News

Companies Set to Ramp Up Internet Spending

• By Scott Bekker
• 03/21/2001

Keith Ward

Not having a strong Internet infrastructure means being left behind in the burgeoning global economy. Companies are reacting to this truism by pouring more money than ever into IT operations.

Research firm Cahners In-Stat Group predicts that medium to large companies - which spent $49 billion on Internet technology and services in 2000 - will spend $110 billion in 2004, a jump from 15 percent to 24 percent of total IT spending.

"US businesses of all sizes began seriously considering the Web to enhance their business models about 18 months ago. Moving into 2001, the majority of firms are just now likely to realize some of the potential the Internet can offer them. How this happens will depend on the market," says Kneko Burney, director of eBusiness infrastructure and services at In-Stat, in a report.

Burney says she arrived at her numbers from two surveys that covered about 1,000 businesses. The heaviest areas of spending will be in communications, including "high-speed Internet access, voice over DSL [digital subscriber line], WAN connectivity, wireless," Burney says.

Russell Rogers, director of network management practices at GlobalNetwork Technology Services, agrees with In-Stat's findings. "For the past two quarters, infrastructure spending has certainly flattened. What seems to be happening is it's kicking back into gear with the visibility of eBay [and other high-profile Web site] crashes, where customers are saying, 'We need to do something about our infrastructure,'" Rogers says.

That means upgrading networks, adding servers, increasing storage capacity, and dramatically increasing bandwidth, Burney explains.

But it all takes money. One driving force behind all the spending, Rogers believes, is that companies are starting to realize the costs of downtime to the bottom line.

Rogers points to an analysis he performed for a cruise line company. "This particular ship brings in $700,000 in revenue per week in entertainment and retail sales. The ships are completely dependent on the IT infrastructure. They had [uptime] availability of 97.5 percent, which translated into [a loss of] $925,000 per year - almost 100 hours per year of downtime. That's ridiculous."

When put that way, and not in bits and bytes, companies "realize it's huge. When you focus on the business impact of downtime, it opens eyes," Rogers says.

Internet spending of course entails spending on security. Burney's survey also determined what security worries companies have. "Security is addressed in a variety of ways, from hardware to software," she says. "It's definitely a key priority for them, but they are less worried about attacks from the outside than on virus protection."

Rogers does not see as much Internet infrastructure spending on hardware as some analysts do. "I think there will be a resistance to adding more hardware. I have a customer who's had it with the idea of buying more servers. He's got critical applications and wants more performance out of those applications. The answer from vendors is 'Add more servers.' His answer is 'No, I don't need more servers, I need more efficient software.'"

Regardless of where the money is spent, it is clear that it has to be spent. Rogers says businesses that don't get on the Internet boat and put the money into their infrastructures could end up being left at the dock. "There's money to be made in the savings and efficiencies game. If you don't invest in that paradigm, you won't be able to compete because someone else will."