Magic e-Eight Ball

Gartner, Robertson Stephens predict the future of B2B

March 13, 2001  Though you might get a sinking feeling for all things economical as you watch the markets do their impression of Amazon's public image and head straight down, there is some optimism out there, at least when it comes to the B2B sector. Analysis firm Gartner recently forecasted some impressively upbeat numbers. As they see it, the B2B Internet commerce market should total $8.5 trillion in 2005, although they do hedge their bet a bit by stating that the U.S. economy will be most affected by the ongoing economic woes.

"The economic downturn can be viewed as a reprieve for enterprises that weren't able to keep up with the e-business leaders," said Lauren Shu, research director for Gartner's e-Business group. "This is not a time to retrench, but rather an opportunity to get your house in order, work on internal adoption of e-business and associated change management, and prepare to take advantage of and profit from the massive changes that will play out by 2005."

In 2000, the value of worldwide B2B Internet commerce sales transactions surpassed $433 billion, a 189 percent increase over 1999 sales transactions. Worldwide B2B Internet commerce is projected to reach $919 billion in 2001 followed by $1.9 trillion in 2002. In 2003, the market will increase to $3.6 trillion, and at the end of 2004, worldwide B2B Internet sales transactions are forecast to reach $6 trillion.

According to WEFA (formerly Wharton Econometric Forecasting Associates), whose sales transaction data Gartner uses as the basis of its forecast, the current economic downturn will result in a 16 percent reduction in the nominal value of worldwide sales transactions by 2005. Gartner lowered its forecast accordingly, but not as aggressively as WEFA, due to Gartner's belief that in the current tough economic climate enterprises will turn to cost-saving measures, such as e-procurement; and hosted software solutions, such as e-marketplaces, rather than in-house solutions.

The economic situation will cause enterprises to be more deliberating and judicious about new IT investments, focusing on where they can get the greatest impact for the lowest cost. Thus, Gartner anticipates that some enterprises will continue to rely on legacy Electronic Data Interchange (EDI) systems and delay replacing them.

"B2B commerce over the Internet is in the very early adopter stage, but companies have been doing business electronically for years using proprietary EDI," said Shu. "These systems work today, have served companies well enough for years and are deeply embedded in the B2B processes of many industries. With the downturn in the economy, the migration away from proprietary EDI to Internet technologies will be slower than earlier anticipated."

One of the more hyped areas within B2B has been e-marketplaces, but Gartner analysts said it's e-marketplaces, which faced some difficulties in 2000, are a new phenomenon and are just ramping up. Few had substantial revenue in 2000. They accounted for only a small fraction of total Internet commerce in 2000 and are not representative of all B2B Internet commerce, which grew substantially in 2000.

"With the proliferation of e-marketplaces that had poorly thought-out business plans and inappropriate revenue models, it should not have been surprising that the cards came tumbling down this soon," Shu said. "A return to the sanity of fundamental, sound business principles, and the resetting of realistic expectations means that going forward, the market can expand in a more rational way with e-marketplace business plans and participation decisions both more highly scrutinized, and thus more viable and more strategic."

"We are also seeing the emergence of private e-marketplace builders: third-party intermediaries, which are building private e-marketplaces and usually hosting them. Over the long run, these market intermediaries will significantly increase marketplace participation and drive greater supply chain integration efficiencies," said Gale Daikoku, senior industry analyst for Gartner's e-Business group. "However, in the short term, their supply chain integration solutions take longer to build and thus will be later to drive significant sales transactions than public e-marketplaces. Thus, their impact on Internet commerce won't be significant until 2003."

While he didn't delve into numbers as Gartner did, focusing instead on broader trends as his subject matter, Robertson Stephens' Senior Analyst Eric Upin has also weighed in with his forecast for B2B in 2001.

"B2B represents a market far larger than previous business automation cycles," said Upin. "Larger populations, larger software markets, bigger transactions volumes, and greater strategic value contribute to the growing B2B and enterprise application market, which is expected to top $90 billion by 2004."

For 2001, Upin predicts that the race to establish B2B dominance will accelerate. For example, a difficult Internet Technology environment may result in tough sales cycles, pricing pressure and more modest growth; companies will expand product offerings across the B2B lifecycle; best-of-breed suppliers will continue to thrive, even though suite suppliers will loom large; industry consolidation will accelerate; and there will be an increased separation between the leaders and the next-in-class companies.

Upin went on to predict that several emerging areas of B2B will become more prominent, including contract management, collaborative applications, logistics, order management, and partner relationship management.