After reading my earlier post on B2B e-Marketplaces, someone asked me – Why write about the B2B e-Marketplaces?  It was a long time ago and most of them failed.  So who cares?  I think George Santayana’s famous quotation is applicable here “Those who cannot learn from history are doomed to repeat it.”   This concept is more than appropriate in the B2B e-Commerce sector today when you consider all of the investments in electronic invoicing vendors and supply chain finance marketplaces made during recent years.  There is nothing short of an irrational exuberance afoot as everyone from financial institutions to venture capitalists to independent software vendors has been pouring millions in to these technologies.  Much like the e-marketplaces, these emerging concepts have strong value propositions, but are over-capitalized with 10X more vendors than the market will support.  So I would maintain that there is a great deal to be learned from why the B2B e-marketplaces of the dot com era failed, which is the subject of this post.

Why did the marketplaces fail?

Below I outline the top 10 reasons that the e-marketplaces ultimately failed. 

B2B e-Marketplaces - Find Your Partner Online

1. More than Price – One of the key services the original e-marketplaces offered was to anonymously match buyers and sellers of goods.  Reverse auctions could be utilized to effectively commoditize all items minimizing the price paid by buyers.  The on-line matching model worked well for certain scenarios such as the liquidation of excess apparel, indirect procurement of MRO goods and the purchasing of hard-to-find electrical components.  However, for most production materials used in the retail, automotive, aerospace, high tech and industrial manufacturing sectors, purchasing decisions were based upon a broader range of criteria beyond price such as quality, service, capacity, and performance.
2. Insufficient Liquidity – Many of the independent marketplaces were focused on auctions, which depend upon broad participation to achieve their goals of lowering or raising the price for an item.  Suppliers viewed reverse auctions as a mechanism for buyers to squeeze price concessions of them.  They preferred to sell through traditional channels in order to emphasize differentiating aspects of their proposition such as quality, service and performance.  Consequently, many suppliers avoided the auction process wherever possible.  The result was a lack of liquidity that reduced the value proposition of auctions and the limited associated fees.  Private and consortia marketplaces did not have this problem as they gained a critical mass of liquidity from their equity owners.
3. Lack of Neutrality – Consortia marketplaces struggled with a perceived lack of neutrality.  While many buyers and sellers took equity stakes in marketplaces others stood on the sidelines.  For the consortia marketplaces to grow they needed to gain the participation of additional non-equity organizations.  However, these non-equity traders were not comfortable sharing sensitive pricing and product information on an exchange owned by their competitors.  Nor were they interested in paying transaction fees which ultimately flowed back to these same competitors.
4. Lack of Integration – Independent and consortia exchanges had the advantage of being freed from the limitations of legacy applications.  The freedom enabled the marketplaces to quickly develop new functionality.  However, the lack of integration to fulfillment, clearing and settlement systems proved to be a significant disadvantage as well.  Without integration to ERP applications for key functions such as product catalogs, order-fulfillment, transportation management and invoice processing, the ROI from marketplaces was significantly reduced.
5. Governance Models – One of the major challenges consortia marketplaces faced was the governance model with their customers/owners.  Not only were there many different owners of these exchanges, but most were cutthroat competitors, which complicated decision making and strategy.  For example, the consumer goods marketplace Transora had 49 different equity investors!  Private marketplaces, having a single owner, could make decisions and execute much faster.
6. Discounted Relationships – Marketplaces underestimated the importance of long-standing personal and corporate relationships existing in the value chain.  Buyer relationships with suppliers extended decades or in some cases an entire century.   These dynamics were unlikely to be disrupted for a 10% price gain through an online auction.
7. Cultural Resistance - Another factor marketplaces underestimated was cultural resistance.  Middle-aged buyers and suppliers accustomed to negotiating purchases over the phone were reluctant to quickly transition to e-marketplaces.  These new systems were unproven will relatively low transaction volumes.  Furthermore they threatened to potentially eliminate the need for the very end-users (buyers and sellers) they aimed to support.  
8. Disintermediation - Middlemen such as distributors, wholesalers and brokers were at risk of disintermediation from e-marketplaces.  The value proposition of these middlemen was to connect large suppliers to the millions of small businesses that were uneconomical to serve directly.  However, new marketplace technology threatened to potentially change the dynamics, dramatically reducing the cost of direct sales to the small business sector.
9. Inadequate Revenues – Most of the independent and consortia marketplaces, which depended upon revenue generation to remain active, failed to develop a pricing model that appealed to customers.  Some exchanges assessed transaction fees, representing a percentage (0.5% to 8.0%) of the dollar value of goods bought or sold.  Others charged annual subscription fees for unlimited usage of the marketplace services.  A few creative exchanges experimented with advertising models and referral fees.  In the end, customers were reluctant to pay.  Marketplaces failed to generate sufficient revenues to become self-sustaining.
10. Irrational Exuberance – Much like the B2C e-retailers of the Dot Com era, B2B e-marketplaces suffered from irrational exuberance about the market opportunities in the supply chain sector.  There was a strong value proposition to be gained from features such as auctions, e-procurement, e-catalogs, supplier portals and collaborative demand planning, as evidenced by the widespread use of these technologies in 2009.  However, the year 2000 market opportunity and subsequent growth rates were much smaller than investors anticipated, resulting in a sector 100X over-capitalized relative to actual demand.

