To B2B or to Not B2B? That is the Question

Business-to-business (B2B) commerce will experience astounding growth over the next five years, rising to $6.3 trillion in 2005 from $336 billion this year, according to a study by Jupiter Research.

Jupiter’s study, “US Business-to-Business Trade Projections,” found that online supply chains will dominate the B2B commerce landscape, and businesses must boldly adopt new models for buying and selling as online B2B commerce swells from 3 percent to 42 percent of total B2B domestic trade within five years.

“The online trading tidal wave is about to sweep across US business, and the companies that don’t invest now will end up struggling to keep their heads above water,” said John Katsaros, VP of Jupiter Research. “We expect unified, online supply chains to become the norm, and companies that don’t invest aggressively to build or participate will be unable to compete effectively.”

The study examines the trading activities of 12 major industries in detail, and concludes that five of them — aerospace and defense, chemicals, computer and telecommunications equipment, electronics, and motor vehicle and parts — will conduct more than half of their total B2B buying and selling online by 2004.

The Jupiter report also found the computer and telecommunications space will become the largest online B2B market in terms of sales topping $1 trillion in 2005; Jupiter forecasts that four other industries will top the $500 billion by 2005.

B2B Spending by Industry
(Dollars in billions)
Industry 2000 2005
Computer/Teleco Equipment $90 $1,028
Food and Beverage $35 $863
Motor Vehicles and Parts $21 $660
Industrial Equipment and Supplies $20 $556
Construction and Real Estate $19 $528
Source: Jupiter Research

“Many businesses are already waking up to the efficiency and increased competitiveness they gain through online trading and Net Markets,” Katsaros said. “While the rates of Internet trading adoption vary across industries, only one of them, agriculture and farming, is not expected to top $100 billion in online trading by 2005.”

But are companies really accepting the idea of conducting business over the Internet? Results from the Financial Executives Institute/Duke University Corporate Outlook Survey, conducted the week of Sept. 18, 2000, found that two-thirds of firms make purchases over the Internet, but Internet purchases still represent only 4.5 percent of total purchases. The lack of growth in company purchases over the Internet indicates that B2B usage has not increased in the past 18 months, according to the study.

Revenue derived from the Internet has remained flat over the past 18 months. In March 1999, 24 percent of firms reported Internet sales, representing 5 percent of total sales. In comparison, 47 percent of firms now report Internet sales — but total sales over the Internet have held steady at five percent. This implies that the firms that have recently initiated e-business are earning only a small amount of revenue from Internet sales.

The Corporate Outlook Survey is conducted quarterly by the Financial Executives Institute and Duke University’s Fuqua School of Business. Each survey polls a cross-section of CFOs from more than 4,000 US companies.

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