Web site development costs climbing

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oldclass: 1 Costs for Web development are up substantially in 1999, according to this month's NetMarketing Web Price Index. For the first time, prices have increased across the board for small, medium and large sites.

Median prices for small sites posted the most dramatic increase -- 75%, from $44,500 to $78,000 -- since the most recent Web Price Index look at costs for developing full sites, in June 1998.

Medium and large sites also showed significant increases: 50% for medium sites and 45% for large sites. This month's development estimates for hypothetical sites, the small ACME Sprockets and medium-size Investments 'R' Us, reflect the Web Price Index's highest cost estimates yet in each category.

NetMarketing's monthly survey of Web developers in six markets has found gradual price fluctuations over the two years since the initial Web Price Index; however, this is the first iteration that has shown major increases for all sites.

Why the higher prices? Several factors may be responsible, from the continued rapid growth of the still-young industry of Web development to the higher cost of doing business to greater expectations from clients.

One aspect of the industry that has certainly grown in the past two years is the client base. More money exists in the initial-public-offering-crazy Internet space. Two years ago, the big players in the Web formed a more exclusive group than the Fortune 500.

Web shops have grown accordingly, but that has been costly on all levels. Salary continues to be cited by developers as a major, and fast expanding, area of overhead.

Some larger shops are pushing prices up by out-sourcing to smaller, less expensive shops. For the remaining smaller shops, doing boutique work like this can be a boon, and a solid business niche.

"That's how some of the smaller shops are staying alive, said Marshall Hays, president of Hays Internet Marketing, Dallas.

He has seen his small, independent Web shop grow since 1996, but not at the rate of some larger companies. "Costs of growing, even without being acquired, are going up, he said.

Still, Mr. Hays has found that regardless of the size of the shop, it is "tougher now to find new talent. Because of that and an increase in the capabilities of those hired, "our skill set is worth more, he said. And that means higher prices.

So do the increased expectations on the client side. Chris Swain, head of production at New York's R/GA Interactive, said: "The bar is raised on what a company has to build to get something acceptable into the market. Our clients have now been around the block a bit.

More focus is being placed on timeliness, especially with e-commerce applications tied into specific return-on-investment projections, and that means developers spend more time empowering their clients and building tools for them to self-publish on their sites.

Developers have gained more of a sense of their industry, too. "Pricing is about using your experience to suss out how much labor you're going to have to put out, Mr. Swain said.

Understanding costs up front has helped maturing developers get a better handle on their business. "Two years ago, a lot of companies weren't very financially savvy, said Mr. Swain, who sees this as a major factor in determining which interactive agencies are truly A-list.

More developers are going to bring in a CFO who is going to point out just where they are making and losing money, "especially if you're positioning yourself for an IPO, Mr. Swain said. "Having a corporate parent, you have certain obligations to hit certain budget marks.

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