Cooperation in corporates

Cooperation is usually easy to achieve when you’re on a football team or in an Army battalion. Everyone’s on the same side, with the same goals. But it’s not as simple to get marketplaces to cooperate with other marketplaces. These are rivals, after all, and in business, appeasement usually works about as well as it did for Chamberlain.

Cooperate. It’s such a warm, fuzzy word. Only the most unreasonable person doesn’t want to cooperate, because cooperation helps all the parties involved. It’s even possible to cooperate and remain steadfastly self-serving. Microsoft invested in Apple partly because it needed a viable Apple as a foil to ward off antitrust suits. (Whether or not that strategy works out has yet to be decided, given Bill’s problems with the Department of Justice.) Of course, if Apple ended up gaining market strength, Microsoft’s investment would be worth more, and so much the better.

If you listen to the pundits, cooperation is supposed to be the next big thing in B2B marketplaces. The reasoning behind this is obvious. If buyers and sellers gain access to new and more efficient markets by joining an exchange, in a one-to-many situation, how much more powerful and profitable (for all parties) will it be to enter the many-to-many world. That’s the kind of talk that gets CEOs dinner at Spago’s from shareholders. But in cooperation, as in life, there are snags. Security, systems integration and rethinking business processes are obstacles to cooperation. How will these obstacles be overcome? And, for that matter, will they be overcome?

We approached experts in the marketplace field to find out. Here’s what they had to say. (One note. Cooperation is, for all intents and purposes, the same as collaboration, and the terms are used interchangeably in this article.)

Everybody Get Together

John Fontanella, research analyst at AMR Research, says that it’s still a little early to talk about collaboration between marketplaces. He says, “There’s a steady evolution, and its going to be a relentless chain of changes for the Net markets. When they started the first generation about a year and a half ago, with dynamic pricing auctioning, everything was around market aggregation. And then they built liquidity and realized that they had to broaden out and add other services onto the marketplace that would strengthen the relationship between buyer and seller, not just give them a vehicle to bring a lot of supplier and buyers together to beat down prices.”

Mark Keeley, vice president of exchange services at the B2B marketplace FreeMarkets, concurs with Fontanella’s assessment that the market will drive collaboration. He says that both exchanges that are FreeMarkets customers and enterprise clients that are members of exchanges are looking for liquidity. “They want to do business over a marketplace, and each of those marketplaces in turn needs to demonstrate to its investors and to its members and potential target customers and suppliers that it’s got liquidity, that it’s driving volume.” So exchanges will have to show that they’re more than just fancy Web sites, for both buyers and suppliers. They have to produce, in other words. (Something the B2C community learned in a hurry, once the buzz wore off.) Keeley says that there’s a simple reason why some exchanges aren’t productive. “They’re not able to bring buyers and suppliers together.” It’s hard to bargain in a vacuum.

Now what? Eric Michael Cole, director of Asian Business Development at Worldbid.com, can vouch for the fact that getting marketplaces to collaborate can be problematic. He explains, “Collaborating with other B2B trade sites has been a challenge. It’s been a challenge for us to ally ourselves with other people who have the same thing that we do. In a way, it’s trying to do things with competitors, because they’re trying to get a share of the market, and so are we. Our luck to date has been because we have a global reach at Worldbid, we’ve been successful in forming alliances and collaborating with other B2B trade lead sites, or matchmaking sites, that are more for the domestic market.” In other words, normal business rules still apply. Unless a marketplace can provide something tangible, something that might be unattainable by any other means, competitors don’t want to share anything.

Worldbid has had success in the area of collaboration with companies such as business information portals that aren’t exactly marketplaces, but do have the same user profile as Worldbid’s. Cole explains that these portals usually want to collaborate after they’ve had initial success, but are looking to increase their revenue. As he puts is, “A partnership with us is perfect, because we can offer them increased and new revenue streams. And at the same time, we also have all of the business information that they have on their existing site that can be fed into our site, so it’s a perfect marriage. Those types of alliances and relationships certainly seem to be easier to get.”

