Market Analysis Summary
Estimates for the amount of online spending by consumers in 1998 range from $7 billion to $13 billion, with at least 25% occurring during the Christmas shopping season. Forrester Research, an information technology research firm in Cambridge, Massachusetts, believes that online spending will hit $108 billion in 2003.
Although there are very few pure B2B e-commerce firms, this segment dwarfs the business to consumer sector. Forrester believes that this market, which totaled $43 billion in 1998, should rise to $1.3 trillion by 2003.
As of year-end 1998, almost 160 million users accessed the Internet regularly, up from approximately 101 million at the end of 1997, according to IDC. Clearly, the Internet is in an exceptional growth phase. This growth has pushed the capacity of existing networking infrastructure to its limits, resulting in frustration by Internet users.
Still, consumers have found the Internet to be a useful tool in the research and purchase of goods and services. Corporations have found that while the Internet is challenging traditional business models, it also offers significant advantages to companies that fully embrace the medium.
By any measure, the Internet is one of the fastest-growing commercial phenomena ever witnessed by society. Host computers, or servers, have exploded from 3.2 million in 1994 to roughly 56.2 million as of July, 1999. During the same time period, the number of websites roared to more than 5 million from only approximately 3,000.
A key factor in the recent growth of the Internet is the popularity of the sub-$1,000 PC. Rapidly falling component prices have allowed PC manufacturers to pass cost savings on to their customers, resulting in a more attractively priced product. Computers sold at or below the $1,000 level have appealed to first-time PC users and lower income families. Because of the more affordable prices, PC penetration in the United States is now approximately 50%, according to Dataquest, a market research firm based in San Jose, California.
As a result of the Internet’s historical roots in the U.S. Department of Defense, as well as the rising penetration of PCs, the United States accounts for more than half of the world’s total Internet users. The European market, by contrast, has been held back by the high cost of Internet access. Consumers are typically billed twice in these markets, once by the ISP and once by the phone company. However, the forces of telecommunications deregulation in Europe finally appear to be having an effect, as several phone companies have recently eliminated access fees and now bill only on a per-minute basis. Such moves should eventually increase the penetration of the Internet in Europe.
In the United States, less than one-third of the population is connected, leaving plenty of room for growth. In 1996, people asked colleagues and friends if they had an electronic mail address. In 1997, people were asked what their electronic mail address was. When consumers today are asked why they purchased a personal computer, the most common answer is to connect to the Internet to get their email.
The explosive growth of the Internet, as a tool for global communications, has enabled millions of people to interact electronically. International Data Corporation, or IDC, estimates that there were 142 million Web users worldwide at the end of 1998, and expect this number will grow to approximately 502 million by the end of the year 2003. Rapid acceptance of the Internet as a communications platform by both businesses and consumers has created the foundation for significant growth in B2B and business-to-consumer e-commerce. IDC estimates that worldwide commerce over the Internet will increase from approximately $50 billion in 1998 to $1.3 trillion in the year 2003.
The Small Business Administration estimates that more than 98% of all businesses in the United States have fewer than 100 employees. These businesses often lack the size and financial resources to create economies of scale. In particular, these organizations typically do not maintain dedicated procurement departments and often do not achieve significant purchasing leverage. The Internet can provide small businesses and consumers with a number of advantages when making purchases, including:
- Wider selection of products and services
- Competitive pricing
Small businesses are taking advantage of the opportunities the Internet affords. IDC estimates that the number of small businesses engaged in e-commerce will increase 47.1% annually, from 400,000 at the end of 1998 to almost 2.8 million at the end of the year 2003, signaling the broad adoption of the Internet by these small enterprises.
The widespread adoption of the Internet as a purchasing vehicle has created a wealth of opportunities for businesses that offer products and services to small businesses and consumers. Simultaneously, it has given both small businesses and consumers a wider variety of products from which to choose at competitive prices.
4.1 Market Segmentation
The company’s target customers are as follows:
- Small to Mid-size Businesses (50-500 employees)
- Businesses that are consolidating operations or merging
- Military and government agencies
- Others (accounting, medical, insurance, waste industry, associations, real estate, and new crafts market)
|Small to Mid-Sized Businesses||20%||25,000||30,000||36,000||43,200||51,840||20.00%|
|Consolidations and Mergers||15%||15,000||17,250||19,838||22,814||26,236||15.00%|
|Military and Government Agencies||10%||10,000||11,000||12,100||13,310||14,641||10.00%|
4.2 Target Market Segment Strategy
- Small to Mid-size Businesses. All business of 50 to 500 employees are ideal regardless of industry. They purchase website, E-commerce, data networks, computers, and Web services such as Discover Productions provides. New feeder business within the semi-conductor, insurance, accounting, medical, and manufacturing industries are prime targets.
- Consolidations and Mergers. They look for outsourcing and new ways for implementing Web-based applications, intranet hosting and development, e-portals, e-markets and support to grow their business while cutting cost. Golf Smith, Nevada Bob, and Dyer Electronics purchases products/services such as Discover Productions provides.
- Military and government agencies. The company sells to government contractors, and government agencies such as the Advanced Research Program Agency (ARPA), Airforce, Navy, Army and other such agencies.
- Others. The company also sells to accounting, medical, insurance, waste industry, associations, real estate, and new crafts market.
4.3 Market Trends
Identifiable market sectors. Forrester Research estimates that there are approximately 70 identifiable vertical market sectors (i.e., manufacturing, banking, insurance, stock-brokerage, pharmaceutical, engineering, etc.) in the commercial business world today.
