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U.S. Business-to-Business E-Commerce to Reach $4.8 Trillion in 2004

New BCG research reveals rapid growth in online ordering while price negotiations and online collaboration still to take off

San Francisco/Chicago - September 6, 2000 : Business-to-business (B2B) e-commerce continues to grow rapidly, even though price negotiations and online collaboration have still to migrate online in a significant way, according to a new study of the business-to-business e-commerce market by The Boston Consulting Group (BCG). In research released today, BCG estimates that U.S. B2B e-commerce will grow from $1.2 trillion this year to $4.8 trillion in transaction value by 2004.

"B2B e-commerce is advancing quickly in terms of penetrating the total procurement market, but at the same time, remains fairly immature in its development," says Andy Blackburn, BCG Vice President. "By 2004, online purchasing will represent 40 percent of total purchasing, however only 11 percent of all purchases will involve online price negotiations. For many companies, negotiating prices online is a necessary first step toward broader and deeper buyer-seller collaborations online."

These findings, based on survey responses from more than 260 buyers, sellers and e-marketplaces as well as in-depth interviews, show that despite a high level of online penetration, the vast majority of transactions will be ordering and replenishment, and not price negotiations.

"In the near term, B2B e-commerce may not be as disruptive to many traditional buyer-supplier relationships as originally thought," says Jim Andrew, BCG Vice President. "Almost half of the companies surveyed find that offline communication is almost always needed to complete online transactions. Suppliers will continue to send sales staff to court buyers, and buyers will continue to demand personal commitments from their suppliers. One emerging message is - don't sell your golf clubs."

As the market matures and price comparisons become easier, sellers do expect price pressures to increase. While only 25 percent of sellers have experienced incremental price pressure, an additional 50 percent expect to experience it in the near future. Almost two-thirds of sellers are taking steps to differentiate their offerings and fight commoditization.

"The lag in the migration of price negotiations online gives some sellers a window of opportunity to beat the price squeeze," says BCG Senior Vice President Hal Sirkin, leader of BCG's e-commerce business area. "Sellers can use technology to offer more sophisticated forms of online collaboration such as online product design, project management, supply-schedule co-ordination and build-to-order capabilities. In this way, sellers can differentiate their offering, create stronger client relationships and resist pressures on price."

BCG's research also looked at the evolution of marketplaces. Given the complexities of online procurement, more than half of buyers and sellers expect to work with only a few e-marketplaces per category. And many of the e-marketplaces themselves expect that eventually, they will face only a few major competitors.

BCG's research shows that the size of the B2B e-commerce market is far greater than is commonly reported, in part because it recognizes the established base of Electronic Data Interchange (EDI) over private networks and its extensions to the Internet. Complete findings from the research will be available in a report to be released in October.

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