Finance attracters will spend from 9 million euros to 49 million euros on a package-based Net apps portfolio. Economies of scale in such systems will favour large companies and force others to focus on local customer retention and enter joint ventures to offer full service.
Aiming to be destination sites where consumers manage their financial affairs, Europe's attracters must, increasingly, turn to packaged software to build their offerings. How much must they spend? Forrester has built a cost model to answer this question for a hypothetical finance attracter supplying transactional banking, basic credit, and investment products with simple online advice. This model includes licences, integration, support and maintenance, and simulates a ramp-up from 200,000 to 1 million Net users. It shows that:
- Licences for layered multi-component portfolios total 10 million. To build a complete offering, firms must buy a two-tier portfolio including an app server layer and 11 to 24 additional software components. Licence fees add up fast as the cost per package rises from 50,000 euros for basic security apps to 5 million euros or more for full-service finance suites.
- Integration and customisation double initial purchase costs. Firms will sink up to 10 times the licence fee into app server customisation to build the business rules-driven platform to integrate the portfolio. But for other apps, executives should expect lower integration costs - varying from less
Companies must set hard business objectives to manage their dependence on packaged solutions Source: Forrester Research
- Support and maintenance costs add a further thin slice. Beyond licence and implementation costs, firms will foot the bill for support and maintenance. Annual charges per package will range from 10% to 30% of the licence costs.
Firms selectively spend to meet defined business targets
Firms must set hard business objectives to manage their
- Switch out apps that cause an expensive drain on resources, such as bug-ridden or non-standards-compliant components. Companies such as ConSors should ditch an in-house content management apps that would cost millions to integrate into an app server-based platform in favour of packaged solutions from Documentum or Vignette that offer standards-based connectivity.
- Target pre-integrated solutions to cap integration expenditure. Firms will keep down implementation costs by adopting pre-integrated offerings from integrators such as Cap Gemini Ernst & Young. By sourcing bundled app server and CRM software from IBM and Siebel, an attracter such as Fortis Bank could squeeze 10% out of its integration budget.
- Submit expenditures to hard results metrics. To ensure that software spending delivers concrete benefits, firms must link apps investment to business performance. SEB, for example, could set for its cross-selling personalisation software a goal, for example, 5% across-the-board improvement in share of wallet.
Software costs will limit some firms' online ambitions
The costs of software acquisition require a new realism in online planning - not all firms can raise the resources necessary for a successful multicountry, full-service attracter. Such an attracter will face twice the software costs of our first case study and five times those of a single-country online brokerage.
- Small firms will use up their resources serving existing customers. Smaller players faced with attacks by large firms like HSBC and pure plays like Yahoo! Finance must pull out all the stops to defend their client base. The Bank of Ireland, for example, will fork out up to 30 million euros in software alone to move most of its 1 million customers online.
- Even the largest must question their pan-European ambitions. With a 50 million euro software bill just for starters, pan-European operations should remain the privilege of a small club. BNP Paribas has its hands full supporting Cortal's online brokerage across just five European countries - for an investment in the hundreds of millions of euros.
- Most firms will rent apps or join forces to offer full service. Joint ventures like that between Banque Generale du Luxembourg and online broker TD Waterhouse provide a viable alternative to overly costly solo activity. By earning commission through a joint venture or renting an app such as ELAXY's online brokerage solution on a cost-per-transaction model, attracters will maintain a competitive offering for a low capital investment.