(FORTUNE Magazine) – It happened a year ago February in the mahogany-paneled offices of PricewaterhouseCoopers. "It was like somebody threw a switch," recalls CEO James Schiro. At several other management consulting firms within a cell phone's toss of Schiro's Midtown Manhattan office, they remember it the same way--something shifted in early '99. In Boston, Chicago, Dallas, Los Angeles, wherever you find large nodes of consultants, they talk about a moment when everything started to change, and everyone in the consulting game--a business that feeds on change--realized that this time it was different.

What happened is that everything--how you sold chemicals or bought bolts or administered 401(k) plans or almost anything else--started to become an e-thing. We had just come through the Christmas of '98, the first Internet Christmas, and ten days later Jack Welch mobilized 340,000 employees to make General Electric an e-company immediately. Suddenly thousands of organizations realized they were late to the party and needed to get there, fast.

"There's been a cataclysmic shift in what clients are buying," says Joe Forehand, CEO of Andersen Consulting, the planet's largest consulting firm. "It's all about the new economy now." Forehand knows his etymology. "Cataclysmic" doesn't necessarily mean bad; it just refers to a huge upheaval, and that's what this is. The changes that began some 18 months ago have scarcely begun to play themselves out, but they are already transforming how consulting firms make money, who owns them, whom they own, how they pay, how they get paid, and much else.

Stakes are high for everyone, starting with clients, who now depend on consultants far more than ever. That's because canny use of information technology is a survival issue most companies can't handle alone, so the quality of advice they get could make or break the business. The largest consultancies, the consulting practices of the Big Five accounting firms, are worried too: They have practices based largely on software implementation and must quickly retrain tens of thousands of employees as e-biz experts. The big strategy firms--McKinsey, Boston Consulting Group, Bain--are calculating how cozy they must get with the intricacies of infotech, while wondering if they'll be flanked (or bought) by a big tech firm looking to expand into strategy. As the deal frenzy builds in this consolidating industry, multitudes of middle-sized firms figure they'll be eaten or just killed. Just look at IBM and EDS; both are tech firms that give big-picture advice. And if a 900-pound gorilla like Microsoft jumps into the game, perhaps buying one of the Big Five practices, as some in the industry expect? Ay-ay-ay. "In five years," says Stephen Sprinkle, global director at Deloitte Consulting, "there will be five to ten major global consulting firms. We don't know who they'll be, or how they'll be owned, or what services they'll offer." Other than that, we have every confidence in this industry's future.

There is, of course, a certain delicious irony in watching consultants being flummoxed by a fast-changing business challenge. Surveys, even anonymous ones, show that companies mostly like their consultants, but other surveys show that the masses place them down in the tires-on-the-lawn neighborhood of politicians when it comes to rankings of esteem--not that you need surveys to tell you this (see While You Were Out, May 29, "Why Consultants Generally Suck," in the fortune.com archive). In the popular view, shared by millions of employees, consultants are the eggheads whose cleverest idea was charging you money to look at your watch and tell you what time it is. "Consultants are supposed to be the ones who know what's going on," says Tom Rodenhauser, publisher of newsletters about the industry. "Now it's boomeranged on them."

To understand why the e-revolution is such a mind-bender in the consulting world, you must begin by understanding how it upends the way consultants have usually regarded infotech. They love it, certainly, because for clients it's a huge source of potential competitive advantage, as well as change and uncertainty, and that equals consulting fees. Indeed, for the largest category of consultants, infotech is the basis of their business. What for the moment we call the Big Five firms--Arthur Andersen Worldwide, PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte & Touche--broadened from accounting into consulting decades ago, as clients asked for help with the first thing for which they used computers, keeping the books.

