Entering the Access Era:
Key Business Problems & the
Propensity to Outsource
Applications in the U.S. Market
March 2001
Kneko Burney
Director – eBusiness Infrastructure & Services
480.609.4544
kburney@instat.com
This is a white paper prepared for Ambit International 1
1
Cahners In-Stat Group (<http://www.instat.com/>) covers the full spectrum of digital communications
research from vendor to end-user, providing the analysis and perspective that allows technology vendors
and service providers worldwide to make more informed business decisions.
In-Stat is a unit of Cahners Business Information (www.cahners.com), a leading provider of critical
information and marketing solutions to business professionals and a member of the Reed Elsevier plc
group.
 Copyright Cahners In-Stat Group 2001. All rights reserved.
Reproduction in whole or in part is prohibited without written permission from Cahners In-Stat
Group.
This report is the property of Cahners In-Stat Group and is made available to a restricted number of
clients only upon these terms and conditions. The contents of this report represent the interpretation and
analysis of statistics and information that is generally available to the public or released by responsible
agencies or individuals. The information contained in this report is believed to be reliable but is not
guaranteed as to its accuracy or completeness. Cahners In-Stat Group reserves all rights herein.
Reproduction or disclosure in whole or in part to parties other than the Cahners In-Stat Group client who
is the original subscriber to this report is permitted only with the written and express consent of Cahners
In-Stat Group. This report shall be treated at all times as a confidential and proprietary document for
internal use only. Cahners In-Stat Group reserves the right to cancel your subscription or contract in full
if its information is copied or distributed to other divisions of the subscribing company without the
written approval of Cahners In-Stat Group.
Authentic Copies of this Report Feature a Red Color Bar
Table of Contents
Table of Contents....................................................................................................................................i
List of Figures ........................................................................................................................................ii
Executive Summary ...............................................................................................................................1
Fundamental Business Problems..........................................................................................................2
Key Business Challenges in 2001 – Small Companies ..............................................................................2
Key Business Challenges in 2001 – Corporate Market...............................................................................3
Current Solutions to Business Problems..............................................................................................4
Key Solutions Used in 2001 – Small Companies .......................................................................................4
Key Solutions Used in 2001 – Corporate Market .......................................................................................5
Propensity to Outsource........................................................................................................................6
Propensity to Outsource in 2001 – Small Companies ................................................................................6
Propensity to Outsource in 2001 – Corporate Market.................................................................................7
Preferred Business Solution Providers.................................................................................................8
Small Company Providers ........................................................................................................................8
Corporate Market Providers......................................................................................................................9
Methodology ........................................................................................................................................ 10
About Cahners In-Stat Group.................................................................................................................. 11
About the Author .................................................................................................................................... 11
About the Research................................................................................................................................ 11
About the eBusiness Infrastructure & Services Research Group .............................................................. 12
Page i
 Cahners In-Stat Group •www.instat.com •March, 2001
List of Figures
Figure 1: Key Business Challenges – Small Company, 2001................................................................2
Figure 2: Key Business Challenges – Corporate Market, 2001 .............................................................3
Figure 3: Solutions Perceived to be Most Effective – Small Company, 2001........................................4
Figure 4: Solutions Perceived to be Most Effective – Corporate Market, 2001.....................................5
Figure 5: Propensity to Outsource – Small Company, 2001..................................................................6
Figure 6: Propensity to Outsource – Corporate Market, 2001...............................................................7
Figure 7: Preferred Business Solution Providers – Small Company, 2001...........................................8
Figure 8: Preferred Business Solution Providers – Corporate Market, 2001 ........................................9
Figure 9: eBusiness Infrastructure & Services Research Group........................................................ 12
Page ii
 Cahners In-Stat Group •www.instat.com •March, 2001
Executive Summary
Despite the closure of a few pure-play providers, the year 2000 proved to be a time of great
progress in the acceptance of the “hosted applications paradigm.” Not only are businesses of all
sizes indicating a desire to use outsourced solutions to solve their key business problems, but
their likelihood to turn to an application service provider appears to have increased.
