Gartner bearish on B2B Web transactions

Despite the industry's unexpected success in 2000, economic downturn will hamper e-commerce spending during the next few years, according to new research.

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Despite business-to-business e-commerce's unexpected success in 2000, economic downturn will hamper the industry during the next few years, according to research released Tuesday.

Gartner said business-to-business transactions reached $433 billion in 2000, which was 189 percent more than 1999 sales and $30 billion more than originally expected, according to its second forecast of global business-to-business e-commerce.

But the Stamford, Conn.-based company said it lowered its 2001 forecast of $953 billion to $919 billion, an 8 percent drop.

The changes in the forecasts, "take into consideration the numbers of changes occurring in the market, especially the transition to e-marketplaces and the economic downturn," Lauren Shu, Gartner's director of business-to-business e-commerce, said during a news conference Tuesday.

Gartner also lowered its business-to-business e-commerce forecast for 2002 to $1.9 trillion from $2.1 trillion, and to $3.6 trillion from $3.9 trillion in 2003.

The biggest difference in Gartner's estimates came in its forecast for 2004. The company expects business-to-business e-commerce to reach $6 trillion, a decrease of $1.3 trillion, or 20 percent, from previous estimates.

Business-to-business software makers such as Ariba, Commerce One, VerticalNet and Oracle build systems that help corporate purchasers obtain cheaper prices for products by linking suppliers through the Internet to track the availability of supplies, raw materials and prices.

This year, Gartner added 2005 to its five-year global forecast and estimates business-to-business e-commerce transactions to reach $8.5 trillion that year.

"We lowered our forecast numbers from last year, but we think (companies) will continue to turn to cost-saving methods, like the Internet, especially during the current economic situation," Shu said. "There will still be growth in the market, but it will be an evolution rather than a revolution."

Although the business-to-business industry has not suffered as much as the business-to-consumer sector, several online marketplaces have had to deal with international antitrust scrutiny, a market shakeout and growing skepticism about investing in Internet-related companies.

Gartner also pointed to the slow adoption of online marketplaces by companies as another reason for slower-than-anticipated growth in business-to-business e-commerce.

Marketplaces, which faced some difficulties in 2000, are still a new phenomenon and are just ramping up, according to Gartner's research. Few marketplaces had substantial revenue in 2000.

Shu points to integration complexity as one reason for e-marketplace sluggishness. Some of the challenges that have come up are that suppliers are having difficulties bringing their catalogs online, troubles connecting one marketplace to another or issues getting the backend software to cooperate with the marketplace.

Shu is not alone in her views that slow marketplace adoption is a problem for business-to-business e-commerce growth.

"Many suppliers have resisted the model," said Laurie Orlov, an analyst at Cambridge, Mass.-based Forrester Research. "They believe the model will commoditize them. They also have had difficulty connecting their systems with the marketplace. We have also seen e-procurement projects on the buyer's side taking longer than expected."

Gartner defines business-to-business 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 (electronic data interchange), marketplaces and exchanges, extranets and other sell-side initiatives.

Despite the lowered forecasts, Shu remains optimistic.

"We are telling our clients that the economic downturn can be viewed as a reprieve for (companies) that weren't able to keep up with the other e-business leaders," she said.