E-tail survivors stand to thrive

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Technology analyst firm Gartner Group Inc. last week released a good news-bad news report on Internet retailing, and the bad news may have long-term implications for b-to-b e-commerce.

First, though, the e-tailing good news: Gartner predicts that online retail revenues will reach $142 billion by 2004, a compound annual growth rate of 53%.

Now, the bad news: Many e-tailers won't be around to enjoy this burgeoning market. "The next phase will be the outright failure of online retailers who cannot demonstrate a path to profitability," said Gartner analyst Robert Labatt, principal analyst for Gartner's e-business services. "And it's not going to be pretty."

The online retailers that fail will likely be dragged down by their own shoddy back-office integration. "It's fulfillment that has brought down many of the more popular e-tailers we've seen in the past couple of years," said Geri Spieler, research director for Gartner's e-business services. "eToys is an example, the three-year-old who didn't get the Pokemon when Mom and Dad ordered it."

Back-office integration

The integration of back-office functions may have even more relevance in b-to-b e-commerce and may be even more complex, especially in the e-marketplaces being built by industry consortia. "[In the consumer arena], the infighting and politics to be able to create that online presence is only limited by the boundaries of that one company and perhaps its suppliers in the case of channel conflict," Labatt said. "But when you get into a b-to-b marketplace you're looking at not only that discrete set of issues but you're multiplying that because you've got four, five, 10, 20 other companies that all have to deal with the same issues."

Factoring in suppliers complicates the b-to-b equation even further. "Suppliers have to convert their data to multiple different companies that they do business with," Spieler said. "There's a fair amount of pushback on that. It's very costly to customize my information to the many, many different people I do business with. That's the challenge in the b-to-b space. It's different than a consumer, where I just go on a browser."

Despite its challenges, the b-to-b sector surpassed the e-tailing arena in investment from venture capital firms in the first quarter, Labatt said. "In the second quarter, with the rapid consolidation of b-to-b, Gartner believes that it is infrastructure investment that will capture VC attention and investment going forward. B-to-c will remain the third stepsister--if you like--in the investment arena."

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