 
Why Study History?

These are just a few of the key factors that I think influenced the demise of the marketplaces, but there are certainly others.  What is your opinion?  Comment below to let me know what you think.

Download B2B e-Marketplaces - A Look Back 10 Years Later

Today GXS issued a press release about a new retail EDI hub called Morocco Retail eXchange that has been developed by one of our partners, GNS.  The exchange will help 5 retailers and 800 suppliers to conduct electronic trading and enhance visibility to supply chain activities.  GNS has ambitions of expanding the hub beyond its original focus in Morocco to neighboring countries in Northern Africa.  The Morocco Retail eXchange is a good example of the types of new B2B e-Commerce initiatives being pursued in emerging markets such as Africa.   So I thought I would take a few minutes to discuss the Moroccan economy, retail sector and their plans for B2B e-Commerce in more detail.

French Speaking North Africa

Morocco is one of four developing countries along the Mediterranean’s southern shore that are often referred to as “French Speaking North Africa.”  The locals refer to these countries, Algeria, Tunisia, Libya and Morocco, as the “Maghreb”which translated from Arabic to English means “place of the sunset.”   Morocco and its neighbors are among the fastest growing countries in Africa.  The economies of these Mediterranean countries enjoy the advantages of geographic proximity to Western Europe.

Morocco, Algeria and Tunisia have been working hard in recent years to develop their nearshore manufacturing and business process outsourcing services as an alternative to Eastern Europe.  Much like the substantial trade flows which have developed between the Mexican maquiladoras and the US, the Maghreb countries seek to be a key partner to their northern European neighbors.  With their political history, they are particularly well positioned for trade relationships with France.  Numerous European conglomerates have been investing in North Africa for several decades now.  A substantial aerospace and automotive parts manufacturing sector has developed with the likes of Airbus, Safran, Renault, Lafarge and Valeo all having established plants in these lower cost countries.  Morocco offers an attractive labor pool for manufacturing activities as there are no unions and employees work 44 hours per week.

 
Northern Africa - Source: Business Week

EDI for International Trade

Much like many emerging markets, the first applications of e-commerce were in the international trade sector.  These can be better described as B2G (business-to-government) than B2B (business-to-business).  For example, Morocco has a large import/export business that is managed primarily through ocean freight.  To operate the ports and customs functions efficiently, the Moroccan government invested in EDI technologies to automate the exchange of export declarations, import manifests, certificates of origin, licensing applications and tariffs/duties e-payments.

Growing Demand for Foreign Brands

In recent years the demand for B2B e-commerce has expanded into the retail and consumer products sector.  The telecommunications infrastructure in North Africa is relatively immature.  Fewer than 10% of households have terrestrial landline connections.  Mobile phones, however, are very popular as are satellite-based communications.  Many Western TV stations are now available via satellite to the Moroccan population.  The advertisements on these broadcasts promote Western lifestyles and products, which has created a strong demand for foreign goods.  Consequently, there has been a surge of imported foreign brands in categories such as apparel, footwear, consumer electronics, luxury items and consumer packaged goods.  As sales volumes grow these European and American foreign multi-national corporations are eager to leverage their best practices and information technology to optimize their supply chains.  B2B e-Commerce is one of the key IT capabilities foreign manufacturers would like their Moroccan retail customers to embrace.

SaaS Approach for the Morocco Retail eXchange

GNS has chosen to use a SaaS-based approach to its retail EDI hub.   A SaaS solution could accelerate adoption in these emerging markets such as North Africa for a few reasons:

• There are no upfront capital expenses or investments in hardware and software required.  Customers of the system pay a monthly fee which is aligned with their actual usage of the applications.
• Minimal IT resources are needed to implement a SaaS based solution.  There is work to configure ERP applications to send and receive B2B transactions, but no EDI manager is required on-staff for customers.
• The multi-tenant architecture will allow multiple retailers to share the same platform.  A network effect is created thereby simplifying supplier on-boarding to the application.

Optimizing Supply Chains with B2B

The Moroccan Retail eXchange will support many of the sophisticated supply chain functions used by Western European and American firms.  Key capabilities will include:

• Supplier scorecards to monitor vendor performance against retailer KPIs
• Demand planning using real-time store and distribution center inventory reporting
• Advanced shipment notices to minimize expedites and safety stocks
• Self-billing with evaluated receipts settlement to reduce invoicing processing costs
• Supplier self-service inquiries for payment status to reduce buyer A/P call center staffing

GXS has received several calls in the past few days from BT customers exploring alternative options for EDI services.  These companies have been advised that BT is discontinuing its EDI*Net service effective 24 February 2010. BT has written to its customers informing them their plans, citing the challenging economic climate and the fact that the EDI*Net service was “reaching the end of its natural lifecycle.” 

