By Heidi Tolliver-Nigro, Analyst, The Industry Measure September 27, 2006 -- For the last decade, the printing industry has kept its eye on the Internet industry—smart printers to find symbiotic marketing relationships, and fearful printers to calculate the speed and intensity of their primary revenue’s demise. So where is the Internet design & development (IDD) industry today, and what can graphic arts firms learn from this? The first thing that jumps out from the most recent Internet Design & Development survey (#10) conducted by The Industry Measure (formerly TrendWatch Graphic Arts) is that business conditions are up among Internet firms—dramatically. In fact, the IM Business Conditions Index for IDD firms has risen from 61.04 in our Summer 2005 survey to 72.99 in our Summer 2006 survey (based on a baseline of 100 set in Fall 2000). While the percentage of IDD firms saying that business conditions have been “excellent, better than the past 12 months” is slightly lower than this time last year, the percentage of firms saying that business conditions were “poor, not as good” or “very bad, much worse” was down significantly. The net result is that The Industry Measure IDD Business Conditions Index is considerably more positive than one year ago. Contrast this with the most recent The Industry Measure Printing BCI (#23), which has dropped year over year. Top Opportunities for Internet Firms Okay, so IDD firms are feeling comfortable, even if they aren’t bouncing-off-the- walls optimistic. So, where are they seeing their new sales opportunities? The number one sales opportunity in this market segment has changed steadily over the course of the last five years. Early on, it was “Web site design.” Then it was “Web page maintenance.” Now we have a new number one: “Web site application development." What’s interesting is that the number one sales opportunity in this market segment has changed steadily over the course of the last five years. Early on, it was “Web site design.” Then it was “Web page maintenance.” Now we have a new number one: “Web site application development (work using PHP, ASP, JSP etc.),” selected by 45% of all Internet design and development firms. This isn’t the number one opportunity across all IDD segments, but among Web site design, production, and e-commerce services, it jumps to a whopping 70% giving this answer. Among agencies, it rises to 61% giving this answer. The growth of this opportunity is further evidence of a trend we began noticing several years ago. Simple Web site design and development are not enough for Internet developers to survive, especially given that simple Web design is within reach of even the least sophisticated clients. Companies specializing in Web design have to offer services and the ability to add functionality well beyond what clients are themselves capable of. Simple Web site design and development are not enough for Internet developers to survive. Companies specializing in Web design have to offer the ability to add functionality well beyond what clients are themselves capable of. The number two sales opportunity for IDD firms is the former number one: “Web page maintenance,” which is now resting at its lowest level since Winter 2002/2003. The number three opportunity, “Web page design,” is at its lowest level since Winter 2001/2002. The number four and five sales opportunities, “database development projects (like Oracle, DB2, MySQL, etc.)” and “Web site programming,” are both down to their lowest points since Summer 2002. This downward trend is consistent through most of the traditional IDD sales opportunities tracked by The Industry Measure. It’s All About to Change What’s happening here? Chalk it up to industry change and uncertainty. In fact, we’ve seen a sharp rise in “understanding where our business should go in the future” as a business challenge, now IDD firms’ second highest business challenge (following “economic conditions”), with more than half saying that this is a major problem for their businesses. The nature of new media work is changing. It’s not just about putting up Web sites, but about developing online solutions on a more or less customer-specific basis. As a result, we shouldn’t expect to see one-size-fits-all approaches to new media development, be it Web only or involving other media (including print). The multichannel marketing environment means that different media mixes are required for different clients—and different new media design and development tasks are required for different clients. Thus, while it’s increasingly the case that no one sales opportunity dominates, most companies perceive a mix of different tasks and projects as more or less equal opportunities. So what opportunities are increasing? “Cross-media communications involving print advertising” and “cross-media communications involving Internet newsletters,” to name two. Two newcomers, “podcasting” and “cross-media communications involving Internet e-mail campaigns,” are also showing promise, having been selected by one in five respondents. Lessons for Printers What does all this mean for graphic arts firms prognosticating their futures? If you are thinking “print only,” you can pack it up and go home. Today’s marketing campaigns are increasingly multi-channel, with Internet, e-mail, print, and other components, such as blogs and podcasting. What we are seeing here is just the beginning. If you are thinking “print only,” you can pack it up and go home. Today’s marketing campaigns are increasingly multi-channel, with Internet, e-mail, print, and other components, such as blogs and podcasting. What we are seeing here is just the beginning. This future favors print shops that don’t think of themselves as “print shops,” but marketing services providers. Not just in name, but in their fundamental identities. Take a look at the industry leaders quoted in trade articles lately. How many have “printing” or “graphic communications” in their names? Not many. This reflects more than a semantic change, but a fundamental shift in the way these companies are being run. These print shops tend to think in terms of marketing plans, not just print. In these companies, print is seen as part of a larger campaign that is often pitched in order to win the account. And there we are back and multichannel marketing again. Several years ago, I wrote a report for The Industry Measure on variable data printing for which the basic premise was that, as the market evolved, successful VDP printers would see VDP, not as the “end all, be all” application, but one of a multitude of applications, from e-mail marketing to hybrid printing (VDP printed onto offset shells), depending on the needs of the client. At the time, there were only a handful of companies taking a true multichannel approach to marketing, but I flagged this as the way of the future. Today, it’s not only the way of the industry-leading VDP printers, it’s the way of the entire industry. So I guess it’s back to the future again. For more information on The Industry Measure Internet Design & Development #10, visit www.theindustrymeasure.com.