Growth Spurt Forecast for B2B.

Despite the slowing economy, worldwide B2B Internet commerce is on pace to total $8.5 trillion in 2005, says Gartner Inc., the worldwide technology research and services firm. In fact, while B2B Inter net commerce is poised for strong growth, the long-term forecast has been impacted by the economic downturn, especially in the United States.

"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."

WEFA (formerly Wharton Econo metric Forecasting Associates), whose sales transaction data Gartner uses as the basis of its forecast, expects 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, because in this tough economic climate, Gartner expects enterprises will turn to cost saving measures, such as e-procurement, and hosted software solutions, such as e-marketplaces, rather than in-house solutions.

(Gartner defines B2B Internet commerce as the sales of goods and services for which the order-taking process was completed via the Internet. This includes purchases via Internet EDI, e-marketplaces, extranets and other sell-side initiatives, but excludes activity over proprietary networks. Gartner's forecast is based on the value of B2B non-financial goods and services sold, resold and brokered over the Internet through establishments every time they are turned over.)

The economic situation will cause enterprises to be more deliberate 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," says 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 say it's important to understand e-marketplaces' true impact on the overall B2B industry. 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 last year 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 says. "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-market places and usually hosting them. Over the long run, these market intermediaries will significantly increase marketplace participation and drive greater supply chain integration efficiencies," says 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."

Value of Worldwide B2B Commerce
2000   $433 billion
2001   $919 billion
2002  $1.9 trillion
2003  $3.6 trillion
2004    $6 trillion
2005  $8.5 trillion
Source: Gartner Inc.