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No 2001-2 February 1, 2001
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  The limits of the studies by the offer analysis: should we always trust Forrester, Jupiter, etc…?

The limits of the
studies by the offer analysis:

should we
always trust Forrester,
Jupiter, etc…?

The future of E-Marketplaces under suspicion.


Every day, we can read in the online press whole series of forecast concerning nearly all the sectors of activity on the Internet: what does the future have in store for the BtoB sector, the BtoC sector, the ASP market, the eBusiness solutions and the mobile internet, etc…

Most of these figures come from a handful of the biggest consulting firms, whether they are broadcaster such as the Gartner Group or the Giga Group, or whether they are more specifically Internet oriented such as Forrester or Jupiter, to mention only the most famous ones.


In the last few years, these studies have acquired an increasing influence on the economic actors, so much so that they have even managed to influence the market itself.

Not long ago, the UMTS file in Europe gave us the opportunity to notice how important these studies have recently become.

No sooner had Jupiter released a study about the phone operators and how they would probably find it difficult to increase the number of subscriptions linked to the third generation type of services of the mobile Internet, which many candidates for the UMTS licence withdrew from the race at once!

After all, the great influence held by these consulting firms on the economic actors can be explained easily. The Internet business is still very young even though it changes so fast that one might think that it ages 10 times more quickly than any other sector.

In the best of cases, the only reliable and available data we have only go back to the last 12 months.

This is how, in order to measure how satisfying logistic services proved to be over the 2000 festive season, we only had the 1999 figures to compare with since the latter was the first significant Christmas we had as far as online sales were concerned. Knowing that, it seems somehow meaningless to make any type of comparison since the initial base is too weak or uncertain.

What's more, in this first Internet development phase, it is not uncommon to see technologic breaks that could not be foreseen take place, making any kind of medium and long-term forecast very doubtful, when being over a year.

This reminds me of a phenomenon such as the Napster or Gnutella Peer-to-peer which, given its importance, annihilated all forecast that had been made over a year ago about the online music business. If new compression formats were to appear tomorrow, there is no doubt that it would totally modify the video market on the Internet, for instance.

But these characteristics, related to a very young market that keeps on changing (with no or very few small historic elements to allow us to relativize forecast as well as numerous unpredictable technologic breaks), can not be the only reasons that would explain why these studies differ so much from each other as far as their predictions are concerned, or why they prove so false in just a few months.

Pressured by their customers' requests, these consulting firms are forced to work increasingly faster and, as a result, they tend to excessively favour analyses given by the supplier itself, which means statements made by the e-sellers and software editors themselves.

It is undoubtedly faster and much cheaper to measure sales growth in a given sector of activity by simply asking the 100 or 200 managers of the main web sites in which proportion they expect their turnover to rise rather than conducting a survey and asking prospective buyers whether or not they intend to keep on increasing their average transaction value in that sector.

Even though the figures provided by cyber-retailers or software editors involved in the e-Business are steady (but according to which criteria and how?), this type of information is always overestimated when compared to the sales actual reality.

Indeed, shareholders exert great pressure on most of these sites (venture capitalists or even the Stock Exchange when start-ups are concerned and the head office itself when big groups' subsidiaries are involved), which prompts the sites to mention some hypothetical turnover that often proves most unrealistic, whether it is due to the market size or to the intensity of the competition.

We can now see how the excessive optimism that is shown in the forecast has a perverse effect, which creates a vicious circle.

First step: the studies that are being made predict a great sales take-off for a given range of product or a type of software.

Second step: the actors who happen to be interested in these subjects decide to invest great sums of money at once, even if it means they'll have to sell at a loss, hoping that the coming market potential will justify those investments.

Third step: even though, "objectively", the turnover growth happens to be truly remarkable when compared to some other offline sectors, it does not meet the actors' expectancies who find themselves faced with huge over investments and have to file for bankruptcy despite the fact that their turnover increased by 100% in the past year.

