E-commerce Grass Getting Greener

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Event Summary

A study from the Center for Research in Electronic Commerce at the University of Texas at Austin shows significant growth in all layers of the Internet. The study looked at the Internet economy at the Infrastructure, Application, Intermediary and Commerce layers. Comparing the first quarters of 1998 and 1999, it found an overall growth rate of 68 percent, from $64 billion in Q1 1998 to $108 billion in Q1 1999. The Infrastructure layer, consisting of ISPs and telecomm providers, showed the smallest growth, "only" 50 percent. The applications infrastructure level, covering development tools and databases, grew at 61 percent. The Intermediary layer, which contains internet pure-play companies like portals, content providers, and advertising networks, grew at 52 percent. The most significant growth, of 127 percent, was in the Commerce layer, where first quarter revenues grew from $16 billion in 1998 to $37.5 billion in 1999.

The research house ActiveMedia published a report titled Real Numbers Behind Net Profits, which focused on website development costs; this would include both the revenues reported in the Texas study for their Application layer and labor costs. This study showed that development costs have reached $10 billion The average budgeted investment for E-commerce website development was $37,000, with media and portals budgeting an average of $78,000 business to consumer operations budgeting $68,000, and retail and business-to-business sites averaging in the mid-to-high $20,000's. These statistics represent a sample of over one thousand companies, many of which turned out to be doing no significant web development at present. Among companies expecting to earn at least $100,000 in revenues from their websites the budgeted development costs were just above $190,000.

The two studies had similar predictions for overall on-line revenues. The ActiveMedia prediction was $95 billion in 1999 and $226 billion in 2000. The University of Texas predicts $507 billion for the overall Internet economy by the end of 1999, with $176 billion in E-commerce.

User Recommendations

"Freight train, freight train, goin' so fast" is the refrain of an old folk song, and it fits the Internet economy to a 'T'. Both of these reports show tremendous strength in the internet economy, which of course is quite different from, and probably more important than strength in the stock market. The results from Texas suggest that the "lower" layers of the Internet economy are beginning to settle down - although with growth rates at greater than 50% the settling is only relative. What is does mean to the company moving or expanding in E-commerce is that the infrastructural aspects are beginning to be captured by large companies, which lets companies purchasing the companies and technologies have a higher level of confidence in the stability of the vendors. On the other hand, the growth rate indicates that there is still a fair amount of innovation at these levels.

The much larger growth at the E-commerce level suggests that organizations that have not yet developed their E-commerce strategy have plenty of company. Models and technologies are still being worked out, but there is a stable base of success that can be used for guidance as much as for a springboard for further innovation. This is a good time to get into E-commerce, but the market is still sufficiently open that there is time to develop a good business strategy before jumping into the fray. When you do get involved, don't be lulled by the averages from the ActiveMedia study. Their detailed data looks at the actual investments made by companies actively developing websites, and organizations will find that the costs are in the hundreds of thousands of dollars range for new and growing sites.

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