Filing Information June 2002 IDC #27423 Volume: Tab: B2B and emarketplaces Bulletin B2B Forecast, 2002 2006: Next Generation of ebusiness Keys on Cost Reduction Through Process Integration Analysts: Richard Villars and Jonathan Gaw IDC Opinion The world of business to business (B2B) experienced a number of shocks in the past 12 months, but companies desire to use these technologies to improve the business remains strong. The impact of current economic challenges is that the near-term focus on cost reduction and return on investment (ROI) will spur a separation of buy-side and sell-side ebusiness investment priorities. On the buy side, the most important B2B opportunities will be: Reducing expensive-to-process paper PO and invoices generated by small and medium-sized businesses (SMBs) Expanding existing electronic document processing systems to include invoice reconciliation and electronic bill payment On the sell side: the best B2B opportunities will be: Accelerating and automating lead generation processes Reducing cost of sales for regular but small volume customers Minimizing customer service and account costs with automated change management and customer support systems
In This Bulletin Synopsis Although the September 11 tragedy, the recession and its lackadaisical rebound, and the collapse of the dot-com and telecommunications markets have cast a cloud over the hightechnology industry, the overall enthusiasm for using those technologies for transactions remains strong. Businesses, however, have shifted their emphasis from increasing revenue to reducing costs and demanding short-term ROIs instead of long-term strategic enhancements. The total worldwide value of goods and services purchases by businesses through ecommerce solutions will reach $5.8 trillion by 2006, with emarketplaces capturing the largest share of that market by 2004 and growing its share through the end of the forecast. This study details how the B2B market in the United States will evolve over the next five years, breaking out purchasing by market models such as eprocurement, edistribution, and emarketplaces. The B2B market forecast also segments end-use and supply chain sales. The study also forecasts the growth in U.S. B2B transactions relative to those in other world regions. Methodology Much of the data presented in this document was generated through version 8.1 of IDC s Internet Commerce Market Model (ICMM). For a complete description of the model and its inputs, see The Global Market Forecast for Internet Usage and Commerce: Based on IDC s Internet Commerce Market Model Version 8.1 (IDC #26750, March 2002). The B2B ecommerce model segments the B2B portion of the ICMM based on the type of ecommerce site that is managing the transaction. The three segments are supplier-driven edistribution sites, buyerdriven eprocurement sites, and independent emarketplaces. Unlike the data in the ICMM that addresses buying, the B2B ecommerce model allocates purchasing dollars based on where the buyer went to purchase the product or service. In some cases, this occurs at the ecommerce site of the actual seller (i.e., an edistribution site). In other cases, it occurs at an internal or third-party site (i.e., an eprocurement site or an emarketplace). For a more complete discussion of the methodology and definitions Quoting IDC Information and Data: Internal Documents and Presentations Quoting individual sentences and paragraphs for use in your company s internal communications does not require permission from IDC. The use of large portions or the reproduction of any IDC document in its entirety does require prior written approval and may involve some financial consideration. External Publication Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2002 IDC. Reproduction is forbidden unless authorized. For additional copies please contact Cheryl Toffel, 508-935-4389. Check us out on the World Wide Web! http://www.idc.com Printed on recycled materials. 0 27423-2 - A IDC
