Europe's Borderless Market: The Net
As Europeans pile onto the Internet in record numbers and shed their nervousness about buying online, consumer e-commerce is soaring at an impressive 75% per year. But what of the infinitely more complex and far larger market for business-to-business commerce? No question, since the tech bust, online B2B has fallen off the radar screen. The sector has suffered a rash of embarrassing failures, from the 2001 insolvency of Düsseldorf-based restaurant procurement site eFoodmanager to last year's collapse of London-based Mondus, an e-marketplace for office supplies.
Amid the carnage, though, there's surprising news. B2B e-commerce in Europe is still growing -- and fast. Companies purchased more than $200 billion in goods and services over the Net last year, a fourfold increase from 2000, according to researcher IDC. That's less than boosters were predicting a few years back, but B2B has now wormed its way firmly into Europe Inc., especially in the tech-savvier northern countries. There are even new online exchanges popping up, such as Aquadia, a water-industry site launched last year by Thames Water and Suez. "E-commerce is a one-way street," says IDC analyst Mikael Arnbjerg. "Once processes move online, they stay online."
More important, Internet B2B is also delivering on many of its original promises. Companies that have slogged through the tough work of building e-commerce systems -- from Alcatel to BASF to Nestlé -- have lowered their transaction costs and boosted efficiency. Paris-based Alcatel now takes 90% of its orders for corporate networking gear over the Net, saving hundreds of thousands of dollars a year vs. manually entering sales. And Nestlé is halfway through an e-business makeover that it predicts will save $2.2 billion by 2006.
For Old World companies, there's another benefit from using the Internet: E-commerce is the closest Europe has come to realizing the dream of a single, borderless market. "B2B clearly helps companies find suppliers and customers in other countries," says Andy Kyte, an analyst at research firm Gartner Inc. in Egham, England.
A good example is Pan-European Fish Auctions, or PEFA.com, in Zeebrugge, Belgium. The privately held exchange sold $200 million worth of fish over the Net in 2002, nearly double the previous year's figure. Before PEFA was launched in 1998, distributors looking to score the best Baltic herring or Mediterranean calamari had to dispatch live representatives to daily auctions held at various European ports. Through PEFA.com, fish sellers in 18 ports auction their catch online to more than 200 large buyers from all over Europe. "Everyone loves it -- the fishermen, the ports, and the buyers," says Marketing Director Karl Johannesson. The company hopes to turn profitable next year.
But where PEFA has succeeded, countless others have failed. Boom-era startups such as e-cement.com, worldoffruit.com, and textilio.com all folded quickly, victims of overly ambitious goals, limited capital, and spotty demand. In fact, just 20% of European B2B e-commerce last year flowed through e-marketplaces, says IDC. The bulk of it passed through exchanges set up by industry consortiums, such as the auto sector's Covisint and the aerospace industry's Exostar. The other 80% was conventional online sales from company Web sites or procurement through online catalogs. "Most exchanges got the business model wrong by focusing too much on technology or transactions, not enough on helping customers work together," says Mark Suster, chief executive of London-based BuildOnline, which sells collaboration software for construction companies but doesn't operate an online exchange.
Many exchanges bombed because they were too radical. They set out to overturn business practices going back decades, if not centuries. That's a mistake PEFA avoided. Its auctions use the same count-down clock buyers are used to, only now it's computer-projected onto a screen in the bidding theater. Pragmatism has helped others survive, too. Barcelona's LeatherXchange abandoned online trading when hide sellers balked and has refashioned itself into a provider of pricing data for the leather industry.
No doubt, e-commerce was overhyped, but even critics concede that the business backlash also has been too harsh. Online B2B in Europe will likely top $1 trillion annually by late this decade, analysts say. With an opportunity that huge, someone's bound to profit. For companies that ignore it, e-commerce could prove to be the fish that got away.
By Andy Reinhardt, with Nassim Majidi, in Paris