Internet spending outpaces IT spending, IDC says

A wide range of businesses are turning to Internet technologies to cut costs and raise productivity, to such an extent that corporate spending on those technologies is outstripping spending on IT in general, according to an analyst at International Data Corp. (IDC) said at the company's annual Directions seminar. 'Internet spending is not synonymous with IT spending,' said John Gantz, IDC's senior vice president for personal systems, peripherals, collaborative computing and services.

A wide range of businesses are turning to Internet technologies to cut costs and raise productivity, to such an extent that corporate spending on those technologies is outstripping spending on IT in general, according to an analyst at International Data Corp. (IDC) said at the company's annual Directions seminar.

"Internet spending is not synonymous with IT spending," said John Gantz, IDC's senior vice president for personal systems, peripherals, collaborative computing and services.

Comparing six major industry sectors, Gantz said that IT spending to 2002 in the services industry is expected to grow at an average compounded annual rate of 20%. That betters spending by the retail industry, which has an expected annual growth rate of about 15%, while spending growth by the utilities, communications/media, banking and discrete manufacturing industries will grow on average of about 10% annually and by the insurance industry of about 5% growth rate, Gantz said.

But looking at growth in Internet spending in the same sectors, he said that manufacturing, insurance and retail industries would lead through 2002 with an average compounded annual growth rate of between 50 percent and 60%. At the bottom is banking, at a roughly 30% rate.

"They are adopting [Internet technologies] at a different pace then they are buying overall IT [equipment]," Gantz said.

The reason that some of these industries are rapidly adopting Internet technology is simple: Companies in some sectors need to cut costs more than others.

Deregulation-spurred competition in the utilities industry, for example, has forced electric companies to turn to the Internet to streamline the buying and selling of electricity, he said.

The traditional media industry, meanwhile, is also being driven to the Web to keep up with competition, Gantz said. He cited the case of allegations that US President Bill Clinton had an affair with a White House intern and then asked her to lie about the relationship. The story was first broken on a World Wide Web site and then followed up by Newsweek, a traditional weekly news magazine, which opted to publish its story first online and then in print, he said.

"Newsweek responded using the Internet rather than waiting a week" until its paper version would go on sale, Gantz said.

Corporate users surveyed by IDC found that their return on investment for Web technologies was about 245 percent, while the return for client/server systems was 95%, Gantz said. Users also found that Web investments paid for themselves in about six weeks, while the payback for client/server systems was about 18 months, according to the IDC survey.

Such savings is driving Internet technologies into a broader universe of U.S. companies, he said.

"It's not just the early adopters that are using Internet technologies," he said. "It's the average company."

Gantz listed several companies that have leveraged the Internet either to cut costs or to raise their revenues:

-- The Web-based automobile seller, AutoBytel, which cut the cost of selling a car by US$830 for 3,000 car dealers.

-- Undergarment maker Fruit of the Loom Inc., which built Web sites for 33 distributors to handle their orders from resellers. The result was greater loyalty among distributors, 30 of which no longer do business with Fruit of the Loom's chief competitor, Gantz said.

-- Cisco Systems Inc., which sells more than $1 billion in networking equipment per year over the Internet and which reduced its order mistakes from 20% to 0.1%.

IDC, in Framingham, Massachusetts, can be reached at http://www.idc.com/.

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