What's core, what's not

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These days, virtually every consulting firm advocates a focus on "core competence" and tells its clients to hand over other functions to outside companies.

This often does make sense, tactically and financially. Why should you hire your own janitors when a janitorial supply company has a "core competence" with purchasing cleaning supplies and managing mop- and broom-equipped workers?

In fact, the current "outsourcing" mantra is a pendulum swing in the opposite direction of the vertically organized conglomerates that dominated the landscape in the 1950s and 1960s. At that time, the conventional wisdom was that a company with many units, able to supply a high percentage of the organization's materials and services, would enjoy efficiencies of scale and integration.

There continues to be a tension inside companies about what to handle in-house, what to outsource. Regrettably, sometimes these debates are fueled by old-fashioned territorial wars--departments that feel threatened by the idea of handing off functions, even relatively mundane ones, to outside service providers.

Moreover, a decision about outsourcing gets considerably more difficult as the function becomes more complex and strategic to the business. Questions like "Should we run our own HR department?" or "Should we run our own customer relationship management system?" are not so easy to answer.

Enter the Internet.

What began as a mechanism for letting companies e-mail their outsourcers has rapidly evolved into a new animal: a way for companies to add individual business applications by renting them across the Net. Companies can add capabilities quickly and with very little overhead. Need marketing campaign software or a media-buying analysis tool? Point your browser here...

According to The Yankee Group, the overall application service provider market is expected to reach $11 billion by 2002.

BtoB's Special Report in this issue looks at ASPs. Is there some marketing function that you now do in-house that could be handled more efficiently via an ASP? What are ASPs offering today, and what benefits do they provide? Read our report, starting on Page 29.

In other news, Internet media spending continues its upward spiral, driven by the Internet channel, according to the 14th annual "Communications Industry Forecast" by media merchant bank Veronis, Suhler & Associates Inc.

The study, released last week, finds that Internet advertising "exploded 140.6% to $4.6 billion in 1999 and is forecast to increase at a 39.5% [compound annual growth rate], more than quadrupling to $24.4 billion by 2004."

The report projects online ad spending should account for nearly a quarter of total advertising growth forecast for all segments through 2004. At $24.4 billion, online ad spending will beat spending on cable and satellite TV, network TV and consumer magazines, and will rival radio ad spending, which is forecast to hit $26.6 billion in 2004. In the b-to-b sector, the report predicts spending across all media channels will reach $32 billion in 2004. Our coverage of the Veronis, Suhler report is on Page 2.

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