All these firms and many others developed thriving infotech consulting practices that sailed profitably through the eras of mainframes, minicomputers, and PCs, eventually hauling up at the Golconda of infotech consulting, ERP. Starting about a decade ago, enterprise resource planning software--SAP is the best known--began sweeping through the corporate world with programs so massive, so complicated, so expensive, so hard to run, that consultants could hardly meet the demand for help from desperate clients. In this climate, Andersen Consulting made its mark in tech consulting and initiated a nasty split from Arthur Andersen, yet to be resolved. These were the years when global consulting revenues exploded (see chart). The era also established an enormously profitable model for infotech consulting: ERP engagements required armies of consultants, took many months (often years) to complete, and could bring in tens of millions of dollars each.

More fundamentally, they were about using infotech to dramatically improve a company's speed and efficiency; that's what ERP software does when it works, which it sometimes doesn't, but that's another story. E-commerce is about something different. Start thinking how e-commerce could reshape your company, and within five minutes you're questioning your most basic strategic assumptions. What business are we in? How do we add value? Who are our customers? Who are our competitors? When a company needs help with e-commerce, it isn't just implementing software.

So while managers and their consultants used to regard infotech as a tool with which to pursue strategies, the roles have now reversed. "Technology is driving strategy in a way it hasn't since the dawn of the industrial revolution," says Scott Hartz, who directs PricewaterhouseCoopers' consulting practice. Now what do you do in such a world if you run one of the big infotech consulting firms? You try mightily to show that you also possess a deep understanding of strategy and all that proceeds from major strategic shifts. And if you're one of the big, established strategy firms? You put out the message that you eat, drink, sleep, and dream about infotech.

That is one reason why, when you ask consultants to identify the biggest trend in their business, you hear the word "convergence." Everybody's poaching on everybody else's turf. Ask a consultant about it and he's virtually guaranteed to grab a pen and pad and draw a diagram. It will include a line with the word "strategy" at one end, followed at intervals by the things a company might need to change after a strategic shift: organization, then operations, then infotech systems, and perhaps outsourcing. The goal of all the Big Five consulting practices, the consultant will explain while drawing a large circle around the line, is to move up from their current home at the infotech systems end and span the spectrum to offer one-stop shopping for any company--especially any giant company--wanting to find its way in the new e-world. It's an audacious goal and an unprecedented approach to the business.

Can it work? Rajat Gupta, McKinsey's intense managing director, doesn't think so. He wouldn't, of course, but like a good, cerebral McKinsey man he offers substantial reasons. For starters, what happens to the standards of a firm with such a mix of high-margin and low-margin offerings? Top-end strategy firms bring in $500,000 to $600,000 per consultant annually, an amount that decreases down through the subspecialties along the line until you get to outsourcing of, say, computer services, at less than $100,000. Gupta's point: Consultants at the top end of the range are the brightest of the bright, while those at the lower end...aren't. "To maintain consistent values across that range is difficult," he says, "and no one has done it."

Perhaps worse, he says, is the danger to the objectivity of the firm's advice: "It gets seriously compromised if you offer significant downstream activities." That is, if you're a strategist who also does software implementation, you'll be terribly tempted to recommend a strategy that requires implementing a whole lot of software. Besides, he says, a client who depends on one firm for a complete solution is taking a "very high risk."

If that's the case, then some companies are becoming reckless risk takers. Consulting firms are going much further than merely offering to advise clients on everything from business model to laptop models. They're also making it happen--and this is where the e-revolution starts to seriously scramble the consultants' long-standing method of earning their considerable profits.

Firms have long helped clients put advice into action. That's what the infotech implementers mainly do: get massive computer systems up and running. Such projects have generally meant billing for thousands of hours of consultants' time or charging a flat fee for the whole lengthy engagement. But in the Internet Age, many companies want much more help than that, and on different terms. They may want an e-commerce operation created from nothing and, having no idea how to do it, would like to hand the whole job over to a consultant. And, oh yes--they want it fast.

Some clients want still more. They want their consultant to help them set up a new e-business, then provide executives to run it, and then take all or part of the consultancy fee in equity--to have "skin in the game," as all parties invariably put it. At this point the business is unrecognizable as consulting, traditionally defined. It looks a lot like venture capital.

