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REPORT ON THE FUTURE OF THE INTERNET

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A report published this week focuses on small and medium sized enterprises (SMEs), the ancillary services market an...
A report published this week focuses on small and medium sized enterprises (SMEs), the ancillary services market and the future of intranets. The report surveyed those responsible for IT decision-making in 300 SMEs throughout the UK during August 1997. Some of the report findings are highlighted below:

-- Internet penetration amongst SMEs is currently at 39 per cent, with a further 20 per cent indicating that they intend to go online during the next 12 months

-- The vast majority of SMEs recognise that the Internet will be an

important part of their businesses' future, with 81 per cent seeing

themselves being online within five years

-- The longer SMEs use the Internet, the more important the Internet becomes to their business. Companies that have been using email for over two months are three times as likely to regard email as 'crucial' to their business than those who had been online for less than three months

-- The ancillary services market is the fastest growing segment of the UK Internet market. The report estimates that the UK Web design market is currently worth over o100m and will continue to grow at over 40 per cent per annum over the next two years

-- Intranet deployment amongst SMEs is 11 per cent whilst penetration

amongst large corporates is over 60 per cent.

The report, sponsored by BT and carried out by the research and strategy company, Durlacher Research Limited, is the third in a series of quarterly in-depth surveys of the UK Internet market. The reports are perceived to be the definitive studies of the state of the Internet in the UK. Previous reports have focused on Internet use in large corporations and UK residential Internet use.

Rupert Gavin, director of Internet and Multimedia Services, BT

said, 'The findings of this report are very encouraging for UK companies. It proves that they recognise the incredible benefits the Internet can provide, in terms of increased efficiency, better communication and the subsequent cost savings. It's also great news for BT, because its business Internet portfolio offers a solution to every area of Internet use referred to in the report.'

Nick Gibson, Internet analyst at Durlacher Research Ltd, commented,

'One of the most striking results of this report is the section on the UK ancillary services market. A couple of years ago there were only a handful of Web design agencies - now the industry is worth approximately o100m and is set to grow at a rate of 40 per cent a year. Not only is the Internet providing real business benefits for exisiting UK SMEs, it is creating and sustaining a lot more at the same time!'

The Importance of the Internet to SMEs

Whilst the current Internet penetration of SMEs is relatively low compared to large corporations (39 per cent compared to 85 per cent), it is encouraging for the Internet industry to note that 81 per cent of the SMEs surveyed said that they would definitely adopt the Internet within the next five years.

There is a clear correlation between the length of time the

Internet connection has been installed in the SME and the perceived

importance to the business - 45 per cent of those SMEs that regard email as being crucial to their business have been using it for over 12 months. Conversely, 58 per cent of those companies that claimed email was irrelevant to their business had only had it installed for six months or less.

Internet penetration amongst medium sized companies is more

advanced at 51 per cent compared to penetration amongst small companies at 34 per cent. There is a marked difference between industry sectors, with 90 per cent of construction companies having no plans for Internet access for the next 18 months, compared to 61 per cent of professional and business services being connected. Of those companies in the latter sector not yet connected, a third plan to organise Internet access within the next 6 months, with a further 25 per cent within a year of that.

The majority of SMEs have a local area network (LAN) installed, but

only a third of those businesses allow more than half the workforce to be connected to it. This impacts upon the accessibility of the Internet from within the SME - for the majority of Internet connected SMEs, only 10 per cent of the workforce access the Internet. In only 8 per cent of all 300 companies surveyed did all employees have access to the Internet.

The primary stated uses of the Internet for the SMEs surveyed,

according to the research published today, are business research and

customer liaison. The most common perceived benefit of the Internet by

SMEs over the next year was increased business efficiency. The report also raises the issue of further integrated voice and data capabilities over IP networks, which it claims will increase the Internet's role as a crucial business tool to companies of the future.

The Ancillary Service Market

Ancillary services are currently the fastest growing segment of the

Internet market in the UK. The BT-sponsored Durlacher report defines an ancillary Internet service as any service that is ancillary to the

provision of Internet access. Therefore, for an ancillary service could be anything from: Internet and intranet site design and maintenance, Internet strategy consultancy, domain registration, web site hosting, systems integration, e-commerce solutions or Internet training. The majority of these services are currently offered by Internet service providers (ISP) although areas such as website design and maintenance has sporned an entire industry of its own.

Two thirds of those SMEs surveyed who did not have a website

planned to have one up within 18 months. Of those SMEs that did have web sites, the average spend was less than o3000, with a significant number of companies spending less than o1,000. Just under a third if the businesses surveyed claimed they had no intentions to develop a site at all.

Approximately half of those companies with web sites contracted out

the design and maintenance of their sites, contributing to the industry that the BT Durlacher report estimates is worth o100m and is growing at a rate of 40 per cent per annum.

The Future of the Intranet

The BT-sponsored report estimates that the UK intranet market will be worth over o5.5bn in less than four years (and that at January of this year it was worth o80m). The report focuses on three issues associated

with intranets: the convergence of data, voice and video; extranets; and the virual enterprise. It also touches on the very real benefits intranets can bring, using BT's own intranet as an example. BT estimates that its intranet (one of the largest in Europe) has saved o600m in the two years of its existence. The report estimates that this figure means BT's intranet is adding 10 per cent to BT's annual profits. This backs up the report's claim that UK PLC would, based on this figure, increase revenue by some o25bn in return for an investment of well under o1bn.

Durlacher estimates that data and voice integration over some IP

networks is two years away. It opines though that the Internet in its

current state is not reliable enough to sustain that high a level of

convergence. The report states that penetration of intranets into SMEs is currently running at 11 per cent, but that it expects that rate to grow by at least 35 per cent over the next year.

The next BT-sponsored Durlacher report will be available during

January and will focus on pricing within the UK Internet market.

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