Increasing Complexity of Projects Will Drive Internet Services Spending to Over $99 Billion Worldwide, IDC Says

FRAMINGHAM, MA – JUNE 14, 2000 – Internet service providers are no longer being asked just to help organizations establish a Web presence. Instead, they are expected to help clients transform part of their business to compete in an Internet economy and integrate their ecommerce sites with back-end systems. The increased complexity of projects is contributing to torrid growth of Internet services spending. IDC expects the worldwide market to increase from $16.2 billion in 1999 to $99.1 billion in 2004. For service providers to capitalize on this expanding opportunity, they will have to adapt to the changing scope of Internet projects.


"As their projects continue to increase in complexity and size, clients will want to work only with service firms that can maintain a long-term relationship by offering a suite of ongoing consulting, implementation, and maintenance services," said Pooneh Fooladi, an analyst with IDC's Internet Services research program. "Internet services firms will also have to be able to expand the range of services they provide to meet the growing needs of clients. These services include incubator, emarketplace, and even wireless services."

To broaden their scope, Internet service providers have increased their merger and acquisition activity. In the future, IDC expects they will more frequently partner with software companies. "These partnerships will enable service companies to develop greater expertise with a limited number of products, facilitating the delivery of their Internet solutions," Fooladi said.

The United States represents the largest opportunity for Internet services providers. In 1999, it accounted for more than 54% of spending with $16.1 billion. However, it will grow slower than any other region, and its share of spending will decrease to 44.4% in 2004. Japan represents the fastest-growing opportunity. Its spending will increase at 1999-2004 compound annual growth rate (CAGR) of 57.3%, compared with the overall market's 43.7% CAGR.

Within the United States, the financial services industry will present the largest opportunity. From 1999 to 2004, its share of U.S. Internet services spending will hover around 20%. Healthcare will be the fastest-growing industry, increasing its spending at a CAGR near 48%.

A major change within the U.S. market will be increased business from small (fewer than 100 employees) and medium-sized (100-499 employees) companies. Their combined share of Internet services spending will increase from 44% in 1999 to 54% in 2004. "Service firms should develop strategies to target the small and medium-sized business markets," Fooladi said. "Medium-sized firms are particularly under-serviced, and Internet service firms looking for a point of differentiation could target these firms."

IDC's new report, Worldwide Internet Services Market Forecast and Analysis, 1999-2004 (IDC #B21771), analyzes opportunities for Internet service providers. The report forecasts Internet services spending through 2004 by seven regions: Europe, Asia/Pacific, Japan, Canada, Latin America, ROW, and the United States. Market drivers and inhibitors in each region are discussed. The U.S. forecast is segmented by service type, industry, and company size. The report includes IDC's definition of Internet services. It discusses the types of Internet service providers and the changing Internet services customer. It includes major Internet services announcements made during 1999 and recommendations for vendors competing in this market. To purchase the report, contact Jim Nagle at 1-800-343-4952, extension 4549 or

About IDC

IDC delivers dependable, high-impact insights and advice on the future of ebusiness, the Internet, and technology to help organizations make sound business decisions. IDC forecasts worldwide markets and trends and analyzes business strategies, technologies, and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC provides global research with local content through more than 500 analysts in 43 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies, and the financial community. Additional information can be found at

IDC is a division of IDG, the world's leading IT media, research and exposition company.

# # #

All product and company names may be trademarks or registered trademarks of their respective holders.