B2B: Still the best hope for e-commerce

Just five years ago, there were only 19 million internet-users worldwide. Today, there are 200 million and, according to leading IT analysts International Data Corporation, this will swell to a billion, or every sixth person on the planet, by 2005.

Mirroring the growth of internet use, Europe's share of this global market, currently at 20%, is expected to grow rapidly over the next few years. But, following the ferocious correction in technology stocks during 2000, where are the opportunities and where the pitfalls?

Investor interest used to be centred on business-to-consumer (B2C) e-commerce retailers in the mould of booksellers Amazon.com and BOL.com, holiday and entertainments shop lastminute.com or Letsbuyit.com. However, there is growing evidence that business-to-business (B2B) e-commerce is a force with much stronger growth potential and greater resilience to market volatility.

US internet industry analysts Forrester Research found that European B2B e-commerce had generated ten times more revenue in 1999 than B2C business.

In January, Forrester and The National Association of Purchasing Management (NAPM) jointly published new research suggesting an imminent surge in online B2B activities.

Almost half of the corporate purchasers surveyed report being in the earliest stage of adopting the net. At the same time, an overwhelming number of these respondents see the net as an important part of their plans, said Bruce D Temkin, group director at Forrester.

The report revealed that during the past three months, 61% of organisations surveyed have bought materials from an online marketplace, while another 40% have bought items over the internet directly from their suppliers. More than 15% of companies also did some purchasing via an online auction.

A common misconception is that the real and the virtual trading floors are mutually exclusive. In fact, the internet enhances the real-world marketplace. Companies benefit from use of virtual marketplaces whether it is to find new customers, search out better suppliers, or both. Forrester Research predicts that by 2004 more than half of all online B2B trade will be marketplace-driven.

Marketplaces or 'cybermediaries' will be the drivers of the growth of B2B commerce, using new business models to revolutionise the way in which trade is conducted, according to Forrester.

Currently, Europe's leading online marketplace is mondus. There is a huge need for the marketplace, said Marcus Gerhardt, Vice President of Corporate & Investor Relations at mondus. The internet is like an infinite high street with thousands of shops, people need help in choosing which ones to go into. Marketplaces are the key to collecting them. We are only at the beginning of tapping into the B2B market.

Mondus is the first European, online business-to-business marketplace designed exclusively to meet the procurement needs of small and medium-sized businesses. Currently it offers three purchasing channels, Request For Quotes (RFQs), Auctions, and Catalogue.

RFQs are time consuming - although useful for creating a price dynamic on large purchases. However, if a company just wants to buy three computers urgently, RFQs are a waste of time. In this instance it is better to use a multi-catalogue where people can choose between a range of suppliers, buyers will get a good canvas of prices.

The potential for small-firm e-commerce within Europe is considerable. There are 18 million SMEs in the EU, accounting for 99.8% of all firms, excluding those in the agricultural and co-operative sectors. It is hardly surprising therefore that IDC anticipates that SMEs will, by 2004, account for a third of all worldwide e-commerce.

Currently, business is experiencing a timely convergence of several trends, which is making this SME e-explosion possible. An exponential increase in telecommunications capacity accompanied by falling costs, as well as the development of new technology such as ADSL. Universal acceptance of a set of data exchange protocols, which facilitates B2B e-commerce.

Together, these drivers herald a new 'digital age' for business, characterised by more powerful, direct communication channels. These give businesses the ability to interact with customers, staff and suppliers, sharing rich content, wherever they are. Messages can be exchanged in real time, in a one-to-one or one-to-many situation. However, this business evolution is far from over.

The whole nature of marketplaces has a considerable distance to travel. We have already seen this over the last 18 months. Generally marketplaces have focused on RFQ, but SMEs need a more complete service, adds Gerhardt. SMEs are more conservative than larger firms. Through time and education they will understand how marketplaces can save them time and money. It will be a great benefit to them. Basically SMEs are very good at their core competency and generally owner/managers take on a number of key roles. However, they are wasting a lot of time sourcing products and services. We can save them the time by finding these for them in advance.

The internet offers an exceptional opportunity to build a closer relationship with customers, but these relationships will still be based on a deep understanding of customers' needs and a passion for service. Meanwhile, marketplaces and directories will ensure that companies that have no real need to build a personalised website can maintain a high profile in the online B2B community.