used in this analysis, see the Learn More section at the end of this bulletin. Situation Overview The September 11 tragedy, the recession and its lackadaisical rebound, and the collapse of the dot-com and telecommunications markets have cast a cloud over the high-technology industry and its ebusiness solutions. However, the overall enthusiasm for using Internet technologies to speed business transactions and improve customer service remains strong. U.S. companies spending on internally and externally focused Web initiatives will reach $144.9 billion in 2002, up 26.3% compared with 2001. Similarly, spending on Web initiatives as a percentage of overall IT spending will reach 15.8% in 2002 and rise to 29.6% in 2005 (see Figure 1). Most businesses, however, have shifted their overall investment emphasis from increasing revenue to reducing costs and demanding short-term ROIs instead of long-term strategic benefits. Figure 1 U.S. Web Spending Share of Total IT Spending, 2000 2005 30 25 20 (%) 15 10 5 0 2000 2001 2002 2003 2004 2005 Source: IDC s Web Spending Model version 2.3, 2002 ecommerce Continues to Diversify Companies of all sizes continue to expand their use of ecommerce systems in both purchasing and sales processes (see Figure 2). Around the world, sales of goods and services through suppliers own edistribution Web sites will approach $478.5 billion in 2002, up 57.3% from 2001. Simultaneously, large companies will purchase $224.5 billion worth of goods (direct and indirect) and services through their Internet-connected eprocurement and EDI systems, a A IDC - 3-27423
48.1% increase over 2001. Finally, wholesalers, distributors, and emarketplaces will further extend ecommerce into the channel, with purchases through these intermediary sites rising 245.1% to $167.0 billion in 2002. Figure 2 Worldwide B2B ecommerce Revenue by Market Segment, 2001 2003 700 600 500 ($B) 400 300 200 100 0 2001 2002 2003 edistribution eprocurement emarketplaces Source: IDC s Internet Commerce Market Model version 8.1, 2002 Beyond this $870.0 billion in ecommerce activity, in 2002, companies will buy/sell $1,573.5 billion in goods and services through older, non-internet-enabled EDI systems, a figure similar to that of 2001 (see Figure 3). The growing linkage between existing EDI systems and emerging ecommerce systems will be a major shaper of ebusiness investment trends and competitive positioning in the next several years. eprocurement: Struggles Giving Way to Renewed Growth Suppliers continue to be reticent to accept eprocurement systems, which they view primarily as price-cutting mechanisms on the part of buyers. In settings in which a few large buyers can dictate the terms of engagement, suppliers have little choice but to participate. However, those areas are, relatively speaking, fairly small in number and limited in scope. 27423-4 - A IDC
Figure 3 Worldwide Value of Goods and Services Purchased Through Traditional EDI and B2B ecommerce, 2001 2003 ($B) 1,600 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 EDI B2B ecommerce (includes Internet EDI) Source: IDC s Internet Commerce Market Model version 8.1, 2002 The instances often cited as success cases continue to have their struggles. Covisint, for example, has succeeded in signing up every tier 1 automotive supplier. For Covisint to succeed, however, it will also have to recruit smaller suppliers, a barrier that the company has yet to penetrate sufficiently. However, eprocurement has begun to develop a sense of inevitability among suppliers, as their largest customers force them to move to the Internet and the economies of scale take over. Also, companies that act as suppliers in one online transaction are often buyers in another, and those companies are finding that wringing efficiencies from their systems requires tying them together. The growth in the market for eprocurement applications has stabilized after decelerating sharply in 2001, and industry expertise in strategic verticals has helped differentiate niche players. Also, startup eprocurement application vendors are adding new functions, such as supply-chain decision support, supplier performance management, and seamless data integration SMBs: Still Missing in Action One glaring shortcoming in the world of ecommerce is the continued inability of SMBs to become fully functioning parts of the systems (especially as suppliers). Current economic conditions are a major contributor to SMBs reduced technology investments, but the lack of investment was noticeable prior to the worst of the recent economic shocks. A IDC - 5-27423
