Spending from the Inside Out

America’s corporations will continue to spend liberally on their Web sites but the majority won’t be bolstering the customer-visible, front office features. A Jupiter Media Metrix report indicates that 62 percent of Web site managers will be shifting development priorities away from customer-visible components and toward internally-facing improvements such as intranets, interactive publishing tools and site management and reporting capabilities.

“Our research shows that while companies with high-end, high complexity Web sites continue to spend millions of dollars annually on site operating expenses, they are aggressively redirecting their spending efforts toward internal improvements,” said Matthew Berk, Jupiter analyst. “We are in a period of technology consolidation and optimization. With over 60 percent of development spending being devoted to internal initiatives, Web sites that have their house in order have a unique opportunity to outpace their competitors in late 2002 by rolling out differentiating features to their customers.”

Software or services designed to collect, transform, process and report on data derived from Web site traffic will be the focus for many companies as they embark on their internal improvements. Jupiter predicts that annual Web site analytics spending will grow from $497 million in 2001 to $1 billion by 2006 – with 29 percent allocated to ASP-based (application service provider) services.

Further exploration into the ASP market reveals that between 2001 and 2006, ASP-based revenues are expected to grow by 79 percent, while sales of software-based solutions can be expected to increase by a modest 10 percent – resulting in an industry-wide growth rate of 17 percent. Furthermore, by 2006, solutions delivered as an ASP offering will account for just under one-third of annual spending on site analytics, up from a mere four percent in 2001.

“As annual spending on Web site analytics climbs, companies that push the limits of traffic analysis will need to consider business intelligence methods – a fact that vendors have anticipated. Long term, sites must be prepared for the shift toward data-centric site management models,” Berk said.

Jupiter’s research also reveals that 56 percent of Web sites’ 2002 operating budgets remain within 10 percent of last year’s budgets. Also, Web site managers reporting significantly higher 2002 budgets outnumbered those facing slashed budgets by a factor of two to one. Nonetheless, Jupiter analysts have found that many Web site managers feel they are being stretched thin: 42 percent reported that their operations were under-funded and that they struggled to stay competitive.

Just as Jupiter forecasts continued robust growth on Web site spending, Aberdeen predicts that worldwide information technology (IT) spending will reach $1.43 trillion by 2005.

The Aberdeen research report provides an overview of the monies spent on hardware, software or services with regional and country by country breakouts. It also forecasts the recovery on a quarter-by-quarter basis through 2002.

“Total IT expenditures in 2001 were flat worldwide, grew at a slightly negative rate in the United States,” says Hugh Bishop, senior vice president, Aberdeen. “Aberdeen forecasts that spending will begin to recover this year, although the degree and exact timing of that recovery will vary from country to country.”

While IT spending growth will be significantly lower than the double-digit rates observed in the late 1990s, technology suppliers will have less room for error. “IT spending will no longer be a tide that lifts all boats,” continued Bishop. “As a result, suppliers and market segments exhibiting hyper-growth will most likely do so at the expense of others.”

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