Key Business Problems
Regardless of size, “managing customer relationships” appears to be the most challenging
business issue for U.S. businesses in 2001. Nearly 70% of small companies and nearly 80% of
larger firms indicated this as a key challenge for their firm in this new year, and expect it to
continue to be an issue into 2002. However, the research suggests that larger firms are feeling
more concern over some key business activities, such as “group collaboration,” “building a web
presence,” and “improving productivity,” though their smaller counterparts are not far behind.
Propensity to Outsource & Likely Providers
Though in the case of both small and large firms, the overwhelming majority indicate they are
currently using in-house solutions to solve their key business challenges, the research shows that
many of these firms are very likely to seek outsourced solutions, possibly in the next year. Of
the likely providers of Internet-accessible applications, most firms surveyed indicated a
likelihood to turn to systems integrators and “application service providers,” over telcos, ISPs
and hardware providers. This suggests that providers focused on solving specific business
problems using Internet-delivered services may have an advantage in addressing customer needs
for the time being. However, customers continue to indicate some reluctance to working with
start-ups or unknown providers. Looking forward, well-branded, well-partnered service
providers will likely enjoy the most success in customer acquisition.
Page 1
 Cahners In-Stat Group •www.instat.com •March, 2001
Fundamental Business Problems
For the most part, the key business problems of firms in the U.S. have not changed over the last
few years, despite the addition of the Internet into many business practices. Firms continue to
struggle with customer contact points, though it appears that the average corporate market firm
(100+ employees) is suffering from a greater number of these problems at once.
Key Business Challenges in 2001 – Small Companies
The research strongly indicates that even small companies are suffering from the changing
dynamics of doing business in an increasingly digital economy, with as much as 30% suffering
from each of the key business problems plaguing today’s firms at once.
Though small businesses (firms with 5 to 99 employees) seem to be suffering from more
problems when compared to SOHO businesses (firms with <5 employees), the key problems
facing both markets at the beginning of 2001 deal with customer contact points. Nearly 70% of
those surveyed indicate challenges with customer relationship management, while roughly 60%
indicated struggling with building a relevant web presence for their business. Looking forward,
smaller firms are expected to feel the high-tech “pinch” as their larger trading partners begin to
take greater of advantage of the Internet in their supply chain and business-to-business processes.
Figure 1: Key Business Challenges – Small Company, 2001
100%
SOHO
Small Business
75%
69%
64%
50%
66%
54%
52%
49%
51%
46%
38%
39%
47%
42%
34%
25%
25%
0%
Building web
presence
Improving
productivity
2001. In-Stat. www.instat.com
Group
collaboration
SCM
Managing
Customer
relationships
Managing/
analyzing
company info
Bringing
products to
market quickly
Key Business ChallengesSmall Company, 2002
Page 2
 Cahners In-Stat Group •www.instat.com •March, 2001
Key Business Challenges in 2001 – Corporate Market
With more complex business practices, it is not surprising that corporate market firms (100+
employees) are more likely to suffer from multiple business problems when compared to smaller
firms. The research suggests that nearly half of these firms are suffering from most of the key
business challenges presented, from building a relevant web presence to managing customer
relationships.
There are a few differences between the kinds of business problems facing mid-sized firms (100
to 999 employees) and enterprise businesses (1000+ employees). For the most part, “managing
customer relationships” appears to affect the greatest number of firms, followed by improving
“group collaboration” and “managing/analyzing company information.” These results are not
surprising, considering these firms are becoming increasingly fragmented into a scattering of
smaller locations, as well as home to a variety of disparate business systems. Looking forward,
these businesses’ primary focus will be to unify scattered work groups using shared company
resources and integrate disparate systems for improved business processes.
