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E-Business Spending Creeping Back

  |  February 22, 2002   |  Comments

AMR Research's quarterly survey results for the fourth quarter of 2001 show a planned increase in e-business budgets of 9 percent, up from 7 percent in the previous quarter.

AMR Research's quarterly survey results for the fourth quarter of 2001 show a planned increase in e-business budgets of 9 percent, up from 7 percent in the previous quarter.

The percentage of companies that plan to increase spending continues to increase, AMR found, from 60 percent in Q3 2001 to 66 percent in Q4. However, the percentage of companies planning to decrease spending more than doubled from 6 percent in Q2 2001 to 13 percent in Q4 2001, in what AMR calls a continued reflection of the current state of the U.S. economy and world affairs. Companies continue to assess the risks and rewards of any IT budget allocations by first defining key success metrics.

"From an overall e-business perspective, the trend over the past three quarters indicates a still cautious IT investment environment. We are finding that budgets are already committed for 2002 and will continue to be allocated primarily on applications that leverage existing technology to increase the top line and enhance customer-facing relationships," said AMR president and CEO Tony Friscia. "We view the coming year as a year of prioritization – forcing companies to look at the fundamentals that impact their bottom line, with incremental purchases on technology that demonstrate an ability to deliver a rapid ROI."

The majority of overall e-business spending is focused in areas that drive revenue, including sales and customer management initiatives. Headcount and training increased from 12 percent to 18 percent of overall e-business technology budget allocation, signaling that companies are spending more on the development of internal staff and less on outside consultants. Less than three-quarters (72 percent) of mid-market companies plan to increase spending on e-business, up from 54 percent in the previous quarter, signifying a significant opportunity for software vendors.

According to research by Gartner, prices in Web content management and e-commerce are falling, which could make 2002 a good year for small and medium-sized businesses (SMBs) to invest these areas. The high costs of such Web products have prevented many SMBs from investing in the infrastructure necessary to take their businesses to the next level.

"The timing is optimal as SMBs will face increased pressure from customers and suppliers to integrate the Internet into their business operations," said Jim Browning, vice president and research director for Gartner. "To ensure they're ready to meet this demand, SMBs must experiment now with Internet services that they have perceived to be too complex and expensive to implement. In their trials, SMBs can gauge the potential benefits of the Internet to their business and determine whether, and when, to embrace it more fully."

Content growth is explosive in volume, diversity and demand, and will exceed most enterprises' abilities to manage with traditional approaches by 2005. According to Gartner, falling prices for Web content management software could allow SMBs to take advantage of this market opportunity to purchase the tools required to take their sites to the next level.

"The glut of e-commerce vendors at the large-enterprise level is driving them to refocus their attention on SMBs and will substantially boost the acceptance of transactional strategies among SMBs," Browning said.

SMBs should expect prices of Internet commerce technologies to continue to fall until 2003 when basic connections to e-procurement applications, private exchanges and e-marketplaces may be installed for less than $150,000. Premium prices will still be charged by vendors providing robust merchandising, multimedia and catalog functions.

"The timing is optimal," Browning said. "SMBs should expect at least two major customers to request an e-commerce linkage by the end of 2003 and demand it by year-end 2004."

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