B2B Explosion Expected In 2000

A new study released this week by The Boston Consulting Group shows that 25 percent of all business-to-business purchases will be made online by 2003.

The figures, which are based on an expected growth rate of 33 percent per year from 1998 to 2003, indicate that the online market will be worth as much as $2.8 trillion (US$) in transaction value.

Both standard Internet transactions and Electronic Data Interchange deals over private networks can be expected to explode, BCG says, but the Internet will eclipse the private network deals in the next five years.

In 1998, U.S. business-to-business e-commerce reached $671 billion, with $92 billion generated by Internet-based transactions and nearly six times as much coming from EDI, the firm said.

By 2003, that picture will be reversed, with the Internet accounting for $2 trillion in business-to-business sales and $780 billion coming from private network purchases.

Undervalued U.S. Market

BCG argues that current estimates for the business-to-business market’s Internet growth potential are too conservative, primarily because too much attention has been focused upon private network purchasing as an extension of Internet sales.

“BCG developed this forecast by focusing on the total purchasing process. We counted all of the intermediate transactions in the supply chain, and considered direct and indirect purchases separately to accurately reflect adoption rates. The result is much higher penetration than had been previously understood,” BCG Vice President Andy Blackburn said.

North America currently dominates the global business-to-business e-commerce picture, with a $700 billion market that is twice the size of the non-North American nations combined. “North America will likely retain its significant lead over the next few years, but the global dynamics of business-to-business e-commerce will shift,” BCG predicts.

Just as acceleration is expected in Western European consumer e-commerce, the same can be said for business-to-business purchasing, which lags 18 months behind North America. New investments and initiatives in Western Europe will close that gap over the next few years, although in Asia and Latin America change can be expected to take a bit longer, the company said.

Nevertheless, the North American market will still come close to doubling the rest of the world, BCG said. By 2003, the company predicts, North America will reach $3 trillion in business-to-business e-commerce, while the rest of the world will contribute about $1.8 trillion.

U.S. Growth Factors

BCG predicts that more than 65 percent of all business-to-business e-commerce purchases will be concentrated in six sectors over the next five years: Retail, motor vehicles, shipping, industrial equipment, high tech and government. “Cost savings, rather than strategic opportunities, will drive most of the initial adoption,” the company added.

Such gains have already been realized by companies that have moved more aggressively into Internet commerce, with some showing a 15 percent savings from online transactions.