E-Commerce Software Spending Set To Explode

As U.S. e-commerce spending moves toward a projected $2 trillion (US$) by 2003, the market for packaged e-commerce software is also expected to increase dramatically, according to Forrester Research.

The report predicts that U.S. infrastructure expenditures will grow from $3.1 billion in 1999 to $14.5 billion by 2003, with online companies increasing their use of complementary plug-in applications to customize and gain flexibility.

Tools for the Trade

“Firms will need the software tools to promote brands, analyze trends, and capture market share, as well as the support tools to retain buyers — all of which require a reliable, high-performance software infrastructure,” said Forrester analyst Eric Schmitt.

In conducting the study, Forrester examined the SEC filings of 60 software companies and estimated the revenue of 33 of the largest privately held software companies. Respondents to the survey reported spending $24 million on e-commerce efforts in 1999 and expect their spending to increase to an average of $41 million in 2000.

Platform Orchestration

Forrester believes that decision makers will turn away from feature-rich, proprietary packages, and turn increasingly toward platform products that allow for deep customization and the flexibility to rapidly integrate new applications.

Platform orchestration, as Forrester calls it, will be based on a core applications platform, an open and extensible standards framework, and plug-in component applications. The right combination will allow online companies to balance the benefits of site longevity with the need for constant innovation.

This new strategy, which Forrester predicts will emerge as the dominant software strategy, will drive companies to synchronize IT and e-business efforts, to avoid duplicated efforts and incompatible systems.

Friction in the Market

The ongoing friction between platforms and component applications is likely to increase in the packaged software market over the next few years, according to the report.

Forrester predicts, however, that even though consolidation will narrow the field, new component categories will appear, resulting in “a healthy ecosystem.”

The market will be composed of a handful of dominant platform providers and dozens of component application vendors, according to the research firm.

Different Strokes

In 2003, companies will spend one percent of their total revenues on e-commerce software solutions, according to Forrester.

While large companies will drive approximately 50 percent of all software spending through 2003, smaller firms are expected to have a significant impact on the market.

Although only 850,000 small businesses — having fewer than 100 employees — were engaged in e-commerce transactions in 1999, a U.S. Small Business Survey projects that figure to double to 1.6 million this year and leap to 2.9 million by 2003.

As small businesses make the jump from online presence to online store, that trend will be good news for many companies that provide Web hosting, CRM solutions and such targeting solutions as Internet postage and package handling.

However, small businesses will be more likely to lease software from application service providers than to purchase it outright.

Many firms, either by choice or market pressure, will rely on third-party intermediaries to handle their e-commerce needs. By using third-party services, those companies will offload the heavy financial investment necessary to personalize, measure, and support nonstop e-commerce, according to Forrester.