However, this does not mean that BT will not offer B2B integration services.  From my perspective, BT customers can still use the carrier’s VPN services to FTP transactions to trading partners.  Furthermore, BT’s Radianz group is a leading provider of FIX network services, the primary B2B messaging technology used in the securities industry. 

BT’s decision to exit EDI is by no means the first nor, in my opinion, will it be the last. A number of large telecommunications and IT service providers have retired or divested their EDI services in recent years.  Most have been acquired by competitors or divested into separate companies.  As the B2B integration industry has matured, services such as basic EDI transmission have become commoditized, and as a consequence, major B2B vendors have been seeking to consolidate operations to gain scale and cost savings. 

While the news that BT’s EDI*Net service is closing will no doubt concerns users, customers should not be too alarmed.  B2B vendors have gained significant experience and efficiency in migrating customers from one EDI platform to another.  Tens of thousands of mailboxes have been converted.  In fact, many EDI vendors have gained even further migration expertise by upgrading EDI platforms from legacy mainframe systems to modern cloud-style architectures.  As a result, your transaction process to a new vendor should be relatively painless.

 
Magnetic Tapes – A Sign that Your EDI Vendor may not be Investing in their B2B Products

The other good news for BT’s EDI*Net customers is that there are plenty of options for them in the UK.  I have four recommendations for customers seeking alternative EDI options:

1. Ask about the vendor’s experience with migrations.  How seamless will the transition from your existing EDI network to the new service be?  What will be the impacts to trading partners, if any?  How does the vendor’s service compare to your existing provider?
2. Seek out a very good price.  There is a lot of downward price pressure in the industry, you should take advantage of it!  Of course, as with any service, buyers should not choose a vendor based upon price alone.  Reputation, service quality and customer experience should be considered as well.
3. Be sure your EDI vendor views the service as strategic.  Ask for demonstrations of investments in B2B services.  If the user interfaces for reporting, administration and support remind you of Windows 98 or the EDI processing platform is mainframe-based then chances are good the provider has not invested in B2B recently.
4. Ensure that the EDI vendor has proper international scale and support for your trading partners.  Many B2B providers are focused exclusively on the UK.  Others are US-centric with only a small office in London.  Ask about local language support in France, Germany, China or wherever your trading partners are located.
5. Ask about alternative technologies.  Can your provider assist you if you need to move from EDI VAN to other technologies or approaches?  For example, many companies are outsourcing many of the day-to-day tactical activities such as mapping and trading partner on-boarding to a B2B Managed Services provider.  Other vendors are offering new B2B enablers that integrate with Microsoft’s Excel or Sage’s accounting software.

 
Green Screen Terminals – Another sign that your EDI Vendor may not be investing in their B2B Products

Also noteworthy is that nuBridges extended an invitation to BT customer’s this morning in a press release.    Nubridges acquired MCI’s EDI services a few years back.  Wouldn’t it have been cool if BT had sold its EDI services to nuBridges?  It would have been like the original BT-MCI joint venture Concert, but for EDI.

The advert, shown opposite, was promoting the services of Antou, a manufacturing company based in China.  I had seen a similar advert the previous week from a Chinese company interested in offering metal sheet processing and stamping services.  Now I could possibly understand such adverts appearing may be as part of a search on Google but it was interesting that these particular Chinese manufacturers were using Facebook as a platform for promoting their services.

To be honest the advert would probably have been better placed on more business oriented sites such as LinkedIn or Plaxo, at least that way they would be able to gain the interest of more relevant viewers of their adverts.  But you have to admire how this particular company has embraced the use Facebook as a way of letting the world now about the manufacturing services that they have to offer.

Further investigation of Antou’s website reveals that they have a channel on YouTube where they are able to show off the products that they manufacture.  Now an aluminium heatsink is not the most exciting of products to try and showcase on Youtube, but it gets the point across and allows this company to reach out to a wider audience.  I expect if I had a look on Twitter I would find that they had an account on there as well.

There have been many discussions in recent years as to how social networking sites such as Twitter and Facebook could ever develop a revenue but advertising via small banner adverts seems to be the most popular revenue stream that is being exploited at the moment. For Chinese manufacturers such as this example, increased exposure via a global platform such as Facebook is one reason why the Chinese economy is slowly starting to emerge from the global recession. In fact in October this year China’s vast manufacturing economy expanded at its fastest rate in over 18 months. This has to be a sure sign that the Chinese economy is on the road to recovery.