To see several of these trends playing out at once, stop by Chevron in San Francisco and see Jim Conger, a project manager. "In June of '99 we started getting nervous that we could be attacked" by a Web-based competitor, he recalls, "and that was a threat to our stock price." Like many big, old companies that woke up to the Net threat in the first half of 1999, Chevron realized its Internet challenge was a different animal. "It's hard to deal with the Net through the normal strategic planning process," says Conger, so Chevron looked for help.

It decided--and this is the part the do-it-all consultants love to hear--it needed an outside point of view from a consultant that could develop strategy, direct market research, and "carry the plan seamlessly into execution." Chevron chose Computer Sciences Corp., a major infotech consultant based down the coast in El Segundo and not known as a strategy house. So why not hire multiple consultants, each an expert in the disciplines Chevron needed? "We rejected that idea because of time pressures," Conger answers, in effect answering for comrades across the business world who feel the same urgency. After just ten weeks the project revealed two possible Net businesses, of which Chevron is funding one--Conger's running it--to be announced in the next several weeks. And will CSC have equity in the venture? "That's under discussion." Multiply this story by a thousand, and you see part of the opportunity consultants are fighting over.

To get a bigger piece of this pie, several firms have started e-business incubators. The idea is to provide a physical place where a new e-business, whether a startup or a part of a large company, can be conceptualized and launched in just a few months. That means providing a wide range of skills and at least a bit of implementation. Even McKinsey, despite Gupta's dim view of convergence, is jumping in with six "accelerators" around the world.

For another part of the opportunity, equally typical but quite different, go to Northfield, Ill., and talk to Mark Miller, COO of Entrade, a B2B startup that helps trucking firms and other companies sell used or surplus assets. Needing help with just about everything, Miller called A.T. Kearney in Chicago, where he used to be a partner. What he asked the firm to do was a far cry from what it did in his day, just a couple of years ago. Back then, "Kearney was 60% strategy, 30% planning, 10% implementation," he says. "We've had them doing 10% strategy, 40% planning, and 50% implementation." That means grinding out day-to-day tasks; on behalf of Entrade, Kearney consultants have been negotiating with suppliers, hiring employees, and working trade shows. "It's 180 degrees different from a traditional consulting project," says Miller, who would know.

So are the fee arrangements. The engagement started as an ordinary fee-for-service deal, but now it's a combination of fees and contingency equity; if Entrade hits its targets, Kearney can take fees or equity, at its option. "I know the fees we paid them far more than covered their costs," says Miller, "but they left enough on the table to get an equity stake that could be very valuable."

Kearney, it must be noted, has been owned since 1995 by EDS, the big software outfit, exemplifying another reason you keep hearing about convergence: Not only are consulting firms poaching one another's game, but nonconsulting companies are horning in. If you figure virtually every potential engagement out there has at least an infotech element, with many being entirely about infotech, then you realize why the major hardware and software makers insist on playing. IBM, under CEO Lou Gerstner, a former McKinsey partner, has become a major management consultant; depending on how you classify the revenues, IBM Global Services is arguably the world's largest, even bigger than Andersen. Hewlett-Packard fields thousands of consultants. Unisys, Oracle, and Compaq all offer consulting services.

When you buy advice from one of those outfits, their biases are on the table. In many cases the consulting services are simply packaged with a hardware or software purchase (though a part of IBM's services business claims to be vendor-neutral). But what about the freestanding consultants? They increasingly represent particular hardware or software providers, for reasons that serve both sides' interests. Cisco bought 20% of KPMG's consulting business for $1 billion about six months ago, effectively buying a sales force of 14,000. Mercer Management Consulting recently announced an alliance with IBM. Andersen Consulting in March created a joint venture with Microsoft, called Avanade--"a huge deal for us," says Forehand--that will enable AC to offer a "proprietary platform" on which to build clients' infotech systems. For Microsoft, says CEO Steve Ballmer, it's all about getting people "skilled up" to use new generations of Microsoft products.

