Reality check on e-comm myths: Gartner

Contrary to market hype the average cost of launching a first-phase e-commerce Web site is $1 million and still growing, a Gartner survey revealed last week.

Examining the myths and realities surrounding e-commerce, the survey warns companies not to be fooled by low upfront software costs and vendor claims of ‘low cost' sites.

In fact, the cost of launching a competitive Web site will increase at least 25 per cent over the next 24 months.

Gartner analyst Joseph Feiman said that by 2002 the real cost to build e-business Web sites will range from $300,000 to $1 million at the lower end, and $5 million to $20 million at the high end.

"Despite constant vendor claims to the contrary, initiating a corporate e-commerce Web site is an expensive proposition, and one that will become even more so over the next 24 months," Feiman said.

The survey, which involved 20 mid-size to large enterprises that were launching first phase e-commerce Web sites focusing on the sale of goods and services, found the average time to complete a site was five months.

The average scale of participants' sites included the ability to handle more than 500 concurrent users, respond to some 10,000 hits, and take 100-plus orders a day. None of those surveyed were "on budget" for their project and labour was the largest cost - at 79 per cent on average.

"Developing and launching a competitive enterprise e-commerce site will take about five months, require multiple external companies and cost more than a million dollars," Feiman said.

The sites surveyed were under three cost categories based on function: 1) Get on the map for $300,000 to $1 million; 2) Run with the pack for $1 million to $5 million; 3) Market differentiator for $5 million to $20 million.

Feiman also warned organisations to plan for an intensive, expensive and lengthy training process and that means setting timetables in calendar, not Internet, years.

"The ratio of labour to software expenditure was 30 to one," he said.

"Although many companies thought they were getting everything they needed from their e-commerce application vendor, a great deal of effort was dedicated to building the front and back ends of the sites. "Participants often cited a lack of good content tools integrated to the e-commerce application as the culprit."

Those choosing to use a low, upfront cost e-commerce platform to save money spent a small fortune on labour costs.

One participant bought the platform and tools for less than $50,000 but was forced to spend $2 million in labour to develop the catalogue and design the storefront.

Other participants chose to go with a suite believing they had everything "in a box", but customisation and incremental development yielded no cost advantage.

Dstore CEO and founder David Gold said organisations need to be aware of their objectives early because mistakes are extremely costly.

Gold said projections on customer numbers and levels of scalability are the key to reducing costs.

Gold estimated the cost of an effective e-commerce site to be around half a million dollars plus an additional $400,000 for the necessary hardware.

"Our biggest costs were labour because we build [software] ourselves. We located a team of leading-edge programmers in India, not simply because it was cheaper, but we couldn't source what we wanted locally. "

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