The purchasing managers index (PMI) issued by the China Federation of Logistics and Purchasing rose to 55.2 last month, the highest level since April 2008.  The PMI index provides a snapshot of business conditions in industry and last November the PMI dropped to 38.8 during the middle of the global financial crisis.  Annual GDP grew 8.95 in the third quarter which adds further weight to the recovery of the Chinese economy.  Now that the Chinese economy is growing once again I expect we will see increased global expansion activity by many Chinese companies.

From an automotive perspective Geely for example is the favorite to acquire the Volvo brand from Ford in the next few weeks. If the Volvo acquisition goes through then simply having one of the world's safest car brands being directly associated with the Chinese automotive industry will help to repair the poor safety and product quality record of some Chinese manufacturers.

So is this banner advert the start of a major push by the Chinese manufacturing industry to exploit social networking sites for new business?, only time will tell I guess but it was an interesting find none the less.

In my last post, I discussed the recently released Forrester Wave on B2B Service Providers.  One of the aspects of the report that I found most interesting was the detailed history of the 12 service providers evaluated.  I find the M&A history in the B2B vendor community to be fascinating.  Several major telecommunications and IT service providers have entered and exited the B2B sector over the past decade.  For example, AT&T, IBM, GE and Verizon Business have all made divestitures and strategic investments in the B2B service provider sector within years of one another.

Below is a chart from the recent Forrester Wave outlining significant events for several of the key vendors:

 
Source: The Forrester Wave™: B2B Service Providers, Q4 2009 by Ken Vollmer (October 29th, 2009)

Here is my analysis of the transaction history of four key technology vendors:

• GE passed on an investment in Internet marketplace, Freemarkets in 1994, preferring to focus on its GE Information Services business unit.  But then a few years later (2000) GE chose to become a founding investor in another marketplace, Global Healthcare Exchange.  Just two years later in 2002, GE spun off its Information Services unit, then called GE Global Exchange Services, to private owners (Francisco Partners).
• IBM packaged its EDI and Business Exchange Services into a business unit called G International, which it divested to Francisco Partners in 2004.  Francisco merged the former IBM unit with its own portfolio company, GXS in 2005.  But then just a few months later, in early 2006, IBM acquired B2B provider Viacore to bolster its integration capabilities. 
• AT&T spun off its B2B services group in a management-led buyout in 2001 to form EasyLink.  However, four years later telecommunications provider SBC (which owned Sterling Commerce) merged with AT&T.  Consequently, Sterling Commerce and its broad portfolio of B2B software and services became part of the AT&T family.
• MCI sold its EDI assets to nuBridges in 2005.  However, just twoyears later, after merging with VerizonBusiness, the group re-entered the B2B market through a partnership with GXS.  The new partnership is focused on a different value proposition and market - B2B Managed Services.

While confusing upon first glance there is actually logic to the pattern of transactions I outlined above.  Most of the exit strategies were attempts to sell off product lines in markets that were viewed to be declining (e.g. EDI messaging) to private equity investors attracted to the high cash flows.  These financial buyers believed that with strong management the B2B providers could grow again.  And in fact, many have.

The seemingly contradictory efforts by many of the major technology vendors to re-enter the B2B sector was an attempt to capitalize upon high growth segments.  For example, B2B e-marketplaces in the dot com era, supply chain software in the middle part of the decade and more recently B2B managed services. 

This past Thursday, Forrester Research published a Wave on B2B Service Providers.  The new report is noteworthy, in that this Wave is focused exclusively on providers of services (versus software) in the B2B segment (versus EAI).  Historically, Forrester had published an "Integration Suites" Wave, which included all the providers of both software and services and both EAI and B2B in one report.  The lead author of the Wave was Ken Vollmer, who actually managed IT operations in the retail sector prior to becoming an analyst.  So he knows the B2B vendor community, past and present, very well.  Forrester’s recognition of the B2B Service Provider segment as a standalone market that is “Wave-Worthy” is a significant milestone in my opinion.

B2B hasn’t been cool for several years now.  In the early part of the decade, billions of dollars of investment capital were funneled into B2B e-marketplaces, most of which failed.  Frustrated and disappointed with the failed potential of the marketplaces many investors and thought leaders abandoned their focus on B2B e-commerce.  However, in recent years there is a resurgence of interest in the B2B e-commerce market, particularly in the Managed Services segment.  Ken Vollmer stated in a recent blog post:

“Five years ago, a lot of folks thought that the days of the providers of EDI document exchange services were numbered and that they would fade away into the sunset.  But guess what – it didn’t happen.”

What’s behind the resurgence in interest?   Many multi-national companies are recognizing that B2B e-commerce is one of the more challenging functions that their IT departments must manage. 

• B2B is costly - requiring expensive integration software, server hardware and IT support staff to perform mapping, on-boarding and technical support. 
• B2B is complex - due to the growing number of Internet communications protocols (FTP, AS2, HTTPS) and messaging standards (EDI, XML, RosettaNet) in use today. 
• B2B is continuous - requiring a perpetual staffing model to support the never ending requests for technology upgrades, ERP projects and customer implementations. 

