Gartner Says Worldwide Business-to-Business Internet Commerce to Reach $8.5 Trillion in 2005; Analysts to Discuss Current Market Climate at Upcoming iEB Conference

Business Wire, March 13, 2001

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--March 13, 2001

Despite the recent slowdown in the economy, the worldwide B2B Internet commerce market is on pace to total $8.5 trillion in 2005, according to Gartner, Inc. (NYSE:IT and ITB).

While B2B Internet commerce is poised for strong growth, the long-term forecast has been impacted by the economic downturn, especially in the United States, which is projected to be the most heavily effected.

"The economic downturn can be viewed as a reprieve for enterprises that weren't able to keep up with the e-business leaders," said Lauren Shu, research director for Gartner's e-Business group. "This is not a time to retrench, but rather an opportunity to get your house in order, work on internal adoption of e-business and associated change management and prepare to take advantage of and profit from the massive changes that will play out by 2005."

In 2000, the value of worldwide B2B Internet commerce sales transactions surpassed $433 billion, a 189 percent increase over 1999 sales transactions. Worldwide B2B Internet commerce is projected to reach $919 billion in 2001, followed by $1.9 trillion in 2002. In 2003, the market will increase to $3.6 trillion, and at the end of 2004, worldwide B2B Internet sales transactions are forecast to reach $6 trillion.

According to WEFA (formerly Wharton Econometric Forecasting Associates), whose sales transaction data Gartner uses as the basis of its forecast, the current economic downturn will result in a 16 percent reduction in the nominal value of worldwide sales transactions by 2005. Gartner lowered its forecast accordingly, but not as aggressively as WEFA because in this tough economic climate, enterprises will turn to cost-saving measures, such as e-procurement, and hosted software solutions, such as e-marketplaces, rather than in-house solutions.

The economic situation will cause enterprises to be more deliberating and judicious about new IT investments, focussing on where they can get the greatest impact for the lowest cost. Thus, Gartner anticipates that some enterprises will continue to rely on legacy EDI systems and delay replacing them.

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

One of the more hyped areas within B2B has been e-marketplaces, but Gartner analysts said it's important to understand e-marketplaces' true impact on the overall B2B industry. E-marketplaces, which faced some difficulties in 2000, are a new phenomenon and are just ramping up. Few had 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.

"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," Ms. Shu said. "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 and more strategic."

"We are also seeing the emergence of private e-marketplace builders; third-party intermediaries, which are building private e-marketplaces and usually hosting them. Over the long run, these market intermediaries will significantly increase marketplace participation and drive greater supply chain integration efficiencies," said Gale Daikoku, senior industry analyst for Gartner's e-Business group. "However, in the short term, their supply chain integration solutions take longer to build and thus will be later to drive significant sales transactions than public e-marketplaces. Thus, their impact on Internet commerce won't be significant until 2003."

Gartner defines B2B Internet 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. Gartner's forecast is based on the value of B2B non-financial goods and services sold, resold and brokered over the Internet through establishments every time they are turned over. This is significantly higher than forecasts based on worldwide GDP, which includes only the value-added that establishments put into goods and services as they are sold and resold through supply chains.

Gartner analysts will provide additional analysis on the e-business market during the iEB Spring 2001 conference April 1- April 4, 2001 at the Jacob K. Javits Convention Center in New York. At iEB, business leaders will convene to learn winning e-Business strategies and solutions. Additional information on the conference is available at http://www.iec-expo.com.