The issue of basic connectivity is no longer a major impediment in the United States and Europe. The real challenges are the continued lack of solutions that accommodate existing SMB business systems and the relatively high costs of setting up and maintaining new ebusiness systems and processes. Future Outlook The B2B forecast in IDC s ICMM version 8.1 retreats only slightly from the numbers in version 7.3, suggesting a negligible overall economic impact from the September 11 tragedy. The total worldwide value of goods and services purchased by businesses through ecommerce solutions will reach $5.8 trillion by 2006. B2B ecommerce purchasing in the United States will pass the $2.1 trillion mark, with Western Europe closing the gap between itself and the United States. From 2002 to 2006, the U.S., Western European, and Asia/Pacific regions will all see B2B ecommerce increase at compound annual growth rates (CAGR) exceeding 50%, while Japan s B2B ecommerce will grow at a 45.7% CAGR (see Table 1). Forecast Assumptions Procurement managers at large and medium-sized businesses will continue to expand their use of online ordering systems. B2B ecommerce sites will increasingly focus on existing customers and distributors. Expanded ecommerce efforts by wholesalers/distributors will drive growth in purchasing through emarketplaces. Cultural differences will affect adoption of B2B models in regions with more private exchanges/marketplaces, including Japan and Asia/Pacific. Macroeconomics Global economic activity will be restrained in 2002 with a significant recovery beginning in 2003. The economic slowdown is spurring a shift to ecommerce and will lead to greater stratification between ebusiness winners and losers. The greatest impact of ecommerce in 2002 2004 will be felt by industries that already employ electronic data interchange (EDI) as part of multitier supply chains. 27423-6 - A IDC
Table 1 Worldwide B2B ecommerce Revenue, Growth, and Share by Region, 2001 2006 2001 2002 2003 2004 2005 2006 2001 2006 CAGR (%) Revenue ($B) United States 192.56 319.83 560.40 943.82 1,516.99 2,164.69 62.2 Western Europe 143.15 270.43 473.62 821.79 1,401.64 1,895.79 67.6 Japan 92.46 136.28 203.82 312.32 482.83 607.73 45.7 Asia/Pacific 27.77 61.66 127.64 244.71 449.02 792.21 95.5 ROW 48.26 81.79 124.54 181.90 261.82 344.74 48.2 Worldwide 504.19 869.99 1,490.02 2,504.53 4,112.30 5,805.16 63.0 Growth (%) United States NA 66.1 75.2 68.4 60.7 42.7 Western Europe NA 88.9 75.1 73.5 70.6 35.3 Japan NA 47.4 49.6 53.2 54.6 25.9 Asia/Pacific NA 122.1 107.0 91.7 83.5 76.4 ROW NA 69.5 52.3 46.1 43.9 31.7 Worldwide NA 72.6 71.3 68.1 64.2 41.2 Share (%) United States 38.2 36.8 37.6 37.7 36.9 37.3 Western Europe 28.4 31.1 31.8 32.8 34.1 32.7 Japan 18.3 15.7 13.7 12.5 11.7 10.5 Asia/Pacific 5.5 7.1 8.6 9.8 10.9 13.6 ROW 9.6 9.4 8.4 7.3 6.4 5.9 Key Assumptions: Procurement managers at large and medium-sized businesses will continue to expand their use of online ordering systems. Cultural differences will affect adoption of B2B models in regions with more private exchanges/marketplaces, including Japan and Asia/Pacific. Global economic activity will be restrained in 2002, with a significant recovery beginning in 2003. Messages in the Data: B2B ecommerce sites will increasingly focus on existing customers and distributors. The greatest impact of ecommerce in 2002 2004 will be felt by industries that already employ EDI as part of multitier supply chains. The economic slowdown is spurring a shift to ecommerce and will lead to greater stratification between ebusiness winners and losers. Source: IDC s Internet Commerce Market Model version 8.1, 2002 Technology and Service Developments The next major buy-side upgrade cycle in 2003 2004 will focus on integration of online sourcing and existing EDI systems into more robust spending management systems. A IDC - 7-27423
