Web Site Development Budgets Expand

Web site development costs have grown into a $10 billion industry, while revenues generated online reach $95 billion in 1999 and are expected to reach $226 billion in 2000, according to ActivMedia Research.

ActivMedia’s “Real Numbers Behind ‘Net Profits” study of electronic commerce found the average budgeted investment for e-commerce Web site development in 1999 across all Web sites (excluding ISPs) is about $37,000. Media and portal sites committed the most to e-commerce site development, averaging $78,000. Business-to-consumer sites selling exclusively online averaged $68,000, and typical retail and business-to-business sites committed in the mid-$20,000 range.

European Web sites committed to spending more than twice as much per site ($77,000 vs. $34,000) as sites in North America, according to ActivMedia. Web sites anticipating profitability in two to five years had far higher development budgets than sites that were already profitable or expecting profitability soon ($59,000 to 26,000).

According to ActivMedia VP of Research Harry Wolhandler, online growth is exploding, particularly among mid-range and smaller online operations, as companies gear up to meet anticipated demand.

“Internet-generated revenues in 2000 will reach $226 billion, nearly six times the $38 billion of 1998,” Wolhandler said. “Typical growth rates for many mid-range players are even higher, and some companies will experience growth over 2000 percent. Naturally, e-commerce programs that see growth rates 3-4 times higher than average are going to budget more for Web site development today in order to handle the expected future business.”

Web site development budgets for 1999 were skewed upward for firms with larger promotional budgets, revenues, number of Web site pages, number of registered domain names, and total staff sizes greater than 100.

A survey by Bear Stearns that examined the spending patterns of Web masters found that personnel costs continue to consume the largest portion of Web site budgets. The top three budget costs reported in the Bear Stearns survey are personnel, hosting fees, and servers.

In absolute dollar terms, all budget line items identified in the survey will climb year-over-year. The barriers Web masters perceive to the implementation to an Internet, intranet, or extranet include lack of funding, lack of qualified personnel, and lack of support from corporate management.

Having grown 25 percent from 1998 to 1999, Web budgets (including Internet, intranet, and extranet) are expected to rise by more than 35 percent from 1999 to 2000, with Web site budgets of medium-sized businesses expected to increase the fastest (more than 150 percent). Small and large-sized business Web budgets are anticipated to grow about 30 percent, according to the Bear Stearns survey.

1999 Budget for Total Web Site Investment
Type of site
Budget Total
Online Sales
None 4% 7% 4%
$1 to 100 2% 3% 1%
$100 to 500 9% 10% 6%
$501 to 1,000 10% 5% 11%
$1,001 to 5,000 34% 20% 31%
$5,001 to 10,000 13% 11% 7%
$10,001 to 99,999 22% 28% 27%
$100,000 to 999,999 8% 15% 9%
over $1M 1% 2% 3%
Average $36,579 $77,788 $67,858
Source: ActivMedia Research LLC

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