The costly, complex and continuous nature of B2B is driving more organizations to consider teaming with a vendor to provide B2B Managed services, a topic highlighted in Forrester’s research.

Another aspect of the report that I found most interesting was the detailed history of the 12 service providers evaluated.  Forrester provides the origin of each company as well as merger, acquisition, divestiture activity in the past 10 years for each key vendor.  I have not seen such a comprehensive, yet clear summary of vendor histories in any of the other market research.   There is a fascinating history of merger, acquisition and divestiture activity over the past 10 years amongst the major telecommunications and IT service providers in the space.  I will leave that for a future post, but in the meantime I would encourage you to read the full Wave report available on Forrester’s web site.  Also, check out Rob Guerriere’s post about the Wave on his Global Trade Best Practices site (GTBP.org).  Rob also offers some good recommendations to prospective buyers of B2B services. 

In just 25 short days, the holiday shopping season will officially kick-off in the US and many other parts of the globe.  Let me just say up front--I'm not ready but then I never am.  Unfortunately, with this weekend's announcement that CIT Group--one of the nation's leading funders of the small-to-midsize business (SMB) market--had filed for bankruptcy, it appears that I might not be the only one. For many retailers, there is a Grinch hanging over the 2009 holiday shopping season and for some that Grinch will definitely be named CIT.  

CIT is the fifth largest bankruptcy by assets in U.S. history and early reports from Asia are already showing that trading figures are not good as November gets underway.  But even more importantly to retailers, this bankruptcy may indicate that the economic recovery is over before it even begins. Now the optimistic part of my nature says that before we begin sounding the death knell on the recovery, perhaps we should examine not only why the CIT bankruptcy is important but also where it might present opportunities for bankers.  Specifically, there is value in examining how new technologies may enable small and regional banks to step in and fill some of the gaps in SMB lending created as a result of CIT's bankruptcy filing. 

CIT accounts for approximately 70% of all short-term financing in the US and has more than 1 million SMB customers many of whom are retailers. So when the first rumors of a possible CIT Group bankruptcy surfaced last July, media reports immediately focused on the retail industry as the potential "Biggest Loser". And not just any part of the retail industry either. Reports focused specifically on apparel and furniture which is not surprising since these two segments are the ones most reliant on CIT and other factoring organizations for the funds needed to make their merchandise.   

Last year, CIT did about $42 billion in factoring volume and no one is going to leave that type of revenue opportunity on the table for long.  There is plenty of reason to believe that despite CIT's bankruptcy the sky hasn't fallen on factoring as a funding source retailers. According to Needham Analyst, Christine Chen; "The factoring business is very profitable. Why wouldn't someone like Wells Fargo want to pick up business where it lends money for a very short period of time with a high rate of return?"  

With globalization and the continued emergence of new SMB vendors and suppliers, the global marketplace continues to expand.  In this environment, factoring will remain a key source of day-to-day financing. If CIT is no longer able to fill the gap, new players will emerge including on-line based vendors like the Receivables Exchange and Aanukaawho both offer on-demand based financing for suppliers. However, it is more likely that banks will step in to fill the biggest gaps.  And while there are certainly opportunities for large banks to step in, it is small and regional banks who thanks largely to technology will have the largest number if not the biggest dollar opportunities.

Small and regional banks are much more likely to have personal relationships with the type of buyers who access and work with the majority of the SMB vendors in the global supply chain. It is these customers who have a vested interest in making certain that the global supply chain continues to operate smoothly.  For banks who have implemented visibility tools as part of their trade finance offerings to corporates, the bankruptcy of CIT represents an opportunity to reach out to their corporate clients' global trading partner community.   To these potential customers, small and regional banks--depending upon the type of visibility tools at their disposal--would have the flexibility to provide a much broader range of options for the trading partner community based on pre-export, post-export and inventory financing needs.  By partnering with a technology vendor with global capabilities and reach, small and regional banks can tap into the global supply chain to connect, communicate and integrate their corporate clients' global trading partner community.

With the right solutions, small and regional banks are able to:

• Increase visibility of open account and LC transaction data equally to produce actionable intelligence

• Provide granular level detail related to supply chain milestones for all members of the trading partner community to help with forecasting and change

• Automate processes across the global supply chain to increase accuracy and reduce exceptions

• Mitigate the risks of doing business with SMBs by tracking and reporting on performance so that buyers have the data they need to know who to trust and with how much

Whether or not CIT is able to complete a successful reorganization is unknown.  What is known is that the road ahead for the company and some of its customers will be extremely difficult. In the weeks and months ahead, the story will largely be determined by how many of CIT's customers will be willing to stand with the company through its current crisis.  In the meantime, many small and regional banks will be taking stock of the visibility and enablement tools they have available to help their corporate clients build a stronger, more connected community with the members of their global trading partner network.