The impact of Web services will be limited to IT functions prior to 2004, with the exception of select EDI upgrades. There will be a growing role for incumbent enterprise resource planning (ERP), supply chain management (SCM), and wholesale/distributor vendors. Goods Versus Services The large majority of B2B ecommerce will continue to be of materials, not services. The procurement of many goods will certainly involve related services, such as delivery and maintenance, but those services will be secondary to the items purchased. Company Size Although large companies continue to drive the early stages of B2B ecommerce, SMBs will propel ecommerce growth in the later stages of the forecast. Across all industries, SMBs will spend an increasing percentage of their IT budgets on Web technologies that will be used primarily for buying and selling end-use and supply chain materials. The emergence of SMBs as a driving force in B2B ecommerce (especially on the sell side) will depend on the continued development of easy-to-use, easy-to-implement technologies with broad distribution networks. Although Web services offer a promising method for both distribution and implementation into large numbers of disparate and small operations, the technology remains untested and its adoption path unproven. Large companies, particularly in manufacturing and retail, will be key to pushing ebusiness solutions down the supply chain to the lower tiers, following the same path taken by EDI, only with more pervasive effects. B2B Market Models Outlook edistribution Despite difficult economic conditions, edistribution will continue to be the primary beneficiary of the expanded use of ecommerce purchasing by procurement managers and distributors. Worldwide, B2B purchases through companies edistribution sites will increase 32.0% to $631 billion in 2003, with U.S. purchases through edistribution sites rising to $221.9 billion (see Tables 2 and 3). At the end of 2003, suppliers edistribution systems will account for 42.4% of worldwide B2B ecommerce and 39.6% of U.S. B2B ecommerce. In 2006, edistribution systems will account for 24.0% of all B2B ecommerce, with worldwide purchases reaching $1.4 trillion. The United States, however, will no longer be the strongest region for edistribution, thanks in part to the conversion of existing EDI systems into Internet-based eprocurement systems and the evolution of distributors into emarketplaces. U.S. edistribution purchases will be $528.2 billion, accounting for 24.4% of all United States based B2B ecommerce activity. 27423-8 - A IDC
Table 2 Worldwide B2B ecommerce Revenue, Growth, and Share by Market Segment, 2001 2006 2001 2002 2003 2004 2005 2006 2001 2006 CAGR (%) Revenue ($B) edistribution 304.27 478.49 631.43 854.35 1,099.62 1,393.24 35.6 eprocurement 151.52 224.46 436.91 723.51 1,178.59 1,532.56 58.9 emarketplaces 48.40 167.04 421.67 926.68 1,834.09 2,879.36 126.4 Total 504.19 869.99 1,490.02 2,504.53 4,112.30 5,805.16 63.0 Growth (%) edistribution NA 57.3 32.0 35.3 28.7 26.7 eprocurement NA 48.1 94.7 65.6 62.9 30.0 emarketplaces NA 245.1 152.4 119.8 97.9 57.0 Total NA 72.6 71.3 68.1 64.2 41.2 Share (%) edistribution 60.3 55.0 42.4 34.1 26.7 24.0 eprocurement 30.1 25.8 29.3 28.9 28.7 26.4 emarketplaces 9.6 19.2 28.3 37.0 44.6 49.6 Key Assumptions: Expanded ecommerce efforts by wholesalers/distributors will drive growth in purchasing through emarketplaces. The impact of Web services will be limited to IT functions prior to 2004, with the exception of select EDI upgrades. Cultural differences will affect adoption of B2B models in regions with more private exchanges/marketplaces, including Japan and Asia/Pacific. Messages in the Data: The next major buy-side upgrade cycle in 2003 2004 will focus on integration of online sourcing and existing EDI systems into more robust spending management systems. There will be a growing role for incumbent ERP, SCM, and wholesale/distributor vendors. Source: IDC s Internet Commerce Market Model version 8.1, 2002 eprocurement As eprocurement systems mature and many buyer-driven EDI systems add Internet capabilities, worldwide eprocurement will rise by 94.7% to $436.9 billion in 2003, and eprocurement s share of all B2B will rise to 29.3% (see Figure 4). This is a significant improvement over 2001 and 2002, when eprocurement suffered from early growing pains. U.S. companies eprocurement purchases will reach $142.9 in 2003. In 2006, worldwide purchases through eprocurement solutions will reach $1.5 trillion, and this will account for 26.4% of all B2B purchases. The extensive conversion of existing EDI systems to an Internet foundation will be the primary force behind the continued expansion in eprocurement. United States based eprocurement purchases will reach $458.9 billion in 2006, but by that time, A IDC - 9-27423
