UPDATE - In Search Of The Post-Y2K Gravy Train

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Friday May 19, 10:51 am Eastern Time Forbes.com

In Search Of The Post-Y2K Gravy Train By Anna Maria Virzi

Spurred on by hypothetical horror stories about vanishing bank accounts and crashing airplanes, American business spent an estimated $90 billion over the past five years tinkering with their computer networks to make sure the brute machines could recognize the year 2000.

Y2K was a massive golden goose for information technology firms. In 1999, GartnerGroup (NYSE: IT - news), a Stamford, Conn.-based IT consultancy, booked nearly $40 million--some 5% of its revenue--in fees relating to the millennial glitch. Keane (NYSE: KEA - news), a Boston-area consulting firm, milked more than $358 million from the bug two years ago.

Other firms were even more dependent on Y2K. Software toolmaker Peritus Software Services (otcbb: PTUS) encountered near extinction once its Y2K work dried up. Annual revenue slid 64% from $31.5 million in 1998 to $11.2 million in 1999. Peritus slashed its work force by 220 and now has only 40 employees. Its former chief financial officer, Allen K. Dreary, was charged by the U.S. Securities and Exchange Commission last month with improperly booking more than $1 million in revenue in order to meet analysts' forecasts.

So what are all those highly paid consultants and programmers who grew fat fighting the Y2K computer bug doing now?

``How can you spell E?'' says Matthew Hotle, general vice president, research group director at GartnerGroup, whose consultants become widely quoted experts on the Y2K bug.

Keane is also jumping on the e-commerce bandwagon, ``especially large-scale business-to-business applications,'' says Brian Keane, chief executive of the 35-year-old IT company. ``That's the beauty of our industry. One thing is certain: There's always a huge and growing need for companies like Keane,`` he says.

Peter de Jager, a Canadian consultant and incessant Y2K proselytizer who made a fortune in fees for his public appearances, appears to be taking a breather. ''I took a long-deserved nap,`` he says. De Jager lent his name to an American Stock Exchange index of some 113 companies selling Y2K-compliant products and services. That index was shuttered Feb. 23, closing at $297.10, up 186% from its inception on March 18, 1997.

De Jager is now writing a newsletter, aptly named Managing Change and Technology. Don't count on him to fade away anytime soon. He says he's weighing an offer to start an online magazine to compete with Salon (Nasdaq: SALN - news) and Slate.

Managing change is something that Peritus CEO John Giordano knows a thing or two about. ''The transition was difficult for us,`` he admits. ''The original expectation was that a lot of companies were going to buy tools and hire people to do year-2000 work at the back end.`` But instead of fixing the code in their old software systems, many potential Peritus clients replaced them outright with new software from folks like Oracle (Nasdaq: ORCL - news), PeopleSoft (Nasdaq: PSFT - news) and SAP (NYSE: SAP - news).

Peritus is now betting its future on developing tools to help companies migrate their legacy systems to the Web. At least someone thinks Peritus has a chance at success. Two months ago Rocket Software, a software engineering company in Natick, Mass., invested $4 million to buy 37% of Peritus.

NeoMedia (Nasdaq: NEOM - news) is moving even farther away from its IT consulting roots. The Fort Myers, Fla., company is swapping its Y2K remediation work to develop something called PaperClick, a technology to be used with fancy electronic pens from A.T. Cross (amex: ATX - news) and others. Rick Szatkowski, NeoMedia's senior vice president of business development, says the gadgets can scan a bar code, for example, on a magazine advertisement. The interested shopper could then obtain additional information about the product, say sizes or colors available for a dress or suit.

Rather putting all its eggs in one basket, Data Dimensions (Nasdaq: DDIM - news) is rebuilding its business by pursuing multiple revenue sources. The Bellevue, Wash., company, which saw its work force shrink from 1,000 to 500 employees in the aftermath of Y2K, offers software testing services with Microsoft (Nasdaq: MSFT - news) as its biggest client. After acquiring two data centers, the company also provides Web hosting and is an application service provider.

But doesn't the race to build e-commerce applications sound like an awful lot like the Y2K buildout? ''I personally don't think it's going to fizzle out,`` says Peritus Software's Giordano. ''If it did, it would be year 2000 all over again.``

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-- (Dee360Degree@aol.com), May 19, 2000

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