Web firms back in the loop

AFTER a difficult 12 months Perth’s web development industry is approaching a state of sustainability.

There has been a significant shakeout of the industry during the past year. Big names like Method, Dow Digital and Q have been forced to shut their doors on the web development business, and many smaller companies also have failed to survive tough times.

The bigger companies, many of which relied on a steady stream of major, relatively expensive projects, were caught out when that stream of big projects dried up. Smaller developers, on the other hand, simply could not attract enough business of any size, especially when larger competitors were forced to reduce their prices to stay alive.

Now, according to WA Internet Association treasurer Kim Heitman, web development costs have halved from their levels of 2000 as the expectations of both clients and web firms converge.

“We’ve got the situation where, typically, if you were previously being charged $30,000 to develop an e-commerce site, the going rate now would be closer to $15,000,” Mr Heitman says.

“We haven’t got the situation where we’ve got those inflated tech salaries that made it very difficult to establish a consultancy business. Ultimately, of course, if you’re paying your employees more than architects, you have to be earning more than architectural firms, and unfortunately the situation at one stage was that web firms were paying very good rates but their clients were resisting (paying) consultants’ rates for effectively what they perceived as a computer-coding job.”

As WA Business News reported in February this year, business expenditure on information technology has dropped, causing Perth’s IT job market to tighten. A lack of work means many IT workers do not have the ability to demand salaries as high as they were receiving a year or two ago.

Within the web development industry itself, there is a recognition that it has become just like any other sector of the economy, where the companies that survive are those that have developed genuinely sustainable and realistic business models. No longer will a good idea and a catchy name support a lack of customers.

But while the average business might welcome what seem to be lower prices, Steve Pretzel of Pretzel Logic, one of the city’s leading web developers, foresees the possibility of continued problems in the industry – a situation that frustrates him.

If what he says is true, the old saying “you get what you pay for” has never been more applicable.

According to Mr Pretzel, it’s natural for companies to try to compete with each other by cutting their prices, especially when business conditions are difficult.

“But of course that’s not going to help in the long term, because yes, they can get the business to keep them going for a while, but then at the end of the day they have to complete the project, in many cases long after the budget has run out,” Mr Pretzel said.

“So we will see more companies falling over, we’ll see more unhappy clients, we’ll see more horror stories about web development projects that have gone wrong or are not what the clients want, simply because the clients’ expectations of what they could get for the budget were unrealistic.”

Mr Pretzel hopes Perth’s web development industry will consolidate to the point where those companies that are still operating have realised the futility of underquoting for jobs and where clients are happy to expect that the proper execution of their project will not be achieved by paying the lowest quoted price.

“That cost is the cost of proper methodology, proper planning and proper testing, and … the investment in that more difficult approach is going to pay off for them because they’re going to get a website that does what they want it to do, and most importantly, that they don’t have to throw it away again in 12 months,” Mr Pretzel said.

Like Pretzel Logic, the selling point of many firms is not that they offer the cheapest deal, but rather value for money.

Damian Cook, general manager of Vivid Interactive and Design, said his company had not reduced the rates it charged clients, but has instead focused more on selling itself purely on its abilities.

“You need returns on investment … that’s really what it comes down to,” Mr Cook said. “Clients say ‘ok, I’ll spend money, but what are you going to give me for it’, and it’s got to be more than a pretty website.”

Prospective clients are also increasingly knowledgeable about what a website can do and what they themselves need to do to prepare for their company’s site to be developed or redeveloped.

“People know what the technology is and they know what it can do, when before everyone was a bit baffled by it,” Mr Cook said.

“I think that’s really good because the clients come to you with a good idea of their objectives and how they can achieve them. People can shop around a project knowing what they want, knowing their objectives and how they can achieve them, and they thus have more ability to choose a value-for-money web developer.”

Mr Pretzel agrees that customers have become more sophisticated decision-makers.

“What we’re finding is that there’s a growing maturity in clients in recognising that the cheapest price is not the best deal. We’re not talking about the static, brochure-type websites, we’re talking about anything that has interactivity or where transactions are involved. The complexity of those applications is such that a proper methodology is critical,” he said.

“You have to do detailed planning work, you have to nail down the functional specifications so that everyone knows what’s going to be built before you go and build it.”