It seemed like a good number at the time. A nice, juicy trillion dollars.

That was the first big number in an area that has come to be known for them, the business-to-business e-commerce market:

Forrester Research

in December 1998 used that figure to estimate the value of domestic goods and services traded over Internet-based exchanges by 2003.

Still, it wasn't big enough. Forrester's $1 trillion morphed into $2.7 trillion a year later. Then

Gartner Group

came up with a $7.3 trillion number for

global

e-commerce by 2004. This February came the whammy: An estimate from

Banc of America Securities

analyst Bob Austrian that the aggregate amount of all B2B transactions across the entire business spectrum had the potential to reach $50 trillion. Those big numbers drove heady rises in B2B stock prices, as the market bid the likes of

Ariba

(ARBA)

and

Commerce One

(CMRC)

to four-figure percentage gains in barely half a year.

But now, with many B2B stocks trading 50% to 70% below their highs, investors are acknowledging that those estimates were horribly overblown, if not meaningless. Perhaps worse still is that a hard look at B2B business models has persuaded the market that no matter how big the numbers get, they'll never be big enough.

Take a Little Off the Top

Looking at some B2B exchanges, you might understand why. Typically the exchanges, like ones in the auto and aerospace industries, have been set up as separate, independent companies. They're owned jointly by the trading partners that use them, and make money by charging transaction fees -- say 1% -- on the deals that are made through their networks.

Often, the technology partners that provide the software to the exchanges, such as Ariba and Commerce One, get an equity stake in the exchange company as well, and they may also get a fraction of the nominal transaction fees. What this all boils down to, though, is that really big numbers in a market can become really small numbers for those software providers.

"Look, a lot of industries just aren't big enough or liquid enough for it to make sense to take a quarter-point off the top," says Duncan Thomas, chief executive and president of

iiCaptain

, a privately held online supplier of marine parts that makes money by marking products it sells up.

Trickling Down

Consider, for instance, an exchange recently announced for the $400 billion aerospace industry. It will be run on technology provided by Commerce One, which will own a 5% stake in the exchange. But Commerce One won't get anywhere close to 5% of $400 billion.

Why not? Well, because first off, $400 billion is the revenue for the aerospace industry, not the amount that it spends on procurement. Instead, the four founding aerospace companies behind the exchange said they would probably trade some $71 billion through it annually.

But Commerce One won't get 5% of that, either. More likely, it will get 0.05% -- or 5% of a 1% transaction fee -- on the money that's spent through the exchange. On $71 billion, that's $36 million -- annually. Hardly the $400 billion potential that one might first think from reading press releases.

Not So Simple

It gets worse. Two weeks ago,

Prudential Securities

analyst Doug Crook

questioned whether B2B software providers would be able to charge transaction fees in the future, given the penchant by big industries to cook up these alliances themselves. At their most basic, Crook reasoned, these companies are really just software companies, and might -- egads -- only be able to sell software.

The B2B stocks, already well off their early March highs at that point, saw their declines steepen, as exemplified in the chart of Ariba's stock action. After another round of declines Thursday,

PurchasePro.com

(PPRO)

was more than 80% off its high, Commerce One was down more than 75% and

i2 Technologies

(ITWO)

was off some 60%.

webMethods

(WEBM)

, after a startling 36% selloff Thursday, joined the crowd, with a 70% decline from its highs. Even a lone holdout against the mass selloff, the established software pusher

Oracle

(ORCL) - Get Report

, is off its highs by 20%.

Tumbling on Trillions
The rise and fall of Ariba's stock on huge B2B estimates.

Source: Company reports

Still, "I wouldn't make too much of it," Banc of America Securities' Austrian says now, when asked about how the trillion-dollar estimates contributed to hype in the sector. "This is a significant market correction that we're in the middle of, but we have erased all of two months of appreciation. The market very much believes in the size of the B2B opportunity, or Ariba would be trading where it was last summer, which clearly isn't the case."

Ariba's chairman and CEO, Keith Krach, hasn't been dissuaded, either. "None of this has changed my opinion," Krach said in an interview. "There is no doubt it is a trillion-dollar opportunity. When was the last time you heard about a marketplace with the T-word in it? It's the biggest marketplace the world has ever seen."

What Wall Street Wants

Of course, the selloff, however steep, doesn't mean the end of B2B. Ariba and Commerce One still make money off licensing fees. But at a few million dollars a shot, licensing fees just don't have the trillion-dollar allure Wall Street wants.

Ariba, for example, announced on

Wednesday that $26 million of its $40 million in fiscal second-quarter revenue came from upfront licensing fees for its technology platform. That represented a 71% increase in revenue. Krach was accordingly bullish on the company's earnings call.

"We literally see thousands upon thousands of these exchanges popping up across every dimension, whether it's across horizontals, verticals, or dot-coms, and we're seeing it across every geography," Krach said. "There's an incredible amount of demand out there, and we don't see any downtick at all."

But so far this year, the biggest marketplace the world has ever seen has only resulted in $40 million in revenue for Ariba. Given that Ariba claims to be the biggest B2B player of all, that somehow makes $50 trillion suddenly seem very small.