GXS was fortunate to have the opportunity to sponsor the 109th EDIFICE Plenary last week.  EDIFICE is the European B2B Forum for the Electronics Industry.  The event was held at our European data centre outside of Amsterdam.  On the second day of the plenary, I moderated a panel to discuss the theme of the event - B2B Past, Present and Future.  We debated a number of topics including supply chain outsourcing, emerging markets, standards development and cloud computing.  Below are a few of my notes, paraphrased, from the panel discussion.

The panelists included:

• Pierfrancesco Manenti of IDC

• Boudewijn Janssen of Amkor (and EDIFICE Chairman)

• Arthur Van Staveren of Cisco

• John Radko of GXS

What was the biggest change to the electronics supply chain we have witnessed in the past 10 years?
Restructuring of the value chain into multiple tiers, specifically the extensive outsourcing to contract manufacturers, was viewed by some as the most significant change.  Globalization, especially the rise of China, was cited as the biggest change by the majority.  Panelists believe that China will continue to be the preferred manufacturing location for products such as printers which travel via ocean freight due to longer lifecycles.  However, there was a view that goods shipped via air freight (from China) will begin to migrate near shore to Eastern Europe in order to minimize transportation expenses.

 
Amsterdam

Will XML overtake EDI in the next 5-10 years as the preferred standard in the electronics industry?
Several members of the audience commented that they believe XML usage with standards such as RosettaNet and OAGi to be more extensive than reported in analyst research.  But the overwhelming theme of the comments was that the actual messaging standard is less important than the need to agree upon business processes and improve data quality.  Nonetheless, the panelists were optimistic about continued XML growth for new projects and due to ERP vendor preference for the standard.

How quickly will cloud computing and SaaS displace traditional enterprise computing models?
The migration towards cloud computing will not occur over night.  Instead it will be slow and steady.   SaaS and cloud computing will help users which have not been well served by traditional IT approaches developed by prior generations.  One panelist stated that cloud computing holds the promise to help with the industry “deadlock” that has occurred in major companies who are paying millions for IT support annually, but cannot get fast access to new functionality when they need it.

Which consumer electronics device introduced within the past 10 years has most impacted your daily lifestyle?
Most panelists agreed that the Smartphone with its rich feature set of voice communications, mobile internet, GPS navigation and web-based applications had the biggest impact.  However, there seemed to be disagreement about whether Nokia or Apple has designed the best phones.  One audience member made an interesting observation that the ubiquitous broadband and Wi-Fi connections available throughout the world actually led to the most significant change in daily activity – a view I strongly agree with.
 
Learn more about EDIFICE at http://www.edifice.org. 

Some call it the Golden Age of B2B e-Commerce.  Others call it the height of insanity.  Regardless of your perspective, it is difficult to argue that there will ever be another time like it in the world of B2B e-commerce.  The marketplace era witnessed an unparalleled infusion of capital and an unparalleled appetite for risk as entrepreneurs around the world engaged in widespread supply chain innovation and experimentation.  And although there remains a general level of disappointment and remorse with the e-marketplaces, we should remember that these organizations were catalysts for a number of high value supply chain technologies still in use today – e-procurement, reverse auctions, supplier portals, data synchronization (e-catalogs), collaborative demand planning and sell-side order management.  In this post, I will revisit the three primary e-marketplaces models with a historical perspective on the pros and cons of each strategy.

Remembering the Marketplaces

B2B e-Marketplaces, or sometimes called exchanges, facilitated the real time transfer of information, money and goods using newfound Internet technologies.   E-marketplaces supported a wide range of business processes.  Some facilitated the introduction of new buyers and sellers on the Internet for the purposes of developing new relationships.  Others specialized in e-procurement models such as “reverse auctions.”  In a reverse auction, the supplier (rather than buyers) competes for the right to win business by submitting the lowest (rather than the highest) bid.  Still other marketplaces focused on removing information latency in the supply chain and enabling collaboration between participants through the electronic exchange of design, forecasting, inventory, sales, logistics and payment data.  

 
Field of Dreams - If You Build It...They Will Come

There were three primary types of marketplaces – independent, consortia and private – each with different strengths and weaknesses.

Independent Marketplaces

Independent marketplaces, sometimes called public marketplaces, were the first to emerge in the late 1990s.  Founded by venture capitalists and managed by entrepreneurs, independent marketplaces such as Vertical Net and FreeMarkets were pioneers in the B2B e-Commerce revolution.  One of the independents’ key strengths was neutrality.  Not owned by any specific buyer or seller, the independents were free to develop technology and their business model as they desired.  Although, the independents were arguably the most innovative category of marketplace and the most neutral, they are largely extinct today.  Some say that the independents were ahead of their time, providing a value proposition that their customers didn’t embrace before the vendors had run out of cash.  I think independent marketplaces were victims of their own success.  Threatened by the potential disruption to historical supply chain dynamics, leading buyers and sellers rushed to build their own private and consortia e-marketplaces.  The result was that the largest potential customers of independent marketplaces quickly became equity partners in their competitors.