In these deals the infotech companies get thousands of field-deployed advice givers at least leaning in their direction. On the other side, the consultants may get a lot of money, like KPMG, or may get favorable terms or preferential treatment from the infotech vendors. In any case, it's often in their interest to bet on a particular provider. This infotech is complicated stuff, and a consulting firm may want to train thousands of employees in the intricacies of a particular company's offerings rather than try to be experts in everything. Whatever the motivation, the consultants in effect become a highly educated, technically trained sales force.

But what if you want independent advice? What if you like KPMG but have doubts about Cisco routers? Or you've been impressed by those books from Mercer, like Value Nets and Profit Patterns, but aren't sure IBM is the way for you to go? The consultants will tell you, a bit disingenuously, that they've already figured out who's best, and that's whom they've allied with. Don't buy that? Okay, look, you want an end-to-end solution and you want it fast, right? This is how you get it. "With the IBM alliance, we can help a client from top to bottom, idea to implementation," explains Jim Down, vice chairman of Mercer Management Consulting. Is Microsoft 2000 the best platform? Who knows? "The market values speed," says Joe Forehand, speaking on the rationale for Avanade.

Or you have another choice. You can go to a firm that has made none of these alliances. There aren't many. "We're absolutely product-neutral," says Peter Maneri, a vice president at CSC. That stance can lead to odd relationships: "We compete with IBM in a lot of spaces, but we also buy from them and recommend them." At McKinsey, Rajat Gupta is unequivocal: "We will not enter into any such alliances," on the grounds that they aren't best for clients.

Fair enough, but McKinsey and its big-strategy brethren are making a heavy wager by staying largely in their traditional corner of the business. In theory it's a plausible approach; no one knows how well the Big Five's end-to-end offerings will sell, and the need for sharp strategic thinking will only grow. The gamble is in the execution. These firms, which deal largely with CEOs, still command tons of brand equity in the corner office. But if they don't make themselves relevant to the new generation of e-CEOs--whether they can is still a completely open question--they'll be in deep trouble ten years from now.

A raft of upstart firms would love to take their place. The market's roaring hunger for e-advice has inevitably spawned a new breed of consultant that makes this a specialty. As a group they're often called "the Scients and Viants," after two that rhyme, but in fact there are dozens. Of their many common traits, the most important is that they present themselves as profoundly wise about the Web--not like those fusty old McKinseys or Bains, or the accounting firms, for heaven's sake. Their product differentiation begins with their names: Razorfish, Zefer, Proxicom, Groundswell--they are not to be confused with the old guard.

Most are strategy firms, as long as you're seeking a Web strategy. Their expertise is in helping clients create business models that couldn't have existed before the Web. Example: Totalmoving.com, a concept Groundswell is working on, where you'll be able to arrange all the zillion little things involved in moving from one home to another and pay for them all on one Visa account set up for the purpose and closed out when the move is complete. "Our competency," says Dean Alms, Groundswell's COO, "is understanding all the audiences required to make the business successful."

That's legitimate. Web strategizing in some ways really is different, requiring new thinking about joining players in different industries. The specifics of Web business are also foreign territory to many companies. For example, Zefer points out that properly designed sound on your Website "can subtly affect user behavior--by inducing trust at the point of purchase, for example." Bet you hadn't thought of that.

Clients like the new e-consultants because they know about such things, but don't like them because they don't know much about specific industries, says a recent report from Forrester Research. A big, old firm has dozens of consultants, maybe hundreds, who've worked in your business for years. The upstart firms don't, so you may have to teach them. Your 90-day engagement might take longer than you thought.

Another way these firms are like one another but different from the rest of the industry is that many are publicly traded corporations. A remarkable number went public at about the same time--the spring of 1999, that moment when mainstream business suddenly got serious about the Web. It was the right moment, but it passed; after a delirious climb, most of the stocks have crashed (see charts on previous text page).

