• by Jack Loechner , Staff Writer, June 13, 2002

Surprise! Business conducted over the Internet is actually booming, nearly all of it in business-to-business sales.
Despite the gloom that descended on the sector with the crash in dot-com stock values, business conducted over the Internet is booming, according to research by IDC and America Online. IDC analyst David Emberley says that worldwide users spent $354 billion in e-commerce transactions last year, a number expected to grow to more than $5 trillion by 2005 by IDC’s calculations.

But another report, by Forrester Research, estimated world e-commerce trade at $657 billion, projecting a growth to $6.8 trillion in 2004 (see chart). The more conservative IDC figure is due to a stricter definition of e-commerce, which does not include orders placed by fax or email. And in the coming years, a rapid rise in the number of users outside the U.S. will fuel continued growth in online sales, Emberley says. By 2005, nearly a billion people will be using the Internet, according to IDC projections.

John Gantz, senior vice president at IDC, says that “there’s the notion that business-to-consumer e-commerce is dead (there will actually be tenfold growth in four years), or that brick-and-mortar companies will no longer invest in e-business (they’ll actually spend 25% more on e-business technology this year).” He goes on to say that the bursting of the dot-com bubble has people thinking the concept of electronic marketplaces where companies in an industry can buy or sell their goods and services to one another, will also go away. “Not so,” he concludes, reporting that in Europe and the U.S., about 75 percent of IT managers and CIOs are familiar with the concept, and about one-third expect to participate in an e-marketplace this year either as a buyer or seller.

The majority of this booming growth is actually business-to-business sales. The report notes that some 80 percent of online transactions conducted in 2000 were between businesses, a proportion that IDC estimates will rise to about 86 percent in 2005.

To participate effectively in this market, a similar report shows that more than two in five B2Business companies are targeting larger customers, with about one-third going after the Fortune 1000. And, 47 percent of the B2Consumer companies lowered marketing costs and shifted their offerings to business clients rather than consumers. This repositioning, the report says, could lead to sudden shifts in the competitive landscape, with “agile fringe players” potentially taking both old and new economy companies by surprise.

IDC’s Emberley concludes that while the U.S. leads the globe in Internet use, accounting for 34 percent of surfers worldwide in 2000, Europe and the Asia-Pacific region will rapidly pull ahead, leaving the U.S. in third place. The U.S. share of the world’s $7 trillion e-commerce in 2005 will drop to 36 percent, more in line with its position in the offline economy.

Staff writer Jack Loechner can be reached at jack@mediapost.com.