Since I'm based in Italy, I only speak for what I see here... (The font size in the text area box for writing this is wayyyyy too small!!)

Intranet development is still alive and well in the Italian Internet development market. Although most business clients don't refer to it as "intranet" devleopment as such. And thery also don't explictly talk about Extranets, so Intranet and Extranet development tends to get lumped together into the same thing. So where I mention Intranet below, It can also be taken to mean extranet.

In the past year or so, I'm beginning to see a large evolution of Web projects from mere digital brochureware to integrated corporate portals and intranets that integrate deeply with business processes. Once clients get over the initial rush of having a digital presence, most of the bigger ones invariably ask us to to come in and talk about developing a back-office system (what we call Intranets) to manage communications with sales teams and customer (content management, forums, news, alerts, order management, ecc...)

I haven't had any requests to build employee portals so far. This is probably arises from the fact that Italian entrepreneurs are generally more concerned about driving sales than nurturing relationships with employees.

Internet vs Intranet development
Most the Web development companies that I have worked with in Italy seem to have some problems with intranet development. Building Intranets require some experience and sensibility with working with business and entreprise-level technologies, process, and politics.

Let me say the Intranet projects tend to be less sexy than Internet projects for the following reasons:
1) Interfaces are generally simpler and more text-based. Can't really show off your best graphics work, and Flash is generally taboo.

2) You also can't show-off your work to the wider public since Intranets generally publish sensitive information and are usually hidden behind a password-protected barrier.

Most web development firms have evolved from a graphics and communications background, which means that they produce great interfaces but don't have a clue when it comes to integrating Flash with a AS/400. Hard-core engineering firms get the enterprise integration part right, but create interfaces that are so hard to use that users eventually desert the Intranet althogether.

Intranet development is harder than Internet development since you have to understand the client needs better, you have to really, really understand the business processes at work, and you have to be really competent at getting disparate, legacy systems to talk to your web applications, and do it in a way that doesn't involve expensive and long training sessions to get people to actually start using the Intranet.

One thing is to build a digital marketing message. Another is to build an order management system generating millions of Euros of transactions every day. Which do you think is more critical to your customers.

The Future of Intranets
Italian companies are starting to understand the value of the Internet in making money or saving money. It's difficult to convince a hard-nosed and skeptical business owner that a public Web site might make money. But start talking about how an efficient Intranet can add to the bottom line by making it easier for sales people to sell and customers to buy, and you have a friend for life. Intranets are pretty a hot area now, and I see a great deal of opportunities for smart companies who know how to build simple, efficient Intranets that work well.

cheers, geoff.