Web Spending Costs Moving Beyond Construction

More than $22 billion will be spent by businesses to establish and maintain an online presence, according to research by ActivMedia Research. This translates to 17 percent of the $132 billion in e-commerce revenues being generated today and is expected to help generate trillions of dollars in the near future.

According to the report “Real Numbers Behind Web Hosting & Development,” nearly half of all development dollars will be spent by B-to-B vendors, reflecting both scale of B-to-B Web sites and substantial investments required to connect front-stage Web presentations to backstage businesses.

Other findings from the study include:

• Investment profiles, hosting, and site design decisions reveal five prototypical site designs in broad use online. The first four site types are “selling” sites geared toward customer relationships based on product acquisition and service delivery. The final type (ad-oriented) refers to online content models.
• Although B-to-C businesses account for half of today’s Web sites, they account for only one in three global dollars. In reality, many are small businesses with straightforward site designs.
• Online content businesses account for 10 percent of Web hosting and development dollars. These are among the most sophisticated sites, and constantly strive to be on the leading-edge of multimedia and video.
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  Web Site Costs*
  Sector	Billions	Percent
  B-to-B	$10.7	48%
  B-to-C	$7.5	33%
  ISP/ASP	$2.2	10%
  Online content	$2.1	9%
  All Web businesses	$22.5	100%
  * Operating, Maintenance & Development Costs Source: ActivMedia Research

  Only 10 percent of Web development dollars are likely to be spent by Internet service and support businesses, who are under constant pressure to gain efficiency and cut costs.

“The technological barriers to entry are declining for new businesses. E-commerce services are broadly available, and connections to the backstage banking systems are no longer a traumatic experience,” said ActivMedia VP of Market Research Harry Wolhandler. “Further, skills are improving among employees and contractors alike creating professional Web design teams to integrate many aspects of the challenge. Consultants handle corporate structure issues, designers translate ideas into a Web experience, programmers add functionality, and systems engineers handle the challenges of front-stage and back-stage integration, hosting services, data farms, and security.”

During the past year, US businesses have significantly changed their Web-spending patterns. Gone are the days of Web spending to build an Internet presence, and in their place is spending to integrate the Internet into internal and external business processes. In other words, purchases of Web-related technology are now a business imperative, according to International Data Corp. (IDC).

“Today, corporate Internet spending is an investment that directly impacts the strategic direction of organizations,” said Anna Giraldo Kerr, research manager for IDC’s Internet and eCommerce Strategies program. “The strategic impact remains, but it has shifted from reducing costs to the transformation of business models.”

While the reason for Web spending is evolving, the amounts expended for IT hardware, software, and services will remain high. IDC expects Web spending on IT products and services to more than double from $119.1 billion in 2000 to $282.5 billion in 2003.

In 2000, for the first time, US businesses will spend more on Web-related IT services than hardware, and the services category will represent the largest opportunity throughout IDC’s forecast. Nevertheless, the importance of hardware should not be underestimated.

“Hardware vendors play a critical role in the e-business supply chain. Their products enable the interface and access of Web technologies,” Kerr said. “Although it may appear that Internet-related hardware is at the bottom of the food chain, without it there would be no Internet activity.”

Internet access and Web hosting will contribute to growth in the services space, according to IDC. Spending on software will grow faster than any other type of Web IT spending. Web software-related spending will increase at a compound annual growth rate of 43 percent from 1999 to 2003, compared with a CAGR of 35 percent for the overall market. Despite the high growth, software will remain the smallest part of the market.