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Report: Online B-to-B Market Growing at 33 Percent a Year

One-fourth of all U.S. business-to-business purchasing will be done online by 2003, predicts a new industry study that says the market is growing at the rate of 33 percent a year.

The study by The Boston Consulting Group (BCG) predicts that U.S. business-to-business e-commerce will reach $2.8 trillion in transaction value in 2003.

"In 1998, U.S. business-to-business e-commerce was $671 billion, comprising $92 billion in Internet-based transactions and $579 billion in transactions using Electronic Data Interchange (EDI) over private networks," said BCG Senior Vice President David Pecaut, who co-heads the firm's global e-commerce practice.

"By 2003, the transaction value of business-to-business e-commerce over the Internet will be $2.0 trillion, and an additional $780 billion in purchases will be made over private networks using EDI."

BCG said the size of the business-to-business 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.

While EDI over private networks represented the lion's share of 1998 volume (86 percent), nearly all of the additional volume in 2003 (90 percent, or $2.0 trillion) will be Internet-based transactions.

BCG predicts that business-to-business e-commerce will account for 24 percent of total business-to-business commerce by 2003.

"BCG developed this forecast by focusing on the total purchasing process," said BCG Vice President Andy Blackburn. "We counted all of the intermediate transactions in the supply chain, and considered direct and indirect purchases separately to accurately reflect adoption rates. The result is much higher penetration than had been previously understood."

The $700 billion North American B-to-B market is twice the size of business-to-business e-commerce in the rest of the world combined ($330 billion), the study found.

North America will likely retain its significant lead over the next few years, but the global dynamics of business-to-business e-commerce eventually will shift in Western Europe, which lags 18 months behind North America in business-to-business e-commerce adoption.

Asia and Latin America remain further behind, but this may change rapidly as global supply chains go online, the study said.

By 2003, over 65 percent of all business-to-business e-commerce purchases will be made by six sectors -- retail, motor vehicles, shipping, industrial equipment, high tech, and government. Cost savings, rather than strategic opportunities, will drive most of the initial adoption, the study said.

Founded in Boston in 1963, BCG is a management consulting firm that now operates in 32 countries and 47 cities around the world.