What does Fontanella believe has to happen before collaboration is a well-established fact of e-business? “Marketplaces first have to establish their own business model and their own successful liquidity model. Now, we see collaboration in terms of sharing content. There will be specific content providers out there on the Web that Net marketplaces will go to for information.”

We Fear Change

Regardless of the desire for profits, companies, like people, can sometimes be reluctant to change, or can have difficulty understanding all the ramifications of change. Fontanella says, “Companies are still getting used to the concept of exchanges. They’re still not sure how they’re going to use exchanges, and particularly the different types of exchanges - the industry consortia, they may have an opportunity to participate in private exchanges that they control with a known entity, and then independent exchanges.”

Fontanella has a pretty strong opinion on whether or not companies should be monogamous, or limited to just one exchange. His response was, “Absolutely not. Companies today aren’t set up like that. They’re divisionalized, have separate products, separate requirements. Also, companies are still run, administered and measured by function. So, in fact, what you’ll see along this adoption curve of exchanges is individual, discrete functions within companies going out to exchanges to satisfy their functional requirements.”

Driving the Herd

Fontanella says that individual companies and entire industries, as a result of the need to gain more potential business, will eventually drive marketplaces toward collaboration. He explains, “The exchange will try to drive up liquidity and make the exchange more appealing to their target companies. But it will be tough for them to collaborate without pressuring the users. I think what we’ll see over time is individual companies, as well as whole industries, will point the exchange in the direction of collaboration, saying ‘You’re not going to be able to support my industry or support my company without collaborative tools.’ There’s no question in my mind that you would see exchange operators rushing out to build collaborative tools if, tomorrow, companies were to say that collaboration of some sort absolutely has to be a component of an exchange.”

It’s Greek to Me

English is the agreed-upon language of international aviation. The pilots of an Aeroflot 747 can converse in everything from Spanish to Attic Greek between themselves, but when they’re coming in for a landing at JFK, they’re supposed to speak English. Without that airborne lingua franca, there is too much potential for catastrophe. So it is with exchanges. The major difference is that, while everyone agrees that there needs to be a set of standards to enable computers to interact, no one is quite sure what those standards should consist of. And it’s impossible to collaborate if exchanges can’t communicate.

Fontanella describes the problem this way: “Integration is a huge problem for the exchanges. It hasn’t been sorted out yet. XML is not the duct tape of the supply chain. And just because an exchange has XML doesn’t mean they can integrate.”

Derome explains that the efforts to establish a common set of standards is a good thing, but there are still major problems to overcome. He says, “It’s kind of a Tower of Babel issue. The technology industry has been dealing with, or trying to deal with, standards issues forever and that won’t change. So these standards efforts will reduce the complexity a bit, but, in my opinion, there won’t be a single standards entity defining XML data schema or particular processes. There probably will be multiple standards even within industry segments. So it will help, but it’s not the kind of lingua franca approach that people have talked about.”

One Size Doesn’t Fit All

But what about browser-based technology? Isn’t it supposed to solve everything? Not quite. Fontanella explains, “The browser option is good for your low-end suppliers, your low-tech suppliers, your low-volume suppliers that are occasional users. But for your main suppliers, or your main customers, they won’t accept a browser solution. They’ll want integration. We’ve been through too much over the last 10 years with re-engineering to get back in this situation of double data entry and double work steps. We just don’t have the organization to support that. I can’t think of a company of any size that would accept a browser solution long-term. They want it integrated into their backbone system, behind their firewall.”

Orders of Complexity

Jon Derome, head of collaborative commerce research within the B2B commerce and applications division of the Yankee Group, a strategic research and consulting firm, says that marketplaces only start to become viable options when dealing with high-volume transactions, and that’s also when the integration issues kick in. He says, “In that [high-volume] scenario, companies aren’t interested in browser access to a marketplace. They’re interested in integrating the systems to the marketplace, and that’s when things get complicated, because an individual company needs to, or I as a buyer I need to, integrate my systems. So if I use SAP I need to integrate my systems to the marketplace, which might be using Oracle. And maybe I already have an EDI system in place that I do most of my purchasing through, and I don’t want to drop that EDI investment or that purchasing paradigm. So I want to send my information to the marketplace via my EDI system, and maybe the marketplace can and maybe the marketplace can’t accept EDI documents.”

