Analyst Wrap-up

Forrester, PricewaterhouseCoopers weigh in

New York and Cambridge, MA  March 22, 2001  It's spring, and the analysts are in full bloom. And it's a good thing they are, since reading an analysis is a lot less traumatic than holding your breath while you hope the Dow doesn't go subterranean. Following the release of Aberdeen's report on efficiency (See The Need to Be Lean and Mean), Forrester and PricewaterhouseCoopers have released their analysis and forecast on key B2B issues.


According to a report from Forrester Research titled "What Does eMarketplace Buying Cost?" getting into online marketplaces is like snagging the big money at the end of Survivor. It can be done but not without a lot of work, which costs money. After interviewing 50 purchasing executives from Fortune 1,000 companies in addition to leaders from venture capital firms, technology suppliers, e-marketplaces and other sources, Forrester predicts that companies will spend an estimated $5.4 million to $22.9 million each to integrate into online markets over the next five years. The result will be big business generation for e-marketplace suppliers while putting cost performance pressures on Net markets themselves. It's not quite the equivalent of forming an alliance against a tribemate, but the principle's the same.


"e-Marketplaces offer significant opportunities for buyers to lower prices and streamline buying processes, but those savings require a significant investment," said Matthew Sanders, analyst at Forrester. "Companies can make the most out of these outlays by documenting workflows, leveraging their integration efforts and pushing their purchases online."


While the promise of lowering the cost of goods entices buyers, Forrester's research shows that e-marketplace participation won't come cheap. In order to capture the benefits, purchasing organizations will need to invest heavily in four areas: changing internal procurement processes, integrating e-marketplaces within internal systems, purchasing B2B applications, and paying e-marketplace transaction fees.


These costs, however, won't be the same for all implementations. To gain a perspective on the range of expenses, Forrester modeled e-procurement activities across three different online purchasing approaches:


·        Baseline buyers will spend $5.6 million. Buyers getting started with e-marketplace buying will seek to trim transaction costs associated with processing purchase orders for maintenance, repair and operations (MRO) goods. The price tag for this approach will be driven by a combination of transaction fees, integration software and internal staffing.


·        Spot market dabblers will spend $10.7 million. To help manage costly inventories and avoid shortfalls, some purchasing executives will use e-marketplaces to make spot purchases for their direct materials. These buyers will pay the most for new software installation and related consultant fees.


·        Enterprise enablers will spend $22.9 million. Some firms use e-marketplaces to manage all of their contracts for all of their indirect and direct materials purchases. For these aggressive buyers, significant costs will come from the large consulting teams needed to implement this complex approach.


Based on these online buying activities, Forrester projects that e-procurement consulting projects for e-commerce integrators like PricewaterhouseCoopers will swell to $3.2 billion in five years. "On average, firms expect their online buying efforts to save 4 percent this year, doubling to 8 percent by 2003. But these buyers aren't blindly enthusiastic," added Sanders. "More than half of the purchasing executives we interviewed acknowledge that in-house adoption hurdles like user-level resistance might delay their savings."


Speaking of PricewaterhouseCoopers, they have also released analysis. Their recently released Technology Barometer says that taking a macro view of B2B activity diminishes its importance for large technology businesses. Factoring in all those not yet involved in B2B, only 5.6 percent of purchases and 3.5 percent of sales of large technology businesses are currently being fulfilled over the Net. But when those involved in B2B are viewed separately, a much more upbeat  though unbalanced  picture emerges. Here are some of the report's findings.


As a group, B2B participants are obtaining upwards of 10 percent of their purchasing requirements and sales over the Net. But significantly more are transacting purchases than sales. Currently, 58 percent of all large technology businesses are buying directly from others over the Net, securing an average of 9.63 percent of their latest quarter's purchasing requirements in this way.


In contrast, only 38 percent are engaged in B2B-selling over the Net, generating an average of 9.21 percent of their latest quarter's total sales in this manner. "Because e-business is still relatively new and is not yet approaching its full penetration, the importance of online purchasing and selling is greatly understated when all you look at is the share of overall sales or purchasing they represent," said Paul Weaver, global technology industry group leader for PricewaterhouseCoopers. "But when you focus in on the volume already being done by those that are active, a much more revealing story begins to emerge.


"Looking even more closely at the numbers, one might speculate that leaders of the majority of large businesses decided to get a toe in the water with B2B as buyers rather than sellers, or both," Weaver added. "They may have perceived that with the purchasing side there's less complexity, that it's a lower-risk way to learn the ropes in e-business. But it appears that those faint-hearted about getting into selling are missing a big opportunity. Their peers that are already in the game are transacting an important share of their total revenues over the Net."


PricewaterhouseCoopers' quarterly Technology Barometer focuses on rapidly growing technology businesses of all sizes. It incorporates the views of 369 top industry executives: 150 CFOs and managing directors of large, publicly-held businesses, including technology subsidiaries and divisions, and 219 CEOs from smaller, privately-held companies.

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