B2B E-Commerce Still Immature, But Growing Quickly

Business-to-business (B2B) e-commerce continues to grow rapidly, according to a study by The Boston Consulting Group (BCG), which estimates that US B2B e-commerce will grow from $1.2 trillion this year to $4.8 trillion in transaction value by 2004. The survey also found that some B2B functions, such as price negotiations and online collaboration, are still waiting to migrate online in a significant way.

“B2B e-commerce is advancing quickly in terms of penetrating the total procurement market, but at the same time, remains fairly immature in its development,” said Andy Blackburn, BCG Vice President. “By 2004, online purchasing will represent 40 percent of total purchasing, however only 11 percent of all purchases will involve online price negotiations. For many companies, negotiating prices online is a necessary first step toward broader and deeper buyer-seller collaborations online.”

The findings are based on survey responses from more than 260 buyers, sellers, and e-marketplaces as well as in-depth interviews. They show that despite a high level of online penetration, the majority of transactions completed online will be ordering and replenishment, and not price negotiations.

“In the near term, B2B e-commerce may not be as disruptive to many traditional buyer-supplier relationships as originally thought,” said Jim Andrew, BCG Vice President. “Almost half of the companies surveyed find that offline communication is almost always needed to complete online transactions. Suppliers will continue to send sales staff to court buyers, and buyers will continue to demand personal commitments from their suppliers. One emerging message is — don’t sell your golf clubs.”

As the market matures and price comparisons become easier, sellers do expect price pressures to increase, according to the survey. While only 25 percent of sellers have experienced incremental price pressure, an additional 50 percent expect to experience it in the near future. Almost two-thirds of sellers are taking steps to differentiate their offerings and fight commoditization.

“The lag in the migration of price negotiations online gives some sellers a window of opportunity to beat the price squeeze,” said BCG Senior Vice President Hal Sirkin. “Sellers can use technology to offer more sophisticated forms of online collaboration such as online product design, project management, supply-schedule co-ordination and build-to-order capabilities. In this way, sellers can differentiate their offering, create stronger client relationships and resist pressures on price.”

BCG’s research also examined the evolution of marketplaces. Given the complexities of online procurement, more than half of buyers and sellers expect to work with only a few e-marketplaces per category. Many of the e-marketplaces themselves expect that eventually, they will face only a few major competitors.

BCG’s research also found that the size of the B2B e-commerce market is far greater than is commonly reported, in part because it recognizes the established base of Electronic Data Interchange (EDI) over private networks and its extensions to the Internet.

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