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Report: Net exchanges to drive trillions by 2005

The Internet's effect on the business-to-business market in the United States will drive more than $6 trillion in online trade by 2005, according to a new study.

The Internet's effect on the business-to-business market in the United States will drive more than $6 trillion in online trade by 2005, according to a study released today.

The amount of online trade represents 42 percent of the total U.S. business-to-business non-service spending, according to new research from Jupiter Communications.

The research firm recommends that businesses begin incorporating Internet strategies throughout their procurement and sales processes and invest in multiple selling models to control market disruptions while protecting their share of the market.

The study found that while this year's Internet business-to-business trade will represent only 3 percent of the total U.S. business-to-business non-service market, or $336 billion, the online volume will grow 20-fold in the next five years. That will open the doors for new business models such as net markets and coalition markets.

Currently, the direct channel, the commerce of one seller to many buyers, dominates 92 percent of the Internet business-to-business market. In 2005, however, 35 percent of the Internet business-to-business trade volume will be conducted via a net market, a matching up of many buyers and many sellers, or through a coalition market, which comprises a consortium of buyers or sellers.

The value proposition of the Internet is on a grander scale for the business-to-business space; the sheer size of business-to-business trade, coupled with inefficient processes, makes the Internet migration of business strategies very attractive to companies, the study found.

Early adopters have already made their investments, but it will be the mainstream companies that will embrace the Internet and drive it to mass penetration, said Melissa Shore, senior analyst for Jupiter Communications.

"Over the next several years, businesses will face an array of new opportunities to improve and expand their sales and procurement processes," she said in a statement. "They must invest now, even though the payoff will take some time; it will require several years to see a substantial migration from today's manual, paper-based solutions to tomorrow's Internet purchasing counter."

Shore advises companies Will B2B's magic last?not to wait, but to start building their online business-to-business infrastructures now. She said businesses also must look to diversify their investments across multiple models and partners. Because all companies are not in the same position, businesses must distribute their resources according to the company's market power within their specific industry.

The report is in sharp contrast to the opinions of some e-commerce executives, who recently predicted that most business-to-business virtual marketplaces would vanish within two years through failures and consolidations. The executives, gathered last month at the Association of Strategic Alliance Professionals Summit (ASAP), cited problems such as government antitrust investigations into online exchanges and talent-poaching among business e-commerce companies and their clients.