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Study: Buyers, Sellers to Benefit More than E-Market

[Toronto, CANADA] By 2004, business-to-business e-commerce will generate productivity gains equivalent to one or two percent of sales; and six percent by 2010. But the market will only support one to three major e-marketplaces within any given industry segment, according to a new report from The Boston Consulting Group.

The B2B Opportunity: Creating Advantage Through E-Marketplaces forecasts that total e-marketplace revenues in the U.S. will approach $9 billion in the next four to five years, pointing to solid, but not astonishing, long-term revenue prospects for individual e-marketplaces.

Within five years, e-marketplaces serving America's largest industries should be expected to generate $350 million to $450 million in annual revenues, while e-marketplaces in most other industries will generate revenues of much less than $100 million.

Only a small number of top performers are expected to be able to exceed these revenue projections.

The findings are based on a three-month survey of nearly 500 executives at major buyers, sellers and e-marketplaces, as well as in-depth interviews with more than 30 companies active in B2B e-commerce.

"While our projections show that e-marketplaces will grow rapidly, they won't generate the kind of blockbuster revenues that many may have expected," said BCG vice president Paul Orlander.

"Most of the value created by B2B e-commerce will be captured by the buyers and sellers that participate in these e-marketplaces. The benefits these players generate from participating in e-marketplaces will be greater than any return on an equity investment in an e-marketplace business."

The report outlines five success factors for e-marketplaces to create the critical mass or liquidity required of a viable business:

  • Leave room for companies to differentiate themselves.
  • Stay cost-effective and focused on execution.
  • Clearly communicate to buyers and sellers the value of the e-marketplace.
  • Extend the offering to medium and small companies.
  • Be flexible about changing the business model.
BCG predicts that over the next few years, e-marketplaces will need to bridge a gap between falling transaction fees and a rising demand for investment in collaborative services.

For most e-marketplaces, transaction fees will drop below 50 basis points over the next two years, and other revenue streams such as financial services and logistics will not offset falling transaction revenues.

The challenge for buyers and sellers will be to place their bets on the e-marketplaces that will survive the shakeout.