Behind the Numbers: The Mystery of B-to-B Forecasts Revealed

It's no secret these days that corporate, not consumer, e-commerce will drive the Net economy - at least that's what current investors are banking on. Analysts have responded with a slew of new reports filled with dramatic forecasts for the future of b-to-b trade online. We looked past the cheerleading in an attempt to determine the basis for some recent measurements of this fledgling Net industry: approximately $100 billion in revenues in 1999, and as high as $7 trillion in revenues by 2004, for example.

Defining what counts and how to count it varies widely among b-to-b analysts [see below]. When calculating totals, one major contributor rarely mentioned outside banking trade journals is electronic data interchange. Up to 20 years old, EDI networks are expensive, private electronic lines that allow for communications and transactions between large corporations and with the U.S. government. At last count 250,000 companies had established private networks.

Experts estimate that up to half of all EDI may travel over the Net at some point, but by 1999, only an estimated 10 percent of EDI was entirely Net-based. Yet often all or part of EDI transaction values are included in b-to-b e-commerce totals. "The majority of b-to-b e-commerce dollars are EDI dollars," asserts Giga Information Group analyst Ken Vollmer. The Boston Consulting Group is the only researcher to break out EDI; it estimates 86 percent of EDI's 1998 b-to-b e-commerce total was actually attributable to private-network EDI, though this portion will decline to 10 percent by 2003. Given the inclusion of existing EDI transactions, even BCG VP Andy Blackburn admits that, to date, b-to-b "growth rates really aren't that astronomical."

Another methodological complication is the degree to which researchers survey firms that benefit from an optimistic b-to-b future. Rather than ask corporate honchos, IDC puts a stronger emphasis on understanding user spending to forecast b-to-b markets, resulting in more conservative estimates. "We're not [surveying] someone whose sole goal is promoting his Internet venture," says IDC VP of primary research Carol Glasheen. In contrast, Gartner Group principal analyst Leah Knight says that the firm's recent dramatic upward reforecast of b-to-b's potential was partially driven by "valuation envy" of dot-coms observed among its large corporate clients.

But Gartner's corporate focus is understandable, given the way b-to-b conversion happens. "B-to-b gets adopted in chunks," says Knight. "You've got entire companies, entire supply chains adopting e-commerce. It's like a snowball effect." Despite methodological and definitional variations, everyone agrees b-to-b will be big: in the neighborhood of $2 trillion in the U.S. by 2003, up from approximately $100 billion in 1999.

One of the segments expected to grow the fastest is "e-marketplaces," third parties that bring together multiple buyers and sellers online. According to Gartner, there were about 30 e-marketplaces in January 1999 and 300 by December. Forrester Research predicts that by 2004 more than half of all online b-to-b trade will be marketplace-driven. Gartner Group has an even more optimistic projection, putting e-marketplace facilitation at a staggering $2.7 trillion in 2004. While Forrester predicts large businesses will dominate b-to-b trade online, IDC anticipates that small businesses will play a substantial role, representing 30 percent of worldwide commerce by 2003.