Figure 2: Key Business Challenges – Corporate Market, 2001
100%
Middle Market
Enterprise
80%
77%
60%
63%
61%
66%
62% 62%
56%
55%
59%
40%
73%
50%
46% 47%
48%
20%
0%
Building web
presence
Improving
productivity
2001. In-Stat. www.instat.com
Group
collaboration
SCM
Managing
Customer
relationships
Managing/
analyzing
company info
Bringing
products to
market quickly
Key Business ChallengesCorporate Market, 2001
Page 3
 Cahners In-Stat Group •www.instat.com •March, 2001
Current Solutions to Business Problems
When looking at the solutions perceived to solve key business problems at the beginning of
2001 2 , the majority of businesses, both small and large, believe in-house solutions would be most
effective. However, additional research suggests these firms may be quite likely to outsource
their requirements looking forward, possibly as soon as in the coming year.
Key Solutions Used in 2001 – Small Companies
Across the board, small companies indicated that using in-house application would be most
effective to address their key business problems early in 2001. Though relatively low in
visibility, Internet-delivered outsourced services appear to be seen as the next likely alternative
for these firms, with as much 20% of those surveyed indicating this choice. These results are
promising for online service providers, particularly when considering the comparative “newness”
of Internet-delivered services appropriate for this market and their modest availability/visibility
at this point. Looking forward, Internet-delivered services are likely to dominate as the vehicle
through which these firms automate their business processes.
Figure 3: Solutions Perceived to be Most Effective – Small Company, 2001
75%
SOHO
Small Business
Relative Weight of Business
Challenges
Small Company, 2001
60%
50%
Building web presence
13%
51%
Improving productivity
15%
15%
Group collaboration
13%
SCM
Customer service
16%
14%
14%
Managing company info
Bringing products to market quickly
25%
20%
16%
14%
6%
6%
7%
13%
7%
0%
In-house
Service Provider over
Internet
2001. In-Stat. www. instat.com
Service Provider NOT
over Internet
Some other solution or
service
Don't know
Solutions Perceived to be Most Effective Small Company, 2001
2
Data was collected on the solutions used to address each business problem separately. These responses were
consolidated as shown above by weighting each set of results using the data presented in figures 1 and 2 (responses
were normalized to sum to 100% as shown in the pie charts on both figures 3 and 4).
Page 4
 Cahners In-Stat Group •www.instat.com •March, 2001
Key Solutions Used in 2001 – Corporate Market
As expected, the majority of those surveyed in the corporate market indicated using in-house
solutions would be most effective to solve their key business problems. Of more interest, the use
of Internet-delivered services also appear to be gaining ground among these businesses as a
potentially effective alternative to applications managed in-house. However, when considering
these results in conjunction with the greater availability of Internet-delivered outsourced services
targeted at firms in these markets, the research suggests that larger firms may be less likely to
outsource business problems over the Internet when compared to smaller companies.
This is not shocking news when taking into account that corporate market firms have already
invested in some sort of fairly expensive or complex solution to address their primary business
issues. Given this, these firms have been and likely to continue to be slow to embrace
alternatives, no matter how promising, including those offered online. Looking forward a few
months, In-Stat expects these larger firms to continue to outsource immediate or urgent business
requirements to a variety of providers, including ASPs. However, this is likely to be a short-term
strategy, with many firms expected to rely on a hybrid of in-house resources integrated with or
leveraging outside services, particularly managed hosting, including co-location.
Figure 4: Solutions Perceived to be Most Effective – Corporate Market, 2001
70%
60%
Middle Market
Enterprise
Relative Weight of Business
Challenges
62%
59%
Corporate Market, 2001
50%
Building web presence
13%
40%
15%
Group collaboration
14%
SCM
Customer service
15%
30%
Improving productivity
15%
13%
Managing company info
15%
Bringing products to market quickly
20%
10%
15%
16%
14%
6%
11%
7%
0%
In-house
Service Provider over Service Provider NOT
Internet
over Internet
6%
4%
Some other solution
Don't know
or service
Solutions Perceived to be Most Effective 2001. In-Stat. www.instat.com
Corporate Market, 2001
Page 5
 Cahners In-Stat Group •www.instat.com •March, 2001
Propensity to Outsource
Though most firms indicated using in-house solutions to address their business problems at the
time of this research (December 2000/January 2001), many show a strong desire to outsource
these issues throughout the year.
