| KN72022 |
| KEY NOTE INTERNET USAGE IN BUSINESS : July 2002 |
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This report covers: internet software, internet hardware, internet services, business, e-commerce, connectivity, e-advertising, browsers, penetration, intranets, extranets, PSTN, dialup, ISDN, leased-line, DSL, cable modem, fixed radio, ISP, ISP share, website registration, domain names, suppliers online, email, EDI, B2B, B2C, browser software, server software, server developers, Apache, Microsoft-IIS, thttpd, Zeus, Netscape-Enterprise, Rapidsite, Stronghold, SilverStream, WibeSitePro, tigershark, AOLserver, iPlanet, java, regional access, Regulation of Investigatory Powers Act, Lawful Business Practices Regulations, Electronic Signatures Directive, Electronic Communications Act, Tobacco Advertising Bill, Better Regulation Task-Force Report, FRIACO, broadband developments, Local Loop Unbundling, LLU, Corportal, Application Service Provider Model, DESP, ASP, global market
Companies covered include: Internet Services Providers Association, ISPA, Computing Services and Software Association, CSSA, EAN UK, e-centreUK, European Forum for Electronic Business, EEMA, AOL UK, British Telecommunications, BT, Freeserve, PSINet, UUNet, Worldcom, Accenture, Cap Gemini Ernst & Young, Deloitte Consulting, Fujitsu, ICL, IBM UK, KPMG Consulting, Microsoft, PricewaterhouseCoopers, Demon Internet, Easynet, Energis Squared, PSINet, Ariba UK, Concur Technologies, Commerce One, EDS-UK, Hewlett-Packard, iPlanet, i2 technologies, Oracle, Parnell Kerr Foster, SchlumbergerSema, Xansa,
EXECUTIVE SUMMARY
Expenditure by UK businesses on Internet software and services was worth £4.97bn in 2001, and is predicted to grow by 37.8 percent in 2002. If spending on intranets and extranets is included, the total spend rises to £9.37bn in 2001, increasing by a forecast 34.8 percent in 2002. At present, the Internet is seen as a strategic business asset that is to be exploited for commercial gain. Consequently, revenue from electronic commerce (e-commerce) and advertising on the Internet is growing rapidly, reaching £90.19bn in 2001, and is expected to rise by 55.5 percent in 2002.
This report considers business usage of, and spending on, the Internet. It also briefly covers related areas such as intranets and extranets. The focus of the report is on two areas: business expenditure on Internet software and services (including connectivity) and business revenues from the commercialisation of the Internet (i.e. revenues from advertising on the Internet and e-commerce). Business spending on the Internet is increasingly focused on non-connectivity services and e-commerce activities, while the bulk of e-commerce revenue represents income from business-to-business (B2B) commercial activities.
Internet connectivity is almost ubiquitous among UK companies, consequently the Internet is no longer seen as only a tactical weapon used to improve communications; rather, it is increasingly being viewed as a strategic weapon used to improve a business' entire value chain. At the moment, most businesses are only at an early phase of e-commerce adoption, however, most large businesses and a growing number of small to medium-sized enterprises (SMEs) are beginning to build their supply chain and customer services activities around their online infrastructure.
Such moves are being aided by the actions taken by the Office of Telecommunications (Oftel) to open up the Internet connectivity market and the recent changes by BT to put broadband connectivity at the centre of its future strategy. At the same time, there is a growing demand by companies for greater availability of IT services delivered over the Internet, including a demand for services delivered on demand.
Key Note expects rapid growth in both e-commerce revenue and expenditure on Internet hardware, software and services in the next 5 years. Increasingly, the companies that will dominate this market in the future are the multiskilled, large computer services firms such as Accenture, rather than the Internet-focused, specialist services and software firms. As the Internet becomes intimately linked with companies' business strategies, so the major investors in the Internet will seek to use service firms that can advise on and develop their Internet activities in the context of their future business requirements.
