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Getting Rich on E-Markets?

Although total e-marketplace revenues in the U.S. will approach an estimated $9 billion in the next four to five years, individual e-marketplace operators are expected to show solid but not astonishing returns, says a new industry study.

In fact, the research from The Boston Consulting Group (BCG) says that in five year's time, 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 will be able to exceed these revenue projections, the study concludes.

"While our projections show that e-marketplaces will grow rapidly, most of the value created by business-to-business e-commerce will be captured by the buyers and sellers that participate in these e-marketplaces," said BCG Vice President Andy Blackburn.

"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."

In a new report entitled "The B2B Opportunity: Creating Advantage Through E-Marketplaces," BCG predicts that, by 2004, business-to-business e-commerce will generate productivity gains equivalent to 1 to 2 percent of sales; by 2010, this figure could grow to 6 percent, or roughly $1 trillion.

But despite the beneficial impact on the U.S. economy, the market "will only support one to three major e-marketplaces within any given industry segment," the report said.

"Today, there are more than 700 e-marketplaces currently in operation. Most of them face an up-hill battle to survive," said BCG Vice President Jim Andrew.

"Ultimately, the U.S. B2B market will be characterized by a handful of e-marketplace giants that serve the overall needs of an industry; and scores of niche players serving a special segment within an industry or providing a specialized function across many industries."

BCG predicts that 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.

Collaborative services, such as supply-chain forecasting and planning tools, are difficult and expensive to fully implement and will not be widely adopted for at least four to five years. These services are, however, critical to long-term sustainability as they could account for up to half of total revenues for e-marketplaces.

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 that the e-marketplace creates
  • Extend the offering to medium and small companies and
  • Be flexible about changing the business model

The findings of the report 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.