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European E-business. Report by Romtec for the EITO 2001 Survey
Feb 20, 2002

E-business services in Europe are expected to grow on average 31% in 2002 according to a report prepared by ROMTEC for the EITO 2001 report. E-marketplaces will be the fastest growing segment with an estimated growth rate of 71%. One-to-many services such as information business services will also exhibit strong growth of an estimated 30%. Website designs and other similar services will grow by an estimated 9% according to the report.

E-business services include solutions such as web-design to e-commerce implementation and hosting services. The total e-business services market was worth 11.4bn euros in 2000, and is expected to rise to just over 20bn euros in 2002.

One-to-many e-commerce

- Implementation services accounted for 45% or just over 2.80bn euros of the total European one-to-many e-commerce services market value in 2000. These high value services are customized to meet the needs of organizations.

- Applications hosting services will offer suppliers the largest future revenue opportunities from one-to- many e-commerce services. This market is set to become the key one-to-many e-commerce services market, accounting for 50% of the total one-to-many e-commerce services market value in 2002. Applications hosting is also the on-going support service for which one-to-many e-commerce users are most likely to use an external supplier (49% of e-ordering users do so).

- Of the services that are specific to one-to-many e-ordering only (a market valued at 0.37bn euros in 2000), catalogue creation is the most commonly outsourced service (43% of e-ordering users employed an external supplier to some degree for this service).

- There is no question about the importance of the role that e-business service providers play, in terms of the implementation and on-going running of one-to-many e-commerce solutions (90% of organisations felt that external suppliers had played an important role). There is also good news about the quality of the solutions being delivered by e-business suppliers (92% were satisfied or extremely satisfied with the overall quality of their solution). There is, however, some room for improvement in the level of service for on-going support being delivered to end users (one in six organisations expressed some level of dissatisfaction).

E-marketplaces

- 2000 was very much an implementation year for the European e-marketplace and thus nine tenths (91% - 0.61bn euros) of the total European e-marketplace market value in 2000 was for implementation services. The complexity of e-marketplaces means that implementation services, such as consultancy and solution customisation, are indispensable services to any organisation(s) establishing an e-marketplace. The rapid growth in the number of new e-marketplaces predicted for 2001 and 2002 (the number will rise from 650 in 2000 to 3,250 by 2002) will mean that implementation will continue to account for the greater proportion of the e-marketplace market value over the forecast period.

- However, the market for on-going support services for e-marketplaces will also show rapid growth in 2001 and 2002. The hosting of e-marketplaces by external suppliers will continue to be standard practice - Total Romtec estimates that in excess of 80% of e-marketplaces currently in existence are hosted by external suppliers - making this the key on-going services support market (it will rise in value from 0.05bn euros in 2000 to 0.61bn in 2002).

- Of the four e-marketplace types, independent e-marketplaces account for the highest proportion of both the total number of e-marketplaces in existence and the total e-marketplace services value (accounting for 66% of the latter in 2000).

Marketing/information websites

- E-business services suppliers who are aiming to make significant revenues from attacking the marketing/information website services market will need to have a strong web hosting offering. Firstly, this market accounts for four fifths (79% - 3.51bn euros) of the total market value for marketing/information website services (two thirds of all web-only users outsource such services) ; secondly, the market for web design services, which is the other most significant marketing/information website services market, is dominated by specialist agencies (particularly from the media/communications sector).

3 New sources of e-commerce services revenues - The growth of the e-commerce market provides potential for new sources of revenue for ICT e-business services suppliers. Due to the pervasiveness of e-commerce solutions throughout an organisation, additional business process services are beginning to enter into the domain of ICT e-business services suppliers. For example, call centre services and logistics services designed to support e-ordering applications are possible sources of incremental business for ICT e-commerce services suppliers. Diversifying into such services areas, or forming partnerships with companies that can offer such services, will mean that a supplier is able to offer a more comprehensive service

in effect a one stop shop. The end user research shows that organisations are already outsourcing such services to e-business services suppliers for example, 10% of e-ordering users outsource logistics to their e-business services supplier.

- Another potential source of incremental revenue for ICT e-business services suppliers is through equity partnerships, either with other suppliers or even with customers. Equity partnerships with other suppliers have the potential to result in lucrative returns on investment, as well as providing the commitment levels needed to make a partnership really work. Equity partnerships with customers (as has been the case with certain e-marketplaces) mean that the services supplier may forgoe the initial profit associated with supporting the e-commerce solutions in return for a longer term return on investment. There is room for a great deal of creativity in terms of how services contracts are prepared, for those services suppliers who are prepared to take an element of risk for a higher level of reward.

4 Key challenges for ICT e-business services suppliers

- Against a backdrop of enormous market growth and opportunity, there are some key challenges facing ICT e-business software and services suppliers. Inherent in addressing a rapidly growing market is the need to have a highly flexible and fast moving business model, while at the same time remaining highly focused.

- Resourcing will be another significant challenge, both human and financial. Forming effective partnerships with the appropriate organisations will be an important means of addressing the human resourcing issue. Obtaining funding to support growth may prove to be increasingly difficult as institutions become more risk averse ; however, e-business ICT software and services suppliers are probably better placed to obtain funding than e-commerce businesses, since they are supporting a market rather than creating it.

- European ICT e-business software and services suppliers will undoubtedly benefit from the experiences of their US counterparts, who are approximately two years ahead. At the same time, there are some additional issues which are unique to Europe due to the diversity of language, markets and cultures which suppliers will face.

5 Market Variations - All European markets represent huge potential for ICT e-business services suppliers. Patterns of demand will vary, driven by two fundamentals - e-commerce adoption and propensity to outsource. E-commerce adoption is set to increase in all European markets, with Northern European countries tending to be more advanced than Southern Europe, suggesting a generally greater opportunity for implementation services in Southern European markets, and for on-going support services in Northern Europe, in the short term. At the same time, e-commerce adoption levels need to be offset against cultural and legislative factors influencing outsourcing levels. Germany and France, in particular, are less pre-disposed to outsourcing, which affects their potential for ICT e-business service suppliers, in particular for hosting services.

- The opportunities for ICT e-business service suppliers are intrinsically linked with the type of e-commerce solutions being used, regardless of who provides the initial solution. It is our belief that it is those suppliers who provide the initial solution, or who partner with providers of the initial solution, who are best placed to capture the market for e-business services. It is therefore vital that non-solution-providing e-business service suppliers have a clear strategy about the type of e-commerce solutions they are best placed to support, whether this be B2B or B2C and whether buy-side or sell-side. This in turn will dictate the industry sectors from which demand is most likely to come.

- With respect to B2B, demand in the next two years for buy-side solutions and associated ICT e-business services is most likely to come from those industries with big supply chain needs (typically within primary processing, manufacturing and retail), where e-commerce can deliver substantial cost savings. As far as B2B sell-side is concerned, finance is likely to be the key sector for solutions and supporting ICT e-business services.

- Sell-side applications and associated ICT e-business services, from a B2C perspective, will be concentrated amongst the market leaders within the retail and finance sectors (since these are the types of organisation which are most likely to be able to make B2C e-commerce models work successfully).

The full report can be obtained at http://www.romtec.co.uk

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