Propensity to Outsource in 2001 – Small Companies
For the most part, small companies show the greatest desire to outsource their “Internet
enablement” or the development (and probably management of) an online point of presence.
The general lack of technological expertise in the average small firm, combined with the “new”
trend towards using the Internet as an important means of communicating with customers,
partners, and suppliers, create the perfect conditions for service providers to offer easy-to-use
alternatives to get online.
Aiding in the process of bringing products to market more quickly also appears to be a good
candidate for outside services, with the results presented below suggesting there is some
potential for the providers of “collaborative commerce” services online targeting this market.
Figure 5: Propensity to Outsource – Small Company, 2001
80%
SOHO
Small Business
60%
66%
57%
70%
40%
41%
36%
38%
39%
36%
33%
37%
28%
20%
24%
23%
21%
0%
Building web
presence
Improving
productivity
2001. In-Stat. www.instat.com
Group
collaboration
SCM
Customer
service
Managing
company info
Bringing
products to
market quickly
Propensity to Outsource Small Company, 2001
Page 6
 Cahners In-Stat Group •www.instat.com •March, 2001
Propensity to Outsource in 2001 – Corporate Market
Larger firms appear to be a bit more likely to outsource key business issues in 2001 as compared
to their smaller counterparts. These firms are looking to use outside services for a variety of
business issues, particularly for web strategies (especially in the middle market). Service
providers can expect to see larger firms outsource elements of their web platforms over the
coming year. The enabling technologies required for online business activities have become
complex and expensive enough to warrant continued investment in outside services.
Of more interest, “improving productivity” was also a key business problem likely to be
outsourced in 2001. Business-critical administrative tasks like expense reporting, invoice
submission and benefits administration are expected to be key candidates for customers adopting
Internet-delivered services to automate these processes.
Lastly, firms in this segment, namely larger enterprises, indicated a desire to outsource elements
of their supply chain management process. Though e-marketplaces didn’t quite garner traction
in 2000, providers of enabling supply solutions may meet favorable market conditions in 2001
according to this research. These customers are facing shorter and shorter product life cycles are
hoping that the Internet will improve the supply chain management process enough to keep them
competitive.
Figure 6: Propensity to Outsource – Corporate Market, 2001
80%
Middle Market
60%
Enterprise
69%
51%
49%
40%
45%
35%
52%
35%
37%
34%
27%
26%
20%
37%
23%24%
0%
Building web
presence
Improving
productivity
2001. In-Stat. www.instat.com
Group
collaboration
SCM
Customer
service
Managing
company info
Bringing
products to
market quickly
Propensity to Outsource Corporate Market, 2001
Page 7
 Cahners In-Stat Group •www.instat.com •March, 2001
Preferred Business Solution Providers
When considering the myriad of providers that could offer Internet-delivered services, both small
and large firms alike indicate that systems integrators and application service providers are the
most likely providers they would hire to address their specific business needs over the Internet.
In-Stat believes these results reflect two key issues: 1. the process-specific nature of key
problems and 2. the lack of business process expertise of the larger, better branded providers.
Small Company Providers
Almost an equal number of those considering outsourcing in 2001 indicated they felt application
service providers and systems integrators would be most able to solve their business problems
using technology. This is not particularly surprising considering the limited nature or lack of
hosted applications sales and marketing strategies from major technology providers, like telcos
and platform providers. In-Stat expects to see more of the “majors” begin gingerly offering
various hosted applications (through partnerships) to customers in these markets in 2001,
probably in tandem with broadband or eServices initiatives. As these better-known providers
become more involved in the sale of hosted applications, the preferred providers for these
customers are likely to shift toward better known brands.