Western Europe will account for a greater percentage of all eprocurement purchases. Table 3 U.S. B2B ecommerce Revenue, Growth, and Share by Market Segment, 2001 2006 2001 2002 2003 2004 2005 2006 2001 2006 CAGR (%) Revenue ($B) edistribution 96.47 155.76 221.92 305.80 411.10 528.18 40.5 eprocurement 75.29 89.55 142.90 230.29 364.08 458.91 43.5 emarketplaces 20.80 74.52 195.58 407.73 741.81 1,177.59 124.2 Total 192.56 319.83 560.40 943.82 1,516.99 2,164.69 62.2 Growth (%) edistribution NA 61.5 42.5 37.8 34.4 28.5 eprocurement NA 18.9 59.6 61.2 58.1 26.0 emarketplaces NA 258.3 162.4 108.5 81.9 58.7 Total NA 66.1 75.2 68.4 60.7 42.7 Share (%) edistribution 50.1 48.7 39.6 32.4 27.1 24.4 eprocurement 39.1 28.0 25.5 24.4 24.0 21.2 emarketplaces 10.8 23.3 34.9 43.2 48.9 54.4 Key Assumptions: Expanded ecommerce efforts by wholesalers/distributors will drive growth in purchasing through emarketplaces. The impact of Web services will be limited to IT functions prior to 2004, with the exception of select EDI upgrades. Cultural differences will affect adoption of B2B models in regions with more private exchanges/marketplaces, including Japan and Asia/Pacific. Messages in the Data: The next major buy-side upgrade cycle in 2003 2004 will focus on integration of online sourcing and existing EDI systems into more robust spending management systems. There will be a growing role for incumbent ERP, SCM, and wholesale/distributor vendors. Source: IDC s Internet Commerce Market Model version 8.1, 2002 emarketplaces In 2003, worldwide purchasing through the ecommerce systems of wholesalers, distributors, and other emarketplaces will rise to $421.7 billion, a 152.4% increase over 2002. emarketplace purchases will increase by another 119.8% in 2004. The expansion of purchasing through emarketplace sites will proceed most quickly in the United States, with sales in 2004 approaching $407.7 billion or 43.2% of all U.S. B2B ecommerce (see Figure 5). The conversion of EDI systems to an Internet foundation will also play an important role in this rapid expansion. By 2006, businesses purchases through emarketplaces around the world will reach $2.9 trillion and account for 49.6% of all B2B ecommerce. 27423-10 - A IDC
Figure 4 Worldwide B2B ecommerce Revenue by Market Segment, 2002 2006 3,000 2,500 2,000 ($B) 1,500 1,000 500 0 2002 2003 2004 2005 2006 edistribution eprocurement emarketplaces Note: emarketplaces includes purchases from distributors and wholesalers ecommerce sites. Source: IDC s Internet Commerce Market Model version 8.1, 2002 Figure 5 U.S. B2B ecommerce Revenue by Market Segment, 2002 2006 1,200 1,000 800 ($B) 600 400 200 0 2002 2003 2004 2005 2006 edistribution eprocurement emarketplaces Note: emarketplaces includes purchases from distributors and wholesalers ecommerce sites. Source: IDC s Internet Commerce Market Model version 8.1, 2002 A IDC - 11-27423
Essential Guidance Buy-Side Versus Sell-Side Priorities The most immediate impact of the near-term focus on cost reduction and ROI will be a growing separation of buy-side and sellside ebusiness investment priorities. Although many large companies will continue to maintain aspirations of automating their processes from end to end, this is a long-term vision rather than a near-term investment priority. For the next two years, companies ebusiness investment decisions will fall into two broad categories: Procurement/purchasing/supply chain Marketing/sales/support In both categories, the overarching goals are similar (i.e., reduced costs and rapid ROI), but the specific areas targeted for investments are significantly different. Buy-Side Priorities: Spending Management and Paperwork Reduction In the procurement/purchasing/supply chain area, online strategic sourcing is and will remain a major investment priority for the next several years. The logic behind this interest is simple. Online strategic sourcing is perceived to be limited in scope (supporting a limited base of purchasing/procurement managers), relatively simple to implement and deploy (an initial reverse auction can be completed in less than three months), and capable of delivering rapid ROI after even just one sourcing event. Early-stage B2B online sourcing focused on indirect goods noncritical items such as office furniture and supplies. Now, however, the model has proven itself and companies have begun to use the Internet to source materials that are more strategic. Going forward, this limited focus on online sourcing will expand into