Report: E-Marketplaces To Drive Online B2B Purchasing

According to a report released this week by Forrester Research, a vast majority of U.S. corporations will move aggressively to e-commerce in the next two years, drawn by emerging “e-marketplaces” where goods are sold through auctions, bid systems and exchanges.

The study — one of several on business-to-business (B2B) e-commerce issued recently by major U.S. research firms — predicts that U.S. B2B sales will reach $2.7 trillion (US$) in 2004, as e-commerce evolves from one-on-one transactions to larger marketplaces that facilitate multiple buyers and sellers.

The Forrester study is very similar to a recent study reported in the E-Commerce Times from GartnerGroup that also predicts that electronic marketplaces, driven by “e-market makers,” will grow explosively.

By 2004, GartnerGroup predicts that these “e-market makers” will be responsible for $2.71 trillion in e-commerce sales transactions worldwide, representing 37 percent of the overall B2B market and 2.6 percent of worldwide sales transactions.

The Next Two Years

“U.S. businesses are universally preparing to buy and sell online, leveraging the Net to build deeper relationships with their business partners,” said Steven J. Kafka, e-business trade research analyst at Forrester. “But the rampant growth of online trade through these one-to-one business connections will taper off after 2001, as firms more actively participate in e-marketplaces to connect with a wider universe of buyers and sellers.”

Forrester uses the term “e-marketplace” to describe industry-specific sites that become virtual open markets where buyers find multiple sellers and vice versa.

Forrester points out that these marketplaces have already gained quick acceptance in the industrial chemical industry, where 65 percent of business is now conducted through Internet exchanges and auctions such as ChemConnect.com, e-Chemicals, and CheMatch.com.

According to the study, these marketplaces cut through the slow and inefficient traditional system of sales visits and trade shows where business is conducted based on long-term relationships between sales reps and purchasers. Forrester expects $128 billion to flow through these chemical e-marketplaces by 2003.

Like much of the rapidly expanding world of B2B e-commerce, e-marketplaces are driven by procurement. Corporate purchasers are eager to take the savings that come when their vendors find themselves in direct and open competition. Vendors respond quickly to the new sales environment in order to protect their market.

The Shift to E-Marketplaces

Forrester predicts that between 45 and 75 percent of B2B e-commerce will migrate to e-marketplaces over the next few years. The largest impact will be felt in computing and electronics, shipping and warehousing, and utilities industries, where it predicts that more than 70 percent of online trade will go through e-marketplaces.

Forrester also says that heavy industries, aerospace and defense will find less than 50 percent of their e-commerce flowing to e-marketplaces because such networks favor mass products that can be sold openly, rather than products that need to be designed and manufactured to precise specifications.

However, in time, even the market for customized products may drift to e-marketplaces. IBM’s recent launch of Component Knowledge, for example, is a model for network purchasing of electronic components for original equipment manufacturers that allows the purchaser to communicate with multiple component manufacturers in the process of procuring custom-designed components.

Given a sophisticated enough network, even customized products can be auctioned like commodities.

The Unpredictable Development of E-Marketplaces

The report claims that corporations can see the inevitability of e-marketplaces, even if the path sometimes seems unclear. “Although the majority of firms expect to be drawn into e-marketplaces, they’re still not exactly sure how they’ll participate,” said Kafka. “What is clear is that large corporations should treat their participation in e-marketplaces as strategic assets, and suppliers must prepare themselves for new rules in these dynamic marketplaces.”

The study predicts that e-marketplaces will be driven by opportunities for corporate purchasers to save money. Though the path to these networks may be unpredictable, the study says that the savings that result from an e-marketplace will assure its success.

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