that Internet projects will add to EDS’s profits anytime soon, c2o clearly has an advantage over smaller competitors because its corporate parent has such deep pockets. “If they fail to generate profits in the next two years, they won’t go under, because EDS can afford to subsidize them,” says Bernoff, who believes the key to c2o’s success will be “the freedom to choose clients instead of becoming a service organization to the rest of the company.” For now, at least, c2o is free to run as fast and as far as its imagination—and its parent—will let it go.

Kathryn Jones has written for the New York Times and the Dallas Morning News.

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