investments in more robust spending management systems that integrate spending analysis, sourcing, supplier management eprocurement, and online payment systems. Two major prerequisites for spending management are more stable economic conditions and more cost-effective application integration solutions. Look for spending management to be a high-profile test of Web services. Aside from online sourcing, the main priority for buyers (especially at larger companies) is reducing the costs associated with purchasing both direct and indirect goods. These efforts focus on reducing paper processing in two specific areas: Reducing the number of expensive-to-process paper purchase orders and invoices generated by SMBs not connected to existing EDI and ecommerce systems Expanding existing electronic document processing systems (EDI and eprocurement) to include invoice reconciliation and 27423-12 - A IDC
electronic bill payment (development of such financial supply chain systems has the added value of potential improving cash management as well as reducing paper-based processing) In both of these areas, companies can project hard cost savings while having the added benefit of leveraging existing business systems. Emerging companies to watch in this space include HubSpan and ADX. Both focus on developing lower cost Web-based solutions for larger buyers that want to extend the purchasing systems to SMBs. Sell-Side Priorities: Reducing Leads Generation and Sales Costs In the marketing/sales/support areas, cost reduction is also key, but the targets are different. Sell-side ebusiness investment priorities include: Reducing the cost of finding new customers through more automated lead management systems Reducing the cost of sales to existing customers through ecommerce systems that target regular but relatively small volume customers; many major manufacturers will move to an almost exclusive reliance on Web-based ordering systems for SMB customers within the next three years. Reducing customer services and account administration costs (the latter being a especially high priority for services companies) through more automated change management and customer support systems; this priority extends beyond business customers to consumers as well. Many of these sell-side initiatives will center on the deployment of customer portals that include tight integration into existing backend business systems and robust digital identity management services. Emerging companies to watch in this space include Comergent (focusing on supplier/distributor ecommerce integration) and IPNet. Vendor Managed Inventory: Where Buy Side Meets Sell Side One critical ebusiness priority for large retailers and consumer products goods (CGP) companies is the expanding role of vendormanaged inventory (VMI). These agreements require significantly greater levels of information sharing between companies inventory, manufacturing, point-of-sale, financials, and capacity forecasting systems. They also require new technologies for identifying and tracking individual items. What will change in the coming years is the number of VMI relationships, with both retailers and CPG companies needing to maintain VMI connections with multiple partners. The expansion of VMI systems will be another critical test for Web services as both an integration standard and as a provisioned service. A IDC - 13-27423
Learn More Related Research This bulletin updates a previous IDC Bulletin titled The Evolving ebusiness Web: B2B Market Model Forecast and Analysis, 2001 2005 (IDC #25461, September 2001). Other related research includes: United States Online Strategic Sourcing Forecast, 2001 2006 (IDC #27219, May 2002) Build Online Collaborative Commerce for Export (IDC #BM28J, May 2002) Leading ebusiness Models in Asia/Pacific (IDC #AP181403J, May 2002) Worldwide ecustomer Service and Worldwide ecommerce Customer Service and Support Applications Forecast, 2002 2006: Customer Service Comes into Its Own (IDC #26967, April 2002) Worldwide eprocurement and esourcing Applications Market Forecast, 2002 2006 (IDC #27002, April 2002) Worldwide ecommerce Sales and Marketing Applications Forecast, 2002 2006 (IDC #26972, April 2002) Worldwide B2B Dynamic Pricing Forecast, 2002 2006: What Am I Bid for This... (IDC #26801, March 2002) European B2B Internet Commerce Forecast and Analysis, 2000 