The present difficulties faced by the biggest web agencies throughout the world, such as the ones faced by the American MachFirst or the Swedish Icon Medialab can be explained by too much trust in growth expectations that cannot be reached in any way.

As a result, when the number of web sites decreases, these web agencies that need big money if they want to survive (consultants' wages they had to hire at great speed during the period of euphoria) see their liquid assets plummet since they still have to pay their consultants…who don't have work any more! And the remedy might well prove worse than the disease since as they lay off loads of people, they deprive themselves of a precious knowledge and jeopardize their future chances of success when business takes off again.

After all, these studies by the offer analysis give us much more information about the present and its interests than about the future.

To this respect, the example of the analyses that were carried out concerning the market-places proves highly interesting, since that in less than a year, the studies that were made on the subject have gone from the coming of a huge revolution (with expecting turnovers expressed in trillions of dollars) to the acknowledgement that those market-places should not modify buying process in the enterprises very deeply.

The studies that are being made about the offer analysis present an interest since they highlight such or such change in the Internet business, but as far as forecasting is concerned, I think that we should favour, for another few years, the surveys examining consumers to come and the demand.

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    The future of E-Marketplaces under suspicion  


A recent study carried out by the National Association of the Purchasing Management and Forrester Research really questions the efficiency of eMarketplaces in the BtoB sector.

But let us see:

  • 26.6 percent only of the companies that responded declare having seen cost savings form their ebusiness activities.

  • Only 19.9 percent of the same companies bought goods or services through online marketplaces.

  • Finally, and this proves even more serious, only 7.7 percent of these companies consider that the Internet introduced major changes to their procurement processes.

And yet, the same Forrester Research predicted in another study that online business trade would top $2.7 trillion in four years...

Allow me to have some doubts regarding this type of forecasting.

First of all, we are forced to observe that many marketplaces are a failure.

Between the difficulties faced by VerticalOne and the announcement that on March 31, Chemdex will shut down its marketplace and focus on "providing technology and services for B2B marketplaces"... the wind seems to be blowing in the wrong direction in this sector which only confirms that up till now, the big industry players have lacked commitment in the B2B sector.

And it is not the "nature" of the different parties involved that seems able to modify the result.

Indeed, opposed to these pure Internet players, many big enterprises have been trying to set up their own e-Marketplaces and the first results we've seen so far do not seem any more promising.

This is how, in the eTourism sector, it took nine months to find a domain name to the Orbitz project that was created between the biggest American airline companies, eleven months to appoint a CEO to the site that is not expected to be online before this coming summer, which means that the site will be online twenty months after the official launching of the project was announced.

In the automobile sector, Covinsit, the eMarketplace that was created by Ford, General Motors and Daimler Chrysler still lacks a chief executive and permanent offices...

Even though the Internet managed to "awaken" a few nearly institutional actors who felt threatened by pure-players and decided to ally themselves with their old enemies as a mean to express their outrage, reality has proven even more complex.

Sharing your knowledge, imagining that you'll be able to send your best customers on a common site, managing your brand alongside the brands of your competitors, all those things may seem acceptable in writing but as it is being set up, differences of opinion are brought out in the open, not to mention the culture differences that exists between new associates...

As a result, we can notice an immobilism that proves difficult to reconcile with the very nature of the Internet, a shyness that won't be able to support an international ambition and which is far from allowing any eMarketplace to aspire to control, one day, its own sector of activity.

Many big industries remain very immature as far as the Internet is concerned. When you add to that fact the lack of maturity in the marketing and technologic sector for some eMarketplaces, and even their lack of economic reality, you understand better why the BtoB sector might not be the Eldorado Forrester and Jupiter have been announcing.

And this does not only involve the death rate that will be especially high in the eMarketplace sector but also the fact that those who are supposed to keep them alive are far from being convinced.

So, do you still believe that $2.7 trillion will be made online through B2B eMarketplaces within four years?

(368 companies responded to the study conducted by the National Association of Purchasing Management).

Source : Business 2.0

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