The immediate problem all those consultancies faced in 1999 and 2000 was that, like ArsDigita, they couldn't find enough great software developers to handle all the new business they were bringing in, so they had to turn away clients.
I thought the trouble was that they were hiring so many people that they couldn't keep the same company culture and in the end the software devs became outsourceable?
In 1999, ArsDigita was never more than 40 people (and probably started the year with less than 20). It's possible at that time that they were turning away business. I joined in Jan 2000. By August the company was over 200 and the sales stream was collapsing. They had massively overshot the demand of the market. (Largely because the market they were serving was other dot-coms, which were now in the process of imploding.)
To keep all those people busy, and in an attempt to shift from a services company to a product company, a "core engineering" team was created with the task of rewriting the ACS in Java. This further exacerbated the revenue stream problems, because the version of the software we used for client projects was now stagnant, making it harder to get or keep contracts.
In the end the rewrite was never finished before the money ran out, although I think it did live on for a while as some sort of RedHat offering. (The "assets" of the company were bought by RH in the end.)
I thought the trouble was that they were hiring so many people that they couldn't keep the same company culture and in the end the software devs became outsourceable?