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Survey: E-commerce budgets outpacing IT spending

Companies are expected to continue developing back-end systems that allow customers, suppliers and employees to interact with each other online, providing cost savings.

Companies' e-commerce budgets are expected to outstrip overall information technology spending this year as companies develop back-end systems that allow customers, suppliers and employees to interact with each other online, providing cost savings.

"Even though there's been a dot-com implosion, a lot of companies are willing to increase their e-commerce spending because of the cost savings they expect to get by moving their operations on the Internet," said Thomas Diffely, a Merrill Lynch vice president and co-author of a survey released earlier this week. "It's more an economic decision than a mind-share decision."

The survey of 50 chief information officers from major companies and government agencies found that e-commerce budgets are expected to increase 30 percent over last year, outpacing the anticipated 6 percent increase in overall IT spending.

E-commerce software helps companies track everything from supply chain management to customers' orders, potentially saving millions of dollars and bringing in a return on their initial investment of around 15 percent to 20 percent in the first 18 months, industry watchers say.

The survey's 30 percent figure is probably conservative, said Ed Caso, an analyst with First Union Securities. "Often we find these kinds of studies are on the light side of what's actually spent," he said.

"A lot of big projects are on cycles. They usually are approved in December, and companies begin the projects in January. Once we find where the bottom is with the economy, the budgets will be released and the projects will move forward," Caso said.

The survey found that e-commerce projects to this point generally have been only 50 percent completed.

"Two years ago, companies were afraid of getting Amazoned, and there was a rush to expedite their e-platform initiatives," said Mark Wolfenberger, a Credit Suisse First Boston analyst. "That pressure has faded, and there will be a gradual return to more normalized growth in e-commerce-related spending."

That means companies will likely tackle the remainder of their projects over time, rather than rush to spend large chunks of their e-commerce budgets in one swift move.

Although the economy is softening, PC sales are slowing, and a number of tech companies from Microsoft to Intel having issued preliminary earnings warnings, Merrill Lynch's Diffely said he remains confident these CIOs will move forward with their budgeting plans.

"In talking with companies this month, some say they'll turn the faucets back on by midyear," he said. "They said they've set aside this money for cost-reduction efforts, rather than revenue generation."