I love this sort of question, because the answer is "it depends!"
There are two primary types of web analytics solutions for small to medium sized businesses: software-based web analytics solutions and web-based solutions.
Software solutions are programs that are installed on an internal computer and parse a website's web logs. Reports are accessed by running the software. Web-based ASP solutions are implemented by pasting some Java Script code onto each page of a site and are accessed using a user name and password online.
Though software versions are less expensive, I personally think that if a company's staff resources (particularly in MIS) are not experienced in this area then the purchase ends up being a waste for a number of reasons:
1) Without specific analytics expertise the software is usually not configured correctly to produce the right data.
2) Memory issues of managing the huge log files usually makes MIS departments irate.
3) The marketing department either needs a specialist to effectively run the reports off the software or else they are reliant on MIS to produce reports -- not a top MIS priority, usually.
4) MIS departments usually are the ones with the technical ability to implement but not the interest, which is driven by marketing. You often run into inter-departmental political turf wars. Yuck.
And there are cost investments above and beyond the investment in the software:
1) You will probably need to invest in a server structure to accommodate one to two years of log files (usually a minimum need is to run current year versus previous year reports, so you need to keep up to two years worth accessible)
2) Someone would need to be dedicated to being fully trained in the configuration side and the reporting side of the system. These are generally two completely different skill sets, so either a full person or part of a person's responsibilities would need to be dedicated to each of these skill sets, and often it cannot be the same person. The technical side is usually an MIS role, and the reporting side is better met from the marketing department.
The biggest pro of software solutions is that, with the right resources, the reporting can be incredibly granular and you can pretty much customize to your heart's content. That is, if you have the people with the ability to do it.
ASP solutions are much simpler. There is usually a monthly fee for a set number of page views per month in volume. A code is pasted on all site pages, and once you log in with a user name and password to the providers web site account log in, you are off to the races.
Great things about this:
1) On demand reporting, 24/7. As soon as it starts running, you start getting information.
2) The marketing department has immediate, simple access without much technical knowledge required.
3) Fewer MIS requirements. For companies with overworked MIS departments (know any of these?), this is one less item they have to deal with, especially since it is primarily a marketing role.
Disadvantages of this solution:
1) Less flexibility of reporting. Usually you are more limited in your options for segmenting visitors and sometimes have to pay more for e-commerce capability of campaign tracking.
2) Data lives on the provider's servers. If you cancel your subscriptions, you no longer have any access to that data, so keeping historical reports is a must.
3) Ongoing costs. The monthly fee never changes as long as you are using the service.
4) Potential loss of data. Since this solution is dependent on cookie technology to count visitors, users who block or delete cookies will not be counted.
With most small to medium sized companies I have worked with, I find that the ASP versions of web stats are more adequate to the task -- yes it is more expensive on the surface and some data may be lost, but that monthly fee covers server space and bandwidth, most configuration problems are eradicated, marketing gets on-demand access to reporting without having to rely on an outside contractor or MIS department, and technical staff can spend time on things like permissions versus running reports or managing humungous logfiles. And the detail of reporting available with the ASP models is generally adequate for many business needs.
If the need for much more granular reporting is vital, the human resources are in place to configure and utilize the reports, and your marketing and MIS departments play well together, then a software version is definitely the way to go.