News

Forrester: E-commerce in the Trillions by 2003

• By Scott Bekker
• December 17, 1998

On-line business trade will find its way into all U.S. business supply chains over the next five years, although not all industries will adopt e-commerce at the same rate. Today's leaders -- the computing and electronics industries -- are already achieving significant gains from Internet-based trading with nearly $20 billion in on-line sales expected in 1998. By 2003, the leading industries will include aerospace and defense, petrochemicals, utilities, and motor vehicles.

Industry adoption of Internet commerce will be driven by the network effect, in which the value of participating increases dramatically as more and more companies join in. Internet trading initiatives generally start small, as early adopters use their industry clout to pull suppliers and customers on-line. Once these companies realize the efficiencies of Internet trading, they will persuade their business partners to join them on-line. As industry supply chains incorporate Internet trading, industry leaders will shift the e-commerce boundaries to more complex business processes like customer service.

"Companies that are unprepared to compete on-line will be pushed aside by competitors who understand how to use the Internet to generate new value and efficiencies for their customers," says Stuart D. Woodring, vice president of research at Forrester.
As Internet commerce takes hold, industry dynamics will undergo fundamental changes. Market-clearing prices will become the norm in many commodity markets as prices reflect real-time supply and demand. Where demand drives production, e-commerce will reward partners that make process improvements and winnow out inefficiencies. But the most dramatic impacts of e-commerce will be felt on the distribution side of supply chains, as companies seek differentiation by offering innovative services.

In mid-1997, Forrester predicted that U.S. Internet business trade would reach $327 billion by 2002. In the subsequent 18 months, the growth of Internet-based business trade has outstripped that projection. One of the major factors in the new forecast is recent research indicating that the United States has entered the commerce threshold -- an 18 to 24 month building period preceding five to 10 years of Internet commerce hypergrowth. Forrester believes that the computing and electronics industries have already entered hypergrowth, and several others are set to follow.

For the Report "Resizing On-line Business Trade," Forrester developed an in-depth model of intercompany trade in the United States from 1998 through 2003. The model analyzed the supply chains of 13 tangible goods industries using input from industry associations, U.S. government census data, and interviews with executives from more than 80 firms. --Brian Ploskina, Assistant Editor