International Data Corp (IDC) Releases New Data for the Web Development Market

July 28, 2001

Woburn, Mass. July 28, 2001 -Bridgeline Software announced today that International Data Corp (IDC) has recently released new market data for the Global Internet Development and Internet service markets.

The dot-com demise that began in mid-2000 and continues at the rate of one dot-com closing per day spelled more than the drying up of a pool of clientele. Many of these web development projects were funded through equity plays. As a result, many Internet development firms were forced to write off bad debt. The massive ramp-ups that Internet development firms engaged in this year and the lack of a return on investment (ROI) have created a cash shortage for many firms. Given that the pipeline of projects has shortened and that the dot-com failure rate has taken pressure off the Fortune 500 firms to quickly build e-commerce capabilities, many web development firms were forced to lay off staff when their need for talent has only become greater.

Yet while all of this may seem to spell the end of a market opportunity, IDC believes that it actually marks the beginning of a new and more powerful one. Despite the market trembling, e-commerce will remain an integral part of an established organization's overall strategy. In fact, e-commerce will become an even more integral part of the organization, core to the overall business strategy, and linked to all the company's other IT initiatives. Within this landscape lie exciting opportunities for web development firms.

Lacking internal resources and realizing the inherent importance of utilizing the Internet to drive efficiencies within the organization, established organizations are turning to independent web development firms to not only build e-commerce initiatives but also to integrate them with other solutions and manage them on an ongoing basis. Hence, Internet development firms have multiple opportunities that expand upon their ability to develop Internet and e-commerce sites into a broader world of business solutions and services.

IDC believes that while the market has undergone turmoil in recent months, the opportunity is really just beginning. This increasing importance of Internet initiatives within an organization, coupled with the lack of internal resources that can be dedicated internally will continue to drive companies to turn to external web developers for Internet services. In addition, the emergence of new technologies will help push these solutions onto multiple channels, creating the opportunity for web development firms to deploy a variety of solutions. IDC expects that, although the market has shifted, enormous opportunities are present for a variety of independent web development firms to play a role in the Internet services market of the future.

Worldwide Market Opportunity

According to IDC, the worldwide demand for Internet services was $22.0 billion in 2000 and is expected to grow to $68.8 billion by 2005. This increase represents a five-year compound annual growth rate (CAGR) of 25.7% for the period. This worldwide growth is being driven by increasing complexity of projects undertaken by the Global 2000, the growing need to integrate these initiatives with all IT systems, emerging technologies that will enable initiatives to be deployed across multiple channels, a lack of internal resources, adoption of Internet technology by corporations, and the number of Internet users online.

U.S. Market Opportunity

The United States represents the largest part of the worldwide Internet services market opportunity throughout the forecast period. The $11.2 billion in spending in 2000 is expected to increase to $30.9 billion by 2005. These figures represent a five-year CAGR of 22.5% for the period 2000-2005.

IDC believes that several factors are driving the growth of the U.S. market. These factors include:

  • Increased importance of Internet services capabilities to overall business value
  • Increased need fro integration of Internet services projects with all other IT systems
  • Increased need to provide the ongoing management of Internet services initiatives
  • Lack of skilled resources

Market Drivers

  • The wave of Internet and mobile. The number of Internet users both through wired and wireless devices continues to increase. Consumers are culturally willing to adopt or pay for convince. This drives corporate demand for designing, implementing, and operating scalable Internet sites with attractive design and functions with secured infrastructure.
  • Increasing online transactions. Increasingly, people are using electronic transactions prompted by the Internet and increasing credit card usage. This is expected to boost the corporate demand for deploying Web-based infrastructure with attractive design to appeal to customers and expand the customer base. Organizations are increasingly improving their e-business capabilities.
  • Increasing Internet business. The emergence of Internet-focused businesses has brought new business models with lower costs compared to companies with traditional sales forces. Such online businesses have caused many brick-and-mortar companies to enter into the Internet market in order to capture new business opportunities.
  • Cheaper hardware costs. Cheaper hardware costs helped companies reduce the initial investment needed for Internet deployments. This reduction will continue to drive growth for the next few years.
  • Government IT initiatives. The government has special programs to boost the entire IT industry. Such government initiatives are expected to promote electronic government both at the central and regional level. Further deregulation in various industries, especially the telecommunications industry, finance, and distribution, will encourage private enterprises to increase e-business capabilities.
  • Rapid implementation. Using services from external web developers allows companies to implement Internet infrastructure faster and therefore shorten the time to market. This is crucial in a competitive market where having IT advancement itself is no longer a competitive advantage, but optimal utilization of IT should lead to competitiveness in the core business.
  • Focus on core business or e-business. Due to the economic pressure, companies are trying to improve their revenue stream and profitability in their core businesses. Using external Internet services cans help them fill the skill shortages and allow companies to shift their resources to focus on their core competencies and develop strategies.

Companies making Internet investments

As web development projects become more complex and require more external maintenance, IDC expects that the percentage of overall U.S Internet development spending among small and medium-sized firms will increase.

IDC expects that the Internet initiatives of small organizations will continue to be slower than those of the middle and Fortune 500 markets. Although small organizations represented 15% of the total opportunity in 2000, this percentage drops slightly to 13% in 2005. IDC expects the midmarket, on the other hand, to represent the fastest-growing opportunity as more of these firms move to outsource their Web-based initiatives. Medium-sized firms will move from representing 35% of total revenue to representing 37% of the total in 2005. These figures represent five-year CAGRs of 19.1% and 23.9%, respectively; the five-year CAGR for large organizations will reach 22.5%

Over the last year the leaders of Internet Development investments occurred in the Banking, Insurance, Brokerage, Manufacturing, Communications, Media, and Retail. IDC predicts that this trend will continue.

Bridgeline Software is a leading web development firm in New England. The company develops quality Internet and Intranet products that provide a competitive advantage, enhanced communications, and enhanced productivity for our clients. The types of applications we develop include B2B and e-commerce web sites, education e-learning programs, and custom intranet based employee information programs. Some of Bridgeline Software's customers include John Hancock, Nationwide Financial, National Education Association (NEA), Fidelity, BP, PricewaterhouseCoopers, and the United States Postal Service.

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