Companies spend a significant amount of money on procurement. Internet procurement allows companies to reduce procurement costs by 10% -20%, as well as increases the customer base a company can reach. This paper explores the Internet Procurement industry and market potential.
What kind of money are we talking about in Internet Procurement?
Krach (CEO of Ariba) estimates that companies typically spend one-third to one-half of their money in the area of operating resources (procurement). He also estimates their savings using the Ariba system save somewhere between 10% and 20%.
Oracle estimates that organizations can spend up to 60 percent or more of their revenues acquiring goods and services. The savings potential is significant. For example, a $1 billion manufacturing company with total procurement spending of $570 million can spend up to $348 million on non-production goods and services. Reducing this spending by only 15 percent would mean savings of $52.2 million each year!
Market Growth Expectations
As of September 16, 1999, Investment banking firm Goldman, Sachs & Co. said it expects a five-year $1.5 trillion boom in business-to-business e-commerce in industries ranging from automobiles to medical equipment.
In a report on the sector, Goldman says that the retail sector, with sites like Yahoo! Inc and eBay Inc, has gotten most of the attention, but the business-oriented side "is poised for equally explosive growth."
Goldman, which has been one of the most active bankers in bringing Internet companies public, said it sees the $1.5 trillion total being reached by 2004, and it already estimates that businesses generated $39 billion from e-commerce applications last year and $114 billion this year.
"Many companies have already been huge beneficiaries of online growth, mainly through using the Internet as a new medium for product distribution and customer interaction," said Goldman.
Within many companies, information technology managers, whose main concern in the past has been automating corporate services, have increasingly become "vocal proponents" of spending on corporate Web sites and online marketing. In the rush to build this e-commerce infrastructure, the IT managers are looking to outside technology providers.
Small business will also be "an important driver of the B2B market," Goldman said, citing their growing need to operate in an e-commerce environment.
Among companies mentioned in the report who may be poised to benefit from the growth of business to business e-commerce are well known traditional high-tech firms like Oracle Corp. (Nasdaq: ORCL), SAP AG (NYSE: SAP) and newcomers like VerticalNet Inc.(Nasdaq: VERT), Ariba Inc. (Nasdaq: ARBA) and Healtheon Corp.(Nasdaq: HLTH).
The report, written by a team of analysts led by Rakesh Sood, says companies that build the e-commerce infrastructure will benefit from the...