Report: B2B in 2000 Blossoms to $433B

Worldwide business-to-business e-commerce revenues reached US$433 billion in 2000, marking a 189 percent increase over the $145 billion spent online by businesses in 1999 and exceeding industry expectations significantly, according to a study released Tuesday by Gartner Group.

Last year, Gartner had predicted that B2B e-commerce revenues would be $403 billion in 2000. Despite the boom in last year’s B2B spending, Gartner has lowered its B2B expectations for 2001 because of the economic downturn.

“The economic downturn can be viewed as a reprieve for enterprises that weren’t able to keep up with the e-business leaders,” said Gartner e-business research director Lauren Shu.

“This is not a time to retrench,” Shu said, “but rather an opportunity to get your house in order (and) work on internal adoption of e-business.”

Shu added that the Internet “hype cycle” of 2000 had been reduced to a “trough of disillusionment” that has dried up capital markets.

Criticizing E-Marketplaces

E-marketplaces, which have been highly hyped over the last year, received harsh criticism from Gartner. The research firm said that few e-marketplaces saw substantial revenue in 2000.

“They accounted for only a small fraction of total Internet commerce in 2000 and are not representative of all B2B Internet commerce, which grew substantially in 2000,” the firm said.

“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 said.

Shu added: “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.”

Lowering Expectations

Gartner is now predicting that B2B e-commerce will reach $919 billion in 2001 and $1.9 trillion in 2002. Previously the company predicted B2B e-commerce revenues of $953 billion in 2001.

Shu pointed out that Gartner had not lowered its expectations as much as some dot-com doomsayers, including WEFA (formerly Wharton Econometric Forecasting Associates), which predicted that the current economic downturn would result in a 16 percent reduction in the nominal value of worldwide sales transactions in the next four years.

Gartner, which uses WEFA data to make sales predictions, said that it had lowered its forecasts accordingly, but not as aggressively as WEFA because Gartner believes that in this tough economic climate, enterprises will be more likely to turn to cost-cutting measures such as e-procurement.

Slow Going

Even though more and more businesses will turn to e-commerce to save money, the economic downturn will slow the migration from existing proprietary electronic data interchange (EDI) systems to Internet-based systems.

“B2B commerce over the Internet is in the very early adopter stage, but companies have been doing business electronically for years using proprietary EDI,” Shu said.

She added: “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.”

Another factor slowing the development of B2B e-commerce is that even though the technology is available, corporate decision makers have taken longer than anticipated to embrace its benefits.

“Changing human behavior is disruptive and takes a lot of time,” Shu said.

E-Commerce Studied

In conducting its study, Gartner defined e-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.