B2B Gets Whole New Look

US business-to-business (B2B) e-commerce will hit $2.7 trillion in 2004, as more than 90 percent of firms interviewed described plans to buy and sell on the Internet, according to a report by Forrester Research.

According to Forrester’s report “eMarketplaces Boost B2B Trade,” the B2B growth will also be accelerated by the rapid development of eMarketplaces — new models for conducting e-commerce, including auctions, aggregators, bid systems, and exchanges. By 2004, Forrester expects these eMarketplaces to capture 53 percent of all online business trade.

“US businesses are universally preparing to buy and sell online, leveraging the Net to build deeper relationships with their business partners,” said Steven J. Kafka, eBusiness Trade analyst at Forrester. “But the rampant growth of online trade through these one-to-one business connections will taper off after 2001, as firms more actively participate in eMarketplaces to connect with a wider universe of buyers and sellers.”

Over the next two years, eMarketplaces will spring up within most industries, attacking outdated business practices and inefficient trading relationships, according to the report. To determine where Net marketplaces will thrive, Forrester has created the eMarketplace Opportunity Index (eMOI), which estimates the level of eMarketplace trade within an industry based on two characteristics: 1) product fit — identifying the impact of product standardization, perishability, and high transaction volumes; and 2) industry readiness — modeling the influence of structural items like fragmentation, distribution channel complexity, and unpredictability of supply or demand. Using the eMOI, Forrester predicts that eMarketplaces will ultimately account for between 45 percent and 74 percent of e-commerce in a supply chain.

The largest impact will be in the computing and electronics; shipping and warehousing; and utilities industries where more than 70 percent of online trade will go through eMarketplaces, Forrester predicts. By contrast, heavy industries and aerospace and defense will find less than 50 percent of their e-commerce flowing through eMarketplaces. As firms hook into eMarketplaces and adopt more dynamic trading practices, existing business practices and supply chain relationships will get pulled apart, according to the report. In place of today’s sequential industry connections, Forrester expects the exploding number of new interconnections will create a new market structure — eBusiness Networks — in which partners can switch allegiances without cost, information, and best practices spread like wildfire, and market feedback flows in real-time.

“Although the majority of firms expect to be drawn into eMarketplaces, they’re still not exactly sure how they’ll participate,” Kafka said. “What is clear, is that large companies should treat their participation in eMarketplaces as strategic assets and suppliers must prepare themselves for new rules in these dynamic marketplaces.”

For its report, Forrester interviewed 80 purchasing and sales executives from Fortune 1,000 firms. Forrester’s business e-commerce forecast is based on a model of business-to-business trade in 13 hard-goods supply chains and draws upon data from the US Government, industry sources and interviews, and Forrester’s own research. Forrester defines B2B e-commerce as inter-company trade in which the final order is placed over the Internet.

Related reading