Consortia Marketplaces

Starting in late 1999 and throughout 2000 e-marketplaces were formed by consortia of leading buyer and supplier organizations in the major manufacturing verticals.  High profile marketplace formations included Worldwide Retail Exchange (Retail), ChemConnect (Chemicals), Quadrem (Metals/Mining), SupplyOn (Automotive) and Transora (Consumer Goods).  Retailers, OEMs and suppliers provided capital in exchange for an equity stake and a governance role in these new e-marketplaces.  The consortia were well positioned to generate revenues as they enjoyed instant participation from their owners following formation.  Perhaps, the consortia biggest challenges were with the governance models.  Not only were there many different owners of these exchanges, but most were cutthroat competitors, which complicated decision making and strategy.  For example, the consumer goods marketplace Transora had 49 different equity investors!  However, more fundamental challenges existed with consortia’s perceived lack of neutrality.  While many buyers and sellers took equity stakes in marketplaces others (such as Wal-Mart) stood on the sidelines.  For the consortia marketplaces to grow they needed to gain the participation of additional non-affiliated buying organizations.  However, these non-affiliates were reluctant to share sensitive pricing and product information on an exchange owned by their competitors.  Nor were they interested in paying transaction fees which ultimately flowed back to these same competitors.

Commerce One - Leading Provider of Exchange and Marketplace Technology during the Dot Com Era

Private Marketplaces

Major buying organizations not affiliated with any exchange (as well as many consortia investors) began to develop private marketplaces starting in 2000.  Perhaps, the largest and most successful is Wal-Mart’s RetailLink.  The private marketplaces had instant critical mass as both the buyer and its community of supply chain partners were immediate and captive participants.  Most private marketplaces were built upon existing supply chain transaction systems such as EDI, which already exchanged high volumes of data.  The goals of private marketplaces were simply to improve supply chain efficiency, rather than to generate transaction fees or grow towards an IPO.  Funding was provided as part of the traditional IT budget rather than through external capital markets or equity investments.  Private marketplaces avoided many of the governance and intellectual property issues that hampered the independents and consortia.  The buying hub could control the marketplace’s roadmap and security of all transactions exchanged.

And the Winner Is…

It is interesting to look back in hindsight and contemplate which of the models was best.  I would have to argue the private marketplace model was the winner, as they account for the majority of exchanges still in existence today.  A handful of the major consortia marketplaces such as Global Health Exchange (GHX), Exostar and Elemica have transformed their value proposition into a long-term business model.   Some have enjoyed more success than others.  For example, e2open recently reported 35% growth for its 1st half 2010 fiscal year.  And Covisint is planning a $1B IPO.  In many cases, these vendors have survived by generating a sustainable, recurring based of revenue from EDI transmissions.  Ironically, EDI is the very technology most of these marketplaces set out to destroy!   Read part 2 of this post - Top 10 Reasons the B2B e-Marketplaces Failed here.

Download B2B e-Marketplaces - A Look Back 10 Years Later

On September 9th, 2009 (09/09/09), while most of us were standing in line waiting to purchase the new Beatles Rock Band game, an IT company in South Africa introduced a new disruptive technology that could alter the dynamics of B2B integration forever.  The company, Unlimited IT, proved that it was faster to transmit data using a carrier pigeon than to use one of South Africa’s leading Internet Service Providers.   An 11-month old pigeon, named Winston, was dispatched carrying a 4GB microSD card from Unlimited’s offices near Pietermaritzberg to a destination 80km away.  The pigeon proved much faster than the ADSL data transfer, having delivered its payload in the time it took only 4% of the data to transfer electronically.

Internet Protocol over Avian Carrier (IPoAC)

Unlimited’s experiment was not the first commercial use of carrier pigeons for data transfer.  In April 2001, a group of Linux enthusiasts in Norway transmitted data using the Carrier Pigeon Internet Protocol (CPIP).  The group transmitted data by attaching a printout to the pigeon’s feet.  The hard copy data was then converted to digital format at the destination using optical character recognition.  Unfortunately, the 55% packet loss experienced during the Norwegian experiment (only 4 out of 9 pigeons returned) proved that the technology was not yet commercially viable.  CPIP was one of the first real-world implementations of the Internet Engineering Task Force (IETF) RFC 2549 released almost 20 years ago outlining the specifications for IPoAC.  The original RFC released April Fools’ Day 1990 was actually a humorous proposal, but the September 9th South African trials prove that IPoAC is no joke!