Figure 7: Preferred Business Solution Providers – Small Company, 2001
40%
Service Providers Platform Providers Integrators
SOHO
30%
Small Business
26%
30%
20%
21%
23%
16%
10%
15%
13%
11%
8%
11%
6%
6%
7%
1%
0%
ASP
Telecom Service
Hosting
Provider
Infrastructure
Provider
2001. In-Stat. www.instat.com
5%
2%
Systems Hardware Network Hardware
Vendor
ISV
Systems Integrator
Other
Vendor
Preferred Business Solution Providers Small Company, 2001
Page 8
 Cahners In-Stat Group •www.instat.com •March, 2001
Corporate Market Providers
Similar to their smaller counterparts, firms in the corporate market also indicated a fairly strong
preference for application services providers and systems integrators, with integrators actually
being selected by more of those surveyed. The strong focus of these providers on providing
process-specific solutions over the Internet to these customers is believed to have played a strong
role in these results.
Larger customers are expected to maintain their focus on “specialized” providers of business
process outsourcing services, though major telcos and platform providers are likely to enter this
space through partnership (e.g., Qwest and KPMG, AT&T and Ernst & Young, Sprint and
Deloitte & Touche). Regardless, these customers require outsourcing providers that truly
understand their underlying business processes, in additional to having solutions designed to
automate, enhance and/or enable these specific processes online, not necessary replace them.
Figure 8: Preferred Business Solution Providers – Corporate Market, 2001
50%
Service Providers Platform Providers Integrators
40%
Middle Market
41%
38%
Enterprise
37%
30%
31%
20%
10%
11%
5%
7%
3%
0%
ASP
1%
Telecom Service
Hosting
Provider
Infrastructure
Provider
2001. In-Stat. www.instat.com
1%
1%
4%
Systems Hardware Network Hardware
Vendor
7%
6%
4%
ISV
3%
Systems Integrator
Other
Vendor
Preferred Business Solution Providers Corporate Market, 2001
Page 9
 Cahners In-Stat Group •www.instat.com •March, 2001
Methodology
Scope
This research was designed to understand the key business problems facing U.S. businesses
today, understand how they are using technology to solve these problems, evaluate their
likelihood to use outsourcing services and determine from which providers. This research
focuses on the Web-accessing population of each market. In the case of the small and SOHO
business markets, currently 88% of small businesses and 80% of SOHO businesses are estimated
to have access to the Internet in 2001.
Methodology
In-Stat conducted a web-based survey with U.S. businesses across company size in December of
2000 and early January 2001. Interviews were conducted with 125 decision-making individuals
within U.S. based SOHO businesses, 215 decision-makers in small businesses, 210 decisionmakers in mid-sized businesses and 179 decision-makers in enterprise businesses; a total of 734
responses. Respondents were qualified as those that have authority to purchase IT products and
services AND that are knowledgeable regarding outsourcing. These in-depth interviews were
approximately 15 to 20 minutes in length.
Sample Sources
The specific list source for this research was the Cahners IT Decision-maker database and
Cahners In-Stat Group’s Decision-maker panel. The Cahners IT Decision-maker database is
comprised of more than 1.6 million information technology decision-makers at over 657,000
locations. The list is updated 6 times a year, and is comprised of controlled circulation files from
a variety of sources. Using this list, we were able to target areas of responsibility (IT/MIS/IS),
and company size, and get representation from a variety of industries randomly across the U.S.
In-Stat’s Decision-maker panel is a collection of qualified respondents that have and continue to
participate in on-going In-Stat research.
Calculating Weighted Averages
Please note the analysis in this report uses “weighted averages” in many instances. In these
cases, weighted averages were calculated by extracting the “don’t know/refused/unsure”
responses from the total data collected and subsequently normalizing the remaining responses to
equal 100%. These normalized results were then presented in the report or used to weigh other
data where appropriate.
Page 10
 Cahners In-Stat Group •www.instat.com •March, 2001
About Cahners In-Stat Group
Cahners In-Stat Group (http://www.instat.com/) covers the full spectrum of digital
communications research from vendor to end-user, providing the analysis and perspective that
allows technology vendors worldwide to make more informed business decisions.
About the Author
Kneko Burney directs In-Stat’s eBusiness Infrastructure & Services research. She is one of the
leading experts on the eBusiness requirements of firms in the U.S. Ms. Burney specializes in
identifying and quantifying market opportunities for technology vendors in U.S. markets.,
categorizing them by size of business and vertical industry. Though Ms. Burney’s expertise
extends across all sizes of business, her specialty for both research and consulting lies in two key
areas: small company technology and Internet-delivered services, including hosted applications.
