Even if 1999 was the year of glitz, glamour and unprecedented consumer online spending, the tremendous movement in the business-to-business (B2B) sector may turn out to be 1999’s most important story.
Although it moves far more quietly than the much flashier online shopping market, industry analysts, as well as investors, are fixated on the mammoth profit potential of B2B online ventures.
Not A Real Sexy Topic
If the press and pundits alike are comparatively ignoring online B2B, it may be simply because it is not a real sexy topic. A story about companies bidding against one another for contracts to supply nuts and bolts to create agricultural machinery, for example, is not hot copy.
The numbers on B2B, however, show its importance. In 1998, analysts estimated that $43 billion (US$) was spent in U.S. online B2B transactions, accounting for only one percent of all B2B commerce in the nation that year. Still, that $43 billion accounted for 84 percent of total e-commerce revenue.
According to Forrester Research, B2B online revenues will swell to $1.3 trillion over the next three years, while business-to-consumer (B2C) e-commerce revenues will reach only about $108 billion.
B2B: Safe Haven for Investors?
Figures like these increase the appeal of B2B online ventures to investors, who have been feeling a bit shaky about the lack of profit in B2C ventures and are hungry for something with stronger profit potential for their portfolios.
B2B seems to be filling that bill. This year, for example, companies with lesser-known names have shown surprising muscle in the market. Elcom International, for example, a developer of software applications for interactive e-commerce, shot up from $2 to $34 per share this year.
i2 Technologies, providers of software to plan and schedule business supply chains, went from a low of $20 to close at $195 per share on December 31, 1999. At the same time, Commerce One, which develops supply chain procurement software, moved spectacularly from $9 per share in mid-August to close at $195.
While many analysts believe that these stocks are trading at ridiculously high levels, the spectacular growth of these B2B infrastructure companies shows that investors are betting that these lesser publicized companies are greater values than their more-publicized B2C cousins.
B2B vs B2C: Differing Strategies
While B2C sites are constantly strategizing to increase volume and sales per customer with little regard for profitability, B2B sites do not seem to have those priorities. In fact, most B2B ventures would scoff at the notion of increasing volume to make up for the slim margins of each transaction.
B2B operations will likely rely more on long-lasting business relationships and high volume “big kill” transactions. This scenario may best be illustrated by General Motors’ alliance with Commerce One, which analysts predict will result in billions of dollars of online transactions with suppliers.
Second, B2B will more than occasionally benefit by the “big kill.” For example, VerticalNet, operator of online marketplaces, auctioned off three $38 million dollar power plants last summer.
B2B Online Commerce Steadily Climbing
In an industry that loves to study itself, e-commerce analysts are predicting powerful things for B2B online commerce. According to a new study released by The Boston Consulting Group, one-fourth of all U.S. B2B purchasing will be done online by 2003.
Further, the study says that today’s $700 billion North American B2B e-commerce market is twice the size of its counterparts in the rest of the world combined ($330 billion).
The industries that stand to gain the most in online B2B commerce over the next three years, according to the study, are retail, motor vehicles, shipping, industrial equipment, high tech and government.