Computer Economics recently released the results of the 2005/2006 Information Systems Spending & Technology Trends study. Among the dozens of benchmarks included in that study are ROI and TCO benchmarks for various e-commerce technologies and initiatives.
The results of that study indicate that websites generally provide excellent ROI, with 89% of the IS managers reporting a full return from their investment. However, our study also shows that controlling the total cost of ownership of websites still needs some work.
As Figure 1 shows, 30% of the organizations in our 2005 study report that their website TCO exceeded their expectations. Only at 5% of the sites are costs lower than anticipated, while 65% report that their website TCO is as anticipated. Although one may argue that 30% is a minority of website owners, it is higher than would be expected for a mature technology.
One reason that website costs may be difficult to control is that websites often have much higher maintenance cost than other IT investments. For example, a new software application requires ongoing maintenance and support, but the effort required on an annual basis to maintain an installed application is generally less than the effort required to build it initially. Websites, on the other hand, are a maintenance-intensive investment. In fact, except in the case of the simplest static websites, the annual cost of maintenance can be equal to the cost of the original site development. The high cost of website maintenance can be attributed to several causes.
- If a website is to be effective, its content must be continually refreshed.
- Websites typically must be available 24 hours a day, seven days a week.
- The transaction volume of a website can vary greatly based on factors outside of an organization’s control—positive or negative.
These factors (and others) contribute to higher labor costs which generally represents the largest portion of the ongoing TCO of your website environment. For many organizations, providing the level of maintenance required to support the corporate website is a difficult proposition. If the infrastructure required, or the staff needed, is greater than the organization can deliver, the IS group should strongly consider outsourcing all or some of the website management functions. This is especially true given the high level of ROI and low level of TCO associated with website outsourcing, as we shall illustrate below.
Outsourcing as a Cost Control Strategy
Our 2005 study indicates that 91% of the organizations that are currently outsourcing some portion of their website management report at least a break even return. More specifically, 36% of the companies report that they have a received a positive return, while 55% have achieved a break even outcome. Additionally, TCO statistics for 2005 further indicate that the main attraction for outsourcing of websites is that costs are highly predictable. TCO exceeded budgetary estimates in only 17% of the organizations in our study. At half of the centers outsourcing their websites, costs are the same as expected. One-third of the outsourcing users found that their TCO is lower than expected.
In light of the fact that overall website ROI is negative in 30% of the cases (as stated earlier), and that website maintenance is the key driver of website costs, it follows that website owners should take a closer look at how they manage website maintenance. Therefore, it would seem logical that many companies would be considering outsourcing as a strategy for controlling website maintenance costs. However, this is not the case.
Seventy percent of the respondents in our 2005 study indicate that their web environments are self-hosted and totally managed by in-house personnel, while only 30% of the managers in our study report that at least some portion of their website functions are outsourced. In view of the positive economic attributes associated with website outsourcing the somewhat low number of companies that have adopted this strategy is surprising.
August 2005
This Research Byte is abstracted from our full report, Outsourcing as a Strategy to Control Website Costs. The full report includes a detailed analysis of the ROI and TCO experiences of our survey respondents in terms of website management, as well as information of the economic value of website outsourcing and available options.