Still, the phenomenon got people thinking about a radical idea: Could a consulting firm be publicly held? Most have always been private partnerships for two strong reasons. One, the assets are between the employees' ears, so there isn't much for anyone else to own. And two, it's hard to serve clients faithfully and be given their confidences when anyone, including clients' direct competitors, could buy the firm's stock. But that didn't stop the e-consultants, and now the idea is hot. KPMG's consulting practice just filed with the SEC to go public later this year. PricewaterhouseCoopers' consulting business has announced it may do something similar, though it hasn't decided quite what.

The attractions of going public are many, but a big one is that when you have stock, you have stock options, which you can give to employees. That can help consultants attack their worst problem in this era of rampant opportunity: attracting and keeping people. Consultants can make a lot of money: A partner at any of the big firms probably brings home $2 million a year, and a director (top-level partner) at McKinsey makes $4 million to $7 million a year. As an industry veteran muses, "People used to think $2 million a year was rich." But in the Dot-Com Age, it isn't a big number. In addition, bright MBAs always thought consulting was cool. Many still do, but now there's something cooler.

So consulting firms are falling over one another announcing initiatives to make themselves warmer, fuzzier employers. Want to work just ten or 11 months a year? Fine. You can pick your own assignments (up to a point). By taking equity in clients, virtually every firm is building up a venture portfolio that it hopes will someday, somehow give employees a taste of dot-com riches. McKinsey is "repersonalizing the firm," says Gupta, organizing in small cells that will give employees a greater feeling of human connectedness. More substantively, it has created an "associate principal" position in which not-yet-partners get some of the partners' wealth. Old McKinseyites never thought they'd see the day.

Yet consulting can still be a miserable life. The hours are brutal, the travel unending. Joe Forehand says AC is the No. 1, No. 2, or No. 3 customer of most major airlines. Enter "consultant jokes" in a search engine and you'll soon find the top ten ways to know the person you're dating is a consultant. No. 6 is "Tries to call room service from the bedroom at home." (No. 1: "Refers to lovemaking as a 'win-win.'") This is still an industry where you get ahead by bringing in business, not by skillfully managing employees.

An excellent way to leave a consultant speechless, if only for an instant, is to ask how the industry will look in five years. So much is changing so fast, who can say? Plenty of people think Microsoft might buy one of the Big Five consulting practices, and far stranger combinations could happen; one of the Big Five was approached by an oil-field services company looking to buy it (talks didn't get far). Maybe Dell will buy a major firm. Many people think a big infotech consulting outfit will buy one of the strategy houses, like Bain or BCG; hardly anyone can imagine McKinsey selling. The dozens of e-consultants will quickly shake out to a few.

What could go wrong? Lots. David Maister, a Boston-based consultant to consultants, thinks many firms will go public--"it's irresistible"--and "public markets insist you grow. That's nonnegotiable. This in an era when the thing you make your product out of--people--is in short supply. There's a horrible road crash waiting to happen."

Beyond that, what happens when all those consulting firm venture funds have had five years to grow, when they've nurtured startups into killers that now threaten broad classes of potential clients? What happens when firms are owned wholly or in part by infotech suppliers, and routinely take stakes in new clients? When more major companies that were never in the business jump into it?

At that point many firms will find they're no longer in the consulting business. Even now, "consulting isn't really the word for it," acknowledges Scott Hartz of PWC. Tom Rodenhauser elaborates: "Consulting will change to total immersion. It won't be consulting anymore. It will be working as business partners with a select group of clients."

And the consultants? Don't worry about them. The greater the turbulence around them, the more they'll get to do what they love: cook up big new ideas to solve huge, hairy new problems. They'll make their measly millions. And they'll get to say, years from now, that they were there when the new economy came to consulting--and consulting became something else.

FEEDBACK: gcolvin@fortunemail.com