TABLE OF CONTENTS
| Executive Summary | 1 |
| 1. Market Definition | 1 |
| REPORT COVERAGE | 8 |
| MARKET SECTORS | 8 |
| Internet Software and Services | 8 |
| Connectivity | 9 |
| E-Commerce and Advertising | 10 |
| MARKET TRENDS | 11 |
| MARKET POSITION | 12 |
| Table 1: The Share of UK IT Expenditure Taken by the Internet, Intranets and Extranets ( percent), 1998-2002 | 13 |
| Figure 1: The Forecast Share of UK IT Expenditure Taken by the Internet, Intranets and Extranets ( percent), 2002 | 13 |
| 2. Market Size | |
| THE TOTAL MARKET | 14 |
| Penetration | 14 |
| Table 2: Penetration of Internet Access ( percent of companies), 1997-2002 | 14 |
| Table 3: Penetration of Internet Access by SMEs in the UK ( percent), May, August and November 2001 | 15 |
| Table 4: The Relative Penetration of the Internet, Intranets and Extranets ( percent of companies), 1999-2001 | 15 |
| Total Expenditure | 16 |
| Table 5: Total Expenditure on Internet Usage in Business in the UK (£m), 1998-2002 | 16 |
| Revenue | 17 |
| Table 6: Estimated E-Commerce and Internet Advertising Revenue (£m), 1998-2002 | 17 |
| BY MARKET SECTOR | 17 |
| Internet Software and Services | 17 |
| Table 7: The Internet Software and Services Market by Value (£m and percent), 1998-2002 | 18 |
| Connectivity | 18 |
| Table 8: Average Monthly Expenditure by SMEs on Internet Connections (£), November 2001 | 19 |
| Method of Connection | 19 |
| Table 9: The Methods Used by SMEs to Connect to the Internet ( percent of businesses), August and November 2001 | 20 |
| Table 10: The Methods Used by SMEs to Connect to the Internet ( percent of businesses), November 2001 | 21 |
| Table 11: The Main Type of Internet Package Used by Businesses ( percent), February, May, August and November 2001 | 21 |
| Table 12: The Method of Connection to the Internet ( percent of businesses), 2001 | 22 |
| Market Shares | 23 |
| Table 13: ISP Share of SME Internet Access ( percent), February and November 2001 | 23 |
| Table 14: The Largest Suppliers of Inland Private Leased Circuits (000), March 2001 | 25 |
| E-Commerce and Advertising | 25 |
| Advertising Revenue | 25 |
| Table 15: UK Internet Advertising Revenue (£m and percent), 1998-2002 | 26 |
| E-Commerce Revenue | 26 |
| Table 16: UK E-Commerce Revenue (£m), 1998-2002 | 27 |
| E-Commerce Activities | 27 |
| Table 17: Penetration† of E-Commerce Activities by UK Businesses ( percent), 2001 | 28 |
| Table 18: Business Expenditure on E-Commerce Capabilities (£m), 1998-2002 | 29 |
| WEBSITE REGISTRATION | 29 |
| Table 19: The Registration of New Domain Names (number of companies registering), 1996-2002 | 30 |
| Software | 30 |
| Browser Software | 30 |
| Table 20: The Browsers Used to Access over 600 Proteus-Hosted Websites ( percent), Weeks Ending 30th April 2002 and 7th May 2002 | 31 |
| Server Software | 32 |
| Table 21: The Global Installed Base of Servers by Developer (number and percent), April 2002 | 32 |
| Table 22: The Leading Server Products in the UK by Installed Base (number of sites and percent), April 2002 | 33 |
| Other Software | 34 |
| 3. Industry Background | 36 |
| RECENT HISTORY | 36 |
| NUMBER OF COMPANIES | 36 |
| Table 23: Internet Service Providers in the UK (estimated number of companies and percent), 2002 | 37 |
| Software | 37 |
| Table 24: Estimated Number of UK Companies in the Internet Software Market, 2002 | 38 |
| REGIONAL VARIATIONS IN THE MARKETPLACE | 39 |
| Table 25: The percentage of Businesses with Internet Access by Region, 1999-2001 | 39 |
| Table 26: The percentage of Businesses Using Online Marketing Methods by Region, 2001 | 41 |
| HOW ROBUST IS THE MARKET? | 41 |
| LEGISLATION | 42 |
