InformationWeek

January 17, 2000

Behind The Numbers:
Green Light For E-Commerce Services

chart rappling with today's complex E-commerce initiatives is enough to keep anyone awake at night. And the stress of around-the-clock operations is enough to convince many IT managers to hire a third party to help shoulder the burden.

In their haste to create the next wave of E-commerce applications, many businesses are opting to use service providers rather than in-house staff. At the very least, turning to a third party helps ensure there will be enough talent on hand to implement an E-commerce strategy.

As companies step up their reliance on E-commerce, one would expect outsource spending to rise. According to a Forrester Research survey of 50 companies that use E-commerce outsourcers, more than half expect their outsourcing budgets to top $1 million in 2001, with 28% expecting their spending to exceed $5 million. But the amount these companies invest in integration services (with their existing platforms) will shrink by half in the next two years. That's surprising because a majority of companies expect to increase the number of vendors and providers they work with in the same period.

How will technical services fare in this up-and-down market? The companies surveyed say almost half of all dollars budgeted for E-commerce help in 2001 will be spent on technical assistance. Despite this wealth of outsourcing money, segments of the technical-services market will undergo fluctuations in demand during the next two years.

One area expected to be strong: new development or package implementation. Predicted to seize the largest portion of the outsourcing market, new development or package implementation will capture 28% of outsourcing dollars by 2001, up from 22% in 1999. However, a tendency among the companies polled to spend less on custom applications and more on packaged apps will cause demand for integration services to shrink by almost half during the next two years. The need for application maintenance is expected to remain flat, at 9% of the overall budget.

Does your company plan to outsource to E-commerce providers in the next two years?

Own the data behind InformationWeek Research. See our available reports at informationweek.com/reports

Helen D'Antoni
Research Manager

Midtier Catches Up

The U.S. E-commerce services market is expected to grow sixfold in the next four years. Spending is predicted to jump from $10.6 billion in 1999 to $64.8 billion by 2003, as demand escalates to implement complex E-commerce initiatives, according to Forrester Research.

In all, 90% of midsize businesses will be online by 2003, Forrester says, joining large companies in the demand for E-commerce assistance. Few of these companies will rely on one outsource provider to accommodate all their Internet objectives. Instead, these midsize businesses are likely to use a mix of providers to ensure the most progressive solutions to their diverse E-commerce requirements.

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