It doesn’t get any simpler from there. Derome goes on to say, “The marketplace has to feed that information on to the supplier, and the supplier might be XML-enabled or have EDI capabilities or PeopleSoft, or J.D. Edwards, or home-grown applications in the background. And that’s just kind of a three-way example. When you multiply that times the multi-enterprise environment, you end up with just a whole mess of different systems that need to communicate.”

Safe Business

On the issue of security between and through exchanges, Fontanella puts a lot of stock in the increased knowledge of users, particularly users operating in a system with safeguards and checkpoints built in, as most B2B applications are. He says, “Security will always be an issue, but I certainly don’t see it as the issue it was a year ago, even with a lot of the break-ins we’ve seen over the last year. Companies are very astute and sophisticated now when it comes to the strengths and weaknesses of the security tools out there.”

Electrons Without Frontiers

Fontanella downplays the importance of social barriers that exchanges wishing to cooperate might encounter. “People talk about Europe as being late adopters to e-commerce and B2B. By my estimates, they’re about six months behind as I speak, and six months from now, they’ll probably be even with us, or, in some cases, ahead of us. They missed all the hype that went on the first year or two of B2B.” Lucky them. Fontanella goes on to say that the challenges won’t be social as much as they will be business-related.

Of the European markets, he says, “They tend to be much more results-oriented. They tend to be very, very sensitive to business relationships. So exchanges coming in, trying to remake the market or how commerce is conducted in their particular business, just don’t have success.”

Addressing both European and Asian markets, Fontanella says, “Exchanges that can simplify or streamline the current business process are being adapted in Europe. And at the same time, in Asia, there’s a lot of opportunity and a lot of good things going on there. Not necessarily to open up new markets to Asian suppliers, but, again, streamline relationships and how they do transactions with their customers overseas.”

What’s the Future?

Overall, Fontanella is bullish on cooperation. He believes that the many-to-many model will become a reality. “As individual marketplaces extend out their services, they’re going to find that they either can’t or won’t provide the functionality or the content. So they’ll look to other marketplaces. That’s a trend that we’re seeing already. You’ll be dealing with a network of marketplaces supporting your business process and, unbeknownst to you, it will be arranged by the market maker.”

Keeley also sees this network approach coming to fruition. He says, “I believe that the umbrella concept for collaboration is that there will be a variety of best-of-breed service providers that are collaborating over a platform. I can see that happening down the road. So you’ve got a FreeMarkets, potentially, and you’ve got a catalog provider out there, maybe an insurer or payment provider, and then sort of a litany of other best-of-breed services that get integrated on a platform. A simple, order-fulfillment platform, if you will.”

The reason for this segmented yet unified approach can be boiled down to a single factor: capital costs. Whether it’s in the form of cash outlay or the intellectual capital of an IT department having to take these applications online, this kind of undertaking is expensive. Keeley says, “It’s incredibly difficult to build out an ERP system, let alone connecting multiple ERP systems within a single large Fortune 500 client, or multiple Fortune 500 clients and suppliers to boot. The complexity is factorial.”

That’s Not All, Folks

So cooperation has obstacles to overcome, but it will become more commonplace.

What then? What’s the next wave in marketplaces? Fontanella puts it this way: “When integration strategies get set up, when people become more used to the exchange model, it will extend well past collaborating on the management of transactions - the buying, selling and shipping. In the relatively near future, we’ll see more and more sharing of forecasts throughout an entire trading community. We’ll see collaborative tools being introduced for new product introductions. These are processes that, three years ago, sat within the enterprise; and now the Internet is giving companies the capability of moving very sophisticated processes out and sharing them with their trading community.”

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Tags: - applications, B2B, B2B, B2C, B2C, commerce-reserach, corpotaions, suppliuers

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