Ms. Burney’s ability as a strategic advisor is deeply rooted in her on-going research on and
analysis of business IT requirements, preferences and expenditures. Additionally, her in-depth
relationships with several key participants in specific markets allow Ms. Burney to better
understand the underlying dynamics of these segments. For example, she has played a key role
in the identification of Internet-delivered services channels, namely Online Business Centers and
eBusiness Service Providers, coining these recognized industry terms.
Ms. Burney sits on the board of advisors for four high-tech ventures, chairs well-known
eBusiness events in the U.S. and is a keynote speaker for several shows, conferences and
summits. She has been featured in Fortune Small Business Magazine and also has been quoted
in several business and trade publications, including The Wall Street Journal, Business Week,
The New York Times, Fortune, The Industry Standard and Information Week.
Prior to joining Cahners In-Stat Group, Ms. Burney was a partner with Feather & Associates,
specialists in strategic consulting for over-seas clients. In that role, she provided strategic
guidance and market analysis for clients operating remote ventures in the United States. Ms.
Burney holds a B.A. in Economics and Mathematics, as well as an M.A. in Mathematical
Economics from Boston University.
About the Research
The research is this report is part of In-Stat on-going analysis of the hosted applications market.
Full reports based on this research will be available in April and can be found at
www.instat.com.
For more information feel free to contact Frank Dickson,
fdickson@instat.com.
Current Reports on Demand for Application Services
Report #ASP0002LB: “Online Computing Infrastructure: Considering the Customer –
Medium & Enterprise Businesses.” June, 2000. Author: Kneko Burney.
http://www.instat.com/catalog/cat-oci.htm#asp0002lb
Page 11
 Cahners In-Stat Group •www.instat.com •March, 2001
Report #ASP0002LB: “Online Computing Infrastructure: Considering the Customer –
Medium & Enterprise Businesses.” June, 2000. Author: Kneko Burney.
http://www.instat.com/catalog/cat-oci.htm#asp0002lb
Report #OC0003MS: “Small Company Problems Future ASP solutions: Demand for
Application Services in the Small & SOHO Business Markets.”
March, 2000. Author: Kneko Burney
http://www.instat.com/catalog/cat-oci.htm#asp0002lb
About the eBusiness Infrastructure & Services Research Group
This research is part of In-Stat’s eBusiness Infrastructure & Services research group. In this
business unit, In-Stat looks how U.S. businesses leverage technology in their on-going activities,
as well as explore the services and solutions that make eBusiness possible. There are nine key
services in this group, with the structure of this research organization shown in the graph below.
For more information about the products or services in this group, please contact Kneko Burney,
Director of the eBusiness Infrastructure & Services research group. For more information about
In-Stat, please visit the website at http://www.instat.com, or contact Frank Dickson, VP of Sales.
Figure 9: eBusiness Infrastructure & Services Research Group
eBusiness Infrastructure & Services
Research Group
Analysis of the services and
eBusiness: User Interface Technologies & Services
eBusiness:
SOHO Business
Market
(less than 5
Employees)
eBusiness:
Small Business
Market
(5-99
Employees)
eBusiness:
Middle
Market
(100-999
Employees)
eBusiness:
Enterprise
Market
(1000+
Employees)
solutions that allow US
Businesses to Interact with
their users - customers,
employees, partners and
suppliers - seamlessly.
Symmetric coverage of the
expenditures, channels,
current & planned
infrastructure and changing IT
requirements of US Business
by size of company.
In-depth analysis of the
Online Computing Channels
channels,
services and
Online Computing Services
Online Computing Infrastructure
eBusiness Computing Infrastructure
solutions
enabling the emerging
application services industry
in the US.
Analysis of the systems
powering eBusiness, particularly
in US Service Provider
community. Coverage of
servers, storage and client
technology world-wide.
Page 12
 Cahners In-Stat Group •www.instat.com •March, 2001