Pigeons for Large File Transfer

As I have mentioned in my recent GXS post on Large File Transfers, the need to exchange large data files between trading partners continues to challenge even the biggest corporations and service providers.  Some Managed File Transfer (MFT) applications can accommodate the large files, but these software modules are expensive, proprietary and cumbersome to manage.  IPoAC offers a low-cost, open-standards based alternative to MFT software.  Birds can be dispatched with a payload consisting of light-weight memory cards affixed to their feet. 

Pigeons attack MFT software salesperson

The data on the cards could be encrypted should the bird inadvertently drop it en route to the destination.  The economics of IPoAC will improve dramatically as the cost of flash memory continues to decrease.  Today’s memory cards hold a few gigabytes of capacity, but within the next decade the same footprint may be able to store over a terabyte.  Consider the advantages of an IPoAC-based large file transfer solution over traditional proprietary software packages:

• Low Cost – Unlike software applications, birds do not require companies to agree to a lifetime of annual maintenance payments to a technology vendor.  With IPoAC not one penny will be paid to proprietary MFT software vendors.
• Open Standards – Companies do not have to lock themselves or their trading partners into proprietary network protocols that only work with one software package.  Any properly trained pigeon can be utilized for IPoAC.
• Faster Delivery – For messages only needing to travel relatively short distances of less than 100km, IPoAC could potentially reduce latency.  For example, IPoAC would be well-suited for supplier parks in which vendors co-locate their plants just a few kilometers from customers.

Of course, the development of the services described above assumes that the pigeons will be treated humanely, which will require a governance model administered by PETA.

What do you think?  Should we convene a special committee to evaluate IPoAC for B2B Large File Transfer?  Perhaps we could get the Drummond Group involved and call it AS6!

On September 9th, 2009 (09/09/09), while most of us were standing in line waiting to purchase the new Beatles Rock Band game, an IT company in South Africa introduced a new disruptive technology that could alter the dynamics of B2B integration forever.  The company, Unlimited IT, proved that it was faster to transmit data using a carrier pigeon than to use one of South Africa’s leading Internet Service Providers.   An 11-month old pigeon, named Winston, was dispatched carrying a 4GB microSD card from Unlimited’s offices near Pietermaritzberg to a destination 80km away.  The pigeon proved much faster than the ADSL data transfer, having delivered its payload in the time it took only 4% of the data to transfer electronically.

Internet Protocol over Avian Carrier (IPoAC)

Unlimited’s experiment was not the first commercial use of carrier pigeons for data transfer.  In April 2001, a group of Linux enthusiasts in Norway transmitted data using the Carrier Pigeon Internet Protocol (CPIP).  The group transmitted data by attaching a printout to the pigeon’s feet.  The hard copy data was then converted to digital format at the destination using optical character recognition.  Unfortunately, the 55% packet loss experienced during the Norwegian experiment (only 4 out of 9 pigeons returned) proved that the technology was not yet commercially viable.  CPIP was one of the first real-world implementations of the Internet Engineering Task Force (IETF) RFC 2549 released almost 20 years ago outlining the specifications for IPoAC.  The original RFC released April Fools’ Day 1990 was actually a humorous proposal, but the September 9th South African trials prove that IPoAC is no joke!

Pigeons for Large File Transfer

As I have mentioned in my recent GXS post on Large File Transfers, the need to exchange large data files between trading partners continues to challenge even the biggest corporations and service providers.  Some Managed File Transfer (MFT) applications can accommodate the large files, but these software modules are expensive, proprietary and cumbersome to manage.  IPoAC offers a low-cost, open-standards based alternative to MFT software.  Birds can be dispatched with a payload consisting of light-weight memory cards affixed to their feet. 

Pigeons attack MFT software salesperson

The data on the cards could be encrypted should the bird inadvertently drop it en route to the destination.  The economics of IPoAC will improve dramatically as the cost of flash memory continues to decrease.  Today’s memory cards hold a few gigabytes of capacity, but within the next decade the same footprint may be able to store over a terabyte.  Consider the advantages of an IPoAC-based large file transfer solution over traditional proprietary software packages:

• Low Cost – Unlike software applications, birds do not require companies to agree to a lifetime of annual maintenance payments to a technology vendor.  With IPoAC not one penny will be paid to proprietary MFT software vendors.
• Open Standards – Companies do not have to lock themselves or their trading partners into proprietary network protocols that only work with one software package.  Any properly trained pigeon can be utilized for IPoAC.
• Faster Delivery – For messages only needing to travel relatively short distances of less than 100km, IPoAC could potentially reduce latency.  For example, IPoAC would be well-suited for supplier parks in which vendors co-locate their plants just a few kilometers from customers.

Of course, the development of the services described above assumes that the pigeons will be treated humanely, which will require a governance model administered by PETA.

What do you think?  Should we convene a special committee to evaluate IPoAC for B2B Large File Transfer?  Perhaps we could get the Drummond Group involved and call it AS6!