High growth in e-commerce. Forrester also reports that B2B e-commerce will be a $1.3 trillion market by the year 2003 (Red Herring, December 1999). This will surpass the business-to-consumer market by five to seven times.
E-commerce market value. IDC, another market intelligence firm, predicts the market to be $633 billion by the year 2001. IDC also believes that the largest portion of business’s new technology investments will be devoted to studies and implementations of e-commerce B2B initiatives. Compounded growth between the years 2001 and 2003 is expected to be 35%. IDC claims that those entrepreneurs that set their banner in to e-commerce sectors will be the ones that reap the greatest profits and growth from the year 2001 and beyond.
Internet services market. Gartner calls B2B e-commerce, “the new millennium’s killer application.” The Internet services market will grow at a cumulative annual growth rate of 60% through the year 2003. IDC also claims that revenue in the worldwide Internet services market grew 71% in 1998 and is expected to grow at a cumulative annual growth rate of 60% through the year 2003 with revenues for Internet services approaching $80 billion.
IDC predicts that of the estimated 7.1 million small businesses in the United States, the percentage connected to the Internet will grow from about 40% in 1996 to about 70% in the year 2000. IDC estimates the number of users in the U.S. accessing the World Wide Web will increase from approximately 63 million at the end of 1998 to 177 million by the end of the year 2003.
Cahners indicates that “At least 50% of networking hardware revenue in the first half of 1999 came from small to mid-size companies.”
4.3.1 Forrester Research
Recent research conducted by Forrester research has shown that B2B will be $2.7 trillion by the year 2004.
The research shows that e-marketplaces will be responsible for 53% of all online business trade. Research also shows that more companies are moving to make purchases and sales on the Internet and are looking to build deeper relationships with business partners. This research has also shown:
The B2B arena is reshaping e-marketplaces. The initial wave of B2B e-commerce has been dominated by extranets that automate off-line processes between partners. However, the Internet is now moving to a new business venue, e-marketplaces, where the dynamic many-to-many interactions will supplant stagnant one-to-one relationships. These new trading arenas will flourish because:
- Industry inefficiencies run rampant. In today’s business environment, comparing offerings across suppliers requires multiple phone calls to various suppliers or enlisting the costly support of a broker. Time-consuming practices like these are easy targets for the Internet–where purchasing agents can gain instant access to comparisons of many different products.
- E-marketplace vendors will lower technology barriers. Someone had to build the first e-marketplace, but now the technology landscape is maturing. Today, B2B entrepreneurs can acquire sophisticated marketplace software from firms like Tradex, Ariba, and Commerce One or entirely offload the building of their websites to a lengthening list of experienced e-commerce integrators like Vision Systems or Software Solutions Pakistan.
- Venture funding is shifting to business trade. High-profile B2B players like VerticalNet–whose market cap currently exceeds $4 billion–have caught the investor community’s attention. The result? Many venture capitalists are placing bigger bets on their business trade portfolio. CMGI, for instance, just announced its plans to raise $1 billion to invest in B2B firms.
E-marketplaces will face a changing business environment. As more and more companies compete in the B2B market, there are going to be companies that will either have to sell or simply go out of business due to:
- Virgin markets disappearing. While most existing e-marketplaces are launched in a world devoid of serious competition, such as the printing business, these uncharted opportunities will quickly fade away. And even though there are a lot of untapped new markets, they will not be for long and soon everyone will want a piece of the pie.
- Feature-function races escalate. Functionality is not a big issue currently. Many websites simply put together a transaction processing engine and issue a few press releases and declare they have a B2B website. But as these websites face stiff competition, basic service offerings won’t be good enough. Firms will need to pump big bucks into expanding their online and offline capabilities just to satisfy the requirements of increasingly demanding participants.
Source: Forrester Research, Inc.’s e-marketplace report
4.4 Service Business Analysis
Discover Productions is part of the Web hosting industry.
4.4.1 Main Competitors
Specifically, competitors include Onramp, Saper Media Group, and Labnet which are detailed as follows:
- Onramp, Cleveland, Ohio. Onramp is a publicly traded company that was founded in 1994. It is considered an industry leader in the field of Web page design. Onramp is a provider of products/services that help businesses with their websites and hosting.
- Saper Media Group, Cleveland, Ohio. Saper Media Group is a publicly traded company that was founded in 1995. It is considered an industry leader in the field of websites. SMG is a provider of products/services that put businesses on the Web. The company’s products/services include website design and maintenance, graphic design, and application programming.
- Labnet, Cleveland, Ohio. Labnet is a publicly traded company that was founded in 1995. It is considered an industry leader in the field of Web page design. Labnet is a provider of products/services that creates websites and hosting. The company’s products/services include Web page design, website hosting, database services, and CGI programming.
4.4.2 Positioning Statement
Discover Productions believes that to stay ahead of its competitors it has to define its vision; to be a B2B Web-based turn-key solutions provider, developing new and innovative Web-based applications and become an ally to its clients in this diverse field. The company offers various benefits including:
- Lead with the best products and services in the industry.
- High quality service and support
The solutions provided by Discover Productions require serious technical knowledge and experience to develop. Many competitors only sell a single boxed product versus a custom solution. The company also offers incentive packages as well as finders fees for any employees who bring in new business.
Discover Productions keeps a close watch on the technological advances that take place in the industry so that it can effectively implement its solutions. The company sends representatives to regional and national seminars and offers training programs for its staff. All this is done to ensure Discover Productions becomes the leading provider of industry solutions. Discover Productions believes in passing cost savings on to its customers. As such, the company purchases from Tech-Data which offers 30-day net terms and overnight shipping.