| Electronic Signatures Directive/Electronic Communications Act 2000 | 42 |
| Regulation of Investigatory Powers Act | 42 |
| The Lawful Business Practices Regulations | 43 |
| New Proposed EC Legislation | 44 |
| Unsolicited Advertising | 44 |
| UK Proposed Implementation of a European Directive on E-Commerce | 44 |
| KEY TRADE ASSOCIATIONS | 45 |
| The Association of Communication Services Providers | 45 |
| Association for Standards and Practices in Electronic Trade/ ecentreUK | 45 |
| Computing Services and Software Association | 46 |
| European Forum for Electronic Business | 46 |
| Internet Services Providers’ Association | 47 |
| UK Web Design Association | 47 |
| 4. Competitor Analysis | |
| THE MARKETPLACE | 48 |
| MAJOR SERVICE COMPANIES | 49 |
| MARKET LEADERS | 51 |
| Connectivity/Carrier Providers | 51 |
| AOL UK | 51 |
| British Telecommunications PLC | 51 |
| Freeserve | 54 |
| UUNET/Worldcom | 55 |
| Service and Software Companies | 55 |
| Accenture | 55 |
| Cap Gemini Ernst & Young PLC | 57 |
| Deloitte Consulting | 57 |
| Fujitsu (ICL) | 58 |
| IBM UK Ltd | 59 |
| KPMG Consulting | 60 |
| Microsoft Ltd | 61 |
| PricewaterhouseCoopers | 62 |
| OTHER COMPANIES | 63 |
| Other Carriers/Connectivity Companies | 63 |
| Other Software and Services Companies | 64 |
| ADVERTISING AND PROMOTION | 66 |
| Table 27: Main Media Advertising Expenditure on the Internet (£000 and percent), Years Ending De―cember 2000 and 2001 | 66 |
| Table 28: Main Media Advertising Expenditure on ISP, Internet Services and E-Commerce by Company (£000), Year Ending December 2001 | 67 |
| 5. Strengths, Weaknesses, Opportunities and Threats | |
| STRENGTHS | 68 |
| WEAKNESSES | 68 |
| OPPORTUNITIES | 69 |
| THREATS | 69 |
| 6. Buying Behaviour | |
| CUSTOMER PROFILE | 70 |
| By Company Size | 70 |
| Table 29: Estimated Breakdown of Expenditure on the Internet, Intranets and Extranets by Company Employment Size ( percent), 2001 | 70 |
| By Industry | 71 |
| Table 30: Breakdown of Spending on the Internet, Intranets and Extranets by Industry Sector ( percent), 2001 | 71 |
| Table 31: The Share of Total Computer Spending† Taken by the Internet and Related Technologies ( percent), 2001 | 72 |
| Non-Service Industries | 72 |
| Service Industries | 73 |
| 7. Current Issues | |
| E-BUSINESS AS A UTILITY | 74 |
| The Metamorphosis of B2B Exchanges/Marketplaces | 74 |
| VAT ON ISPS | 75 |
| COMPETITION IN THE DIAL-UP MARKET | 75 |
| UNBUNDLING THE LOCAL LOOP | 77 |
| Table 32: Current State of LLU in the UK, April 2002 | 78 |
| BROADBAND (ADSL) | 78 |
| Table 33: The Roll-Out of Broadband (number of BT exchanges enabled to deliver ADSL), July 2000-March 2002 | 79 |
| COMPETITION IN THE LEASED LINE MARKET | 80 |
| 8. The Global Market | |
| THE TOTAL MARKET | 81 |
| Table 34: The Number of Internet Hosts in the UK and the Rest of the World (000 and percent), January 1999-2001, and February 2002 | 81 |
| INTERNET USAGE BY BUSINESS IN THE UK: INTERNATIONAL COMPARISONS | 81 |
| Table 35: Global Usage of the Internet by Businesses ( percent), 1998-2001 | 82 |
| Table 36: Uptake of the Internet by Connection Type ( percent), 2001 | 83 |
| Table 37: Number of Companies with Intranets and Extranets ( percent), 2001 | 84 |
| Table 38: International Comparison of E-Commerce Activity ( percent of companies), 2001 | 85 |
| GLOBAL E-COMMERCE | 85 |
| 9. Forecasts | |
| INTRODUCTION | 87 |
| FUTURE TRENDS | 88 |
| FORECASTS 2002 TO 2007 | 88 |
| Internet Software and Services | 88 |
| Table 39: The Forecast UK Internet Market by Sector by Value (£m), 2002-2007 | 89 |
Text © 2002 Key Note
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