2006 (IDC #BM02J, March 2002) ebusiness Investments Across U.S. Industries: IDC s Web Spending Model, Forecast and Analysis, 2001 2006 (IDC #26431, January 2001) EDI; On the Buy-Side and Sell-Side Automation of Buyer and Seller Relationships (IDC #BM22J, January 2002) EDI s Changing Role in the Internet World: An EDI Commerce Forecast and Analysis, 2001 2006 (IDC #26037, December 2001) Methodology IDC s ICMM, Version 8.1 Much of the data presented in this document was generated through version 8.1 of IDC s ICMM. For a complete description of the model and its inputs, see The Global Market Forecast for Internet Usage and Commerce: Based on IDC s Internet Commerce Market Model Version 8.1 (IDC #26750, March 2002). The underlying premise of the model is that the number of Internet users is best determined by applying the results of demand-side 27423-14 - A IDC
primary research on access and use to installed-base forecasts generated by supply-side research. The ICMM forecasts the number of users accessing the Web and the amount of ebusiness conducted during the same period. The forecast is segmented by five regions: the United States, Western Europe, Asia/Pacific, Japan, and the rest of the world (ROW). The ICMM also segments ecommerce by buyer groups, including home, small business, medium-sized or large businesses, government, education, and mobile users. IDC s B2B ecommerce Model The B2B ecommerce model segments the B2B portion of the ICMM based on the type of ecommerce site that is managing the transaction. The three segments are supplier-driven edistribution sites, buyerdriven eprocurement sites, and independent emarketplaces. Unlike the data in the ICMM that addresses buying, the B2B ecommerce model allocates purchasing dollars based on where the buyer went to purchase the product or service. In some cases, this occurs at the ecommerce site of the actual seller (i.e., an edistribution site). In other cases, it occurs at an internal or third-party site (i.e., an eprocurement site or an emarketplace). IDC generated forecasts for the three segments by assigning a portion of sales in each segment to small and medium-sized/large businesses as well as government and education buyers. These sales were then projected through 2006 based on the worldwide ICMM forecast. For the edistribution segment, IDC surveyed manufacturing and service companies with ecommerce sites (e.g., GE Plastics, Dell, and Cisco) for information on total reported sales in 2000 and 2001 as well as forecasts for 2002. Where possible, this information was compared with information from financial reports and/or press releases and other public statements. For the emarketplace segment, IDC surveyed distributors, wholesalers, and retailers with ecommerce sites (e.g., Tech Data and Office Depot) as well as public emarketplaces such as ebay, Covisint, Pantellos, DoveBid, and ExoStar for information on total reported sales in 2001 as well as forecasts for 2002. Where possible, this information was compared with information from financial reports and/or press releases and other public statements. Definitions IDC currently categorizes ecommerce into two segments: businessto-consumer (B2C) and B2B. A IDC - 15-27423
B2C ecommerce B2C represents the value of products/services that individuals purchase via ecommerce that are intended for consumption by themselves, their family, or friends. It includes products/services that consumers purchase from other consumers at sites such as ebay. B2B ecommerce B2B represents the value of products/services that individuals purchase via ecommerce that are intended for use by a business, government agency, or educational institution for which they work. IDC further segments the B2B segment based on the type of ecommerce site from which the products/services are purchased. EDI and B2B ecommerce EDI is the computer-to-computer exchange of information using standard formatted electronic transactions. These transactions typically include, but are not limited to, sending purchase orders, invoices, shipping notices, and other frequently used business documents such as forms-based EDI documents. Under IDC s ecommerce definition, B2B transactions that occur through EDI systems are not included in the B2B ecommerce figure unless the documents are converted into XML format or the EDI message is routed through the