B2B Is Biggest Online Opportunity
by Alf Nucifora
The online newsletter, Iconocast, recently highlighted the awesome statistics that are now being projected for the online business-to-business (B2B) marketplace. The point is made and has now been verified from a wide variety of sources that "consumer markets are small fry compared to business markets where big-ticket volume buyers and service contracts rule multi-million dollar budgets." As an example, Dell Computer and Cisco Systems are currently reporting daily online sales of $18 million and $28 million respectively.
To gauge the potential impact of the B2B e-business marketplace, consider the following predictions:
- Businesses will place orders totaling $3.2 trillion worldwide via the Internet by 2003. (Forrester Research)
- Goldman Sachs estimates the U.S. online B2B market at $114 billion in 1999, with a projected growth to $1.5 trillion by 2004.
- The same Goldman Sachs research identifies the following as segment heavy-weights:
|- Chemicals|| ||$349 billion by 2004|
|- Computer hardware & software|| ||$221 billion|
|- Industrial equipment|| ||$140 billion|
|- Energy / Utilities|| ||$133 billion|
|- Agriculture|| ||$124 billion|
|- Government|| ||$ 94 billion|
|- Paper|| ||$ 93 billion|
|- Aerospace/Defense Electronics|| ||$ 77 billion|
|- Information Services|| ||$ 53 billion|
|- Motor Vehicles and Parts|| ||$ 47 billion|
Incidentally, the computer industry currently commands the largest chunk of online B2B trade at $50.4 billion (45%) in 1999, up from $19.7 billion in 1998. (Forrester Research)
Some other stats worth noting...
- 42% of B2B e-business sites are profitable among those who have been in operation for 3 years or more. (1999 ActivMedia Research)
- A quarter of all U.S. B2B purchases will be bought online by 2000. (1999 Duke University School of Business and The Financial Executive's Institute)
- 98% of all companies will sell goods over the Net by 2000. (Forrester Research)
- One-third of all U.S. companies made purchases online in 1998; two-thirds will make purchases by 2000. (Duke University School of Business)
- $16 billion was spent in B2B auctions in 1999. (ActivMedia Research)
Where is e-business headed?
Diagnostic research feedback, as well as the welter of recently-happening acquisitions, joint-ventures, partnerships and alliances, clearly indicates that most non-core B2B functions will eventually be out-sourced including human resources (e.g., benefits administration), sales (e.g., datamining), purchasing (e.g., from high-ticket capital items to telephone services and office supplies), consulting advisory services (e.g., Arthur Andersen's KnowledgeSpace.com, Ernst & Young's Ask Ernie), and, of course, the basic EDI functions from order transmittal to accounts receivable handling.
As expected, the large corporate organizations are moving rapidly into the e-business arena. Ironically, however, it's the small businesses who exhibit the greatest fear about the emerging technology, but who have the most to gain both as buyers and as vendors.
What should the small business pay attention to?
First of all, the small business operator needs to quickly develop a fundamental understanding of and appreciation for where e-business is going and respond accordingly. E-business provides transactional speed, access to previously unattainable global markets and mass customization for the customer…the true manifestation of one-to-one marketing.
More importantly, e-business is the great leveler. Everybody can get in on the act, from the smallest retailer to the industrial job shop. But, it can't be done on the fly. Appropriate planning steps include:
- A clearly articulated and understood e-business strategy.
- Web site development that portrays the company and its product in the proper light and communicates its e-business offerings in a formidable fashion.
- Credible encryption systems must be implemented to address the perceived security issue.
- Special attention must be paid to the customer in terms of rapid response, instant two-way communication, flawless performance and delivery and immediate access channels when things go awry.
"Clicks and bricks" fears permeate all business sectors. Business owners and managers are concerned about every uncertainty from technology obsolescence to rising customer power. What's more, it's a chaotic world out there in terms of where one goes to secure sound, strategic advice. Is it IBM or Microsoft? AOL or Cisco? Sun or Andersen Consulting? You get the drift.
For the average small business there are, in most major markets, a band of hardy boutique consultants who have actually touched the e-business world and can provide strategy and direction at a reasonable price. Ditto with technology and business faculties at major Universities.
This much is for sure. The small business operator has to get in on the act now... not so much to carve out market dominance, but simply to be compatible and survive in a surrounding environment where e-business will eventually be the primary way that buyer and seller communicate with each other.