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

Baldwin Louie — Mon, 21 Feb 2000 17:00:00 -0500

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.

A Breakdown of B-to-B E-Commerce Forecasts and Methodologies
ANAYLYST FIRM/FORECASTS	DEFINITION OF B-TO-B	METHODOLOGY
Boston Consulting Group U.S. 1998: $92 billion (Including EDI: $671 billion) U.S. 2003: $2 trillion (Including EDI: $2.8 trillion)	Includes all EDI(over the Internet and private networks) but breaks out private-network EDI. Includes government but excludes purchases of financial capital, labor and benefits such as health insurance. Includes multiple sales transactions: counting the value of an item each time it is resold along the supply chain.	Interviewed executives from all major industries, then modeled industry-by-industry the adoption rate for online purchases of direct and indirect goods.
Forrester Research U.S. 1999: $109 billion U.S. 2003: $1.8 trillion	Final commitment to buy must occur over the Internet. Measures only goods, not services. Includes only EDI transactions conducted over the Internet. Includes multiple sales transactions.	Interviewed 80 executives from Fortune 1,000 companies, half from purchasing and half from marketing/sales organizations. Modeled 13 hard-goods supply chains.
Gartner Group World 1999: $145 billion World 2003: $3.9 trillion World 2004: $7.3 trillion	Total value of sales transactions, involves counting each time along the supply chain that an item is resold. Only includes EDI if it transfers over the Internet at any point.	Updated global economic model that forecasts by country. Surveyed by random sample 1,500 IT managers and interviewed in-depth 80 executives. Also interviewed major markets makers.
Goldman Sachs U.S. 1999: $155 billion U.S. 2003: $1.1 trillion	Business-to-business transactions initiated or executed over the Internet. Includes b-to-b technology and software infrastructure and government business spending. Includes only EDI transactions that travel over the Internet at any point.	In August 1999, surveyed IT managers and financial officers at 41 Fortune 1,000 companies. Consulted equity analysts and economists in specific b-to-b segments to determine market size and percentage of sales moving online.
IDC U.S. 1999: $50 billion U.S. 2003: $634 billion World 1999: $80 billion World 2003: $1.1 trillion	B-to-b figures are generated by combining small, medium and large business as well as government and education. Includes products and services purchased for business end-use. Counts EDI if the front-end uses a Web gateway (5 percent to 10 percent of EDI.)	Data gathered from the online buyers' perspective with local analysts forecasting in 30 countries.
*Over private networks. Source: Companies listed

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