public Internet (aka Internet-enabled EDI). The overlap between these two markets today is substantial. Internet EDI accounted for just 9.5% of all EDI purchases in 2001, but Internet-enabled EDI accounted for 33.3% of all B2B ecommerce. The difference in relative impact is a consequence of the relative maturity of both markets. EDI is a mature solution used around the globe, while Internet-enabled ecommerce has only been in existence for less than seven years and is still very immature. B2B Market Models The B2B ecommerce selling models are as follows: edistribution: This represents the value of B2B ecommerce that is purchased directly from the ecommerce site of a product/service supplier. edistribution also includes a small but significant amount of Internet-enabled EDI. eprocurement: this represents the value of B2B ecommerce that is purchased through an ecommerce site built specifically for use by a supplier s own buyers. This category also includes ecommerce sites in which a restricted (i.e., not to be expanded) number of large buyers agree to use a common eprocurement platform. eprocurement also includes most Internet-enabled EDI. 27423-16 - A IDC
emarketplaces: This represents the value of B2B ecommerce that is purchased through an ecommerce site that allows buyers from multiple businesses to purchase products/services from multiple suppliers. Examples include Pantellos and Partminer. It also includes distributor ecommerce sites (e.g., Tech Data or Ingram Micro) and business-centric retailers such as Office Depot that provide products from multiple suppliers. Other Internet, ecommerce, and ebusiness Terms Used by IDC Industry Supply Chain Exchanges An industry supply chain exchange provides an alternative means of supply chain automation, augmenting or even replacing in-house packaged applications by letting participants access business application functionality via the Web. In addition to providing an alternative means of deploying industry-specific supply chain applications, these ecommunities let participants collaborate on projects and purchases, review industry news and trends, and use information third party and best practice for better decision making. Private Exchanges and Marketplaces Private exchanges are the next generation of single-supplier and/or single-buyer ecommerce solutions. On the supply side, the intent of private exchanges is to extend a company s reach to medium-sized and small customers, not just top-tier customers. Many private exchanges are more advanced partner/distributor networks. On the buyer side, private exchanges are less common, but fulfill a similar function; their purpose is to extend a large buyer s reach beyond its top 10 40 suppliers (a segment often already addressed by existing EDI systems) to the top 100 or 1,000 suppliers. The private exchange owner believes that owning and maintaining a direct connection to a specific community of users creates a competitive advantage. The obvious difference between a basic ecommerce site and a private marketplace or exchange is the range and complexity of services offered to participants. These services include dynamic creation of customized catalogs and price lists, dynamic pricing systems (e.g., auctions), financing and payment systems, logistics services, and collaboration services. Online Strategic Sourcing Strategic sourcing is the ongoing, long-term procurement of materials and services. These materials and services may be used as part of the company s supply chain or they may be intended for use by the business. Online strategic sourcing tools are typically services and software programs that let procurement managers define the characteristics of the order and also negotiate price, shipping terms, service levels, and other necessary parameters. A IDC - 17-27423
Online strategic sourcing is not ecommerce, but is a critical precursor to a significant portion of ecommerce. Online strategic sourcing can play a critical role in setting the price and terms of conditions for a specific set of current and future ecommerce transactions. The key is ensuring that the pricing and delivery business rules set in the sourcing process are implemented in the online purchase, fulfillment, and support processes. Document #: 27423 Publication Date: June 2002 Published Under Services: B2B and emarketplaces 27423-18 - A IDC