E-Commerce Software Market in for Changes

The US market for packaged e-commerce software will reach $14.5 billion in 2003, but user demand will force dramatic changes in how applications are built and purchased, according to a report by Forrester Research.

In its report, “Commerce Software Takes Off,” Forrester predicts that firms will supplement an application-server-based commerce platform with complementary plug-in apps, an approach Forrester terms “platform orchestration.”

“By 2003, US consumers and businesses will spend $2 trillion over the Net,” said Eric Schmitt, analyst at Forrester Research. “Online retail sales will hit $144 billion, and business-to-business sales will reach $1.8 trillion. To thrive in these competitive arenas, firms will need the software tools to promote brands, analyze trends, and capture market share, as well as the support tools to retain buyers — all of which require a reliable, high-performance software infrastructure.”

As firms build out their online businesses, several factors will cause software spending by US companies to grow from $3.1 billion in 1999 to $14.5 billion in 2003. E-commerce budgets will continue to rise as companies spend 1 percent of total revenues on e-commerce initiatives in 2003. Large companies will dominate the market, driving an average of 50 percent of all software spending through 2003, while smaller firms will choose to lease software from application service providers. Finally, whether by choice or market pressure, many firms will be forced to channel their e-commerce through third-party intermediaries, offloading investments in software to personalize, measure, and support nonstop e-commerce.

As companies increase their commitment to packaged software, they also increase the burden of integrating and managing multiple products. Forrester believes that decision-makers will seek out platform products instead of feature-rich, but proprietary, packages; platform products allow for deep customization as well as the flexibility to rapidly integrate new best-of-breed apps. Firms will also align corporate IT and business strategies to avoid duplicated efforts and incompatible systems, according to Forrester.

Forrester believes that a single, dominant software strategy — platform orchestration — will emerge as firms synchronize IT and e-business efforts. Based on a core apps platform, an open and extensible standards framework, and plug-in component apps, platform orchestration enables firms to balance the need for constant innovation against the benefits of site longevity.

Tension between platforms and component apps will create friction in the packaged software market for the next four years as core apps subsume today’s component apps. Even as consolidation narrows the field, new component categories will appear, resulting in a healthy ecosystem composed of a handful of dominant platform providers and dozens of component app vendors.

According to the ARC Advisory Group’s E-Procurement Solutions (ePS) Worldwide Outlook, shipments of e-Procurement solutions software will grow to almost 10 times its present size, from $243 million in 1999, to almost $2.2 billion by the end of 2004. E-procurement solutions simplify e-business transactions between companies, making this kind of application crucial to the success of B2B e-business.

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