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They are done ripping me off...No longer hostage of my Hosted Integration Service provider

Is your company using EDI style data exchange with your business partners for collaboration or are you experiencing slow adoption of electronic collaboration as a business user? Then this blog probably concerns you. Your Supply Chain Manager obtained agility, flexibility and reduced dependency from internal IT availability by working with hosted integration broker services and that unleashed the monster. Monsters are slow, cause problems....Is this still the right strategy for your supply chain?

The monster began life as a valuation paid during acquisitions of Hosted Integration Service Providers and you need to feed these monsters or they turn on their masters. Food is the size of the network, the service fees paid and customer lock-ins or as the 1% say "life-time tax". What once was the replacement of "build and maintain" model, now appears to be a software model in disguise with typical switching barriers for customers. Getting out of the contract and switching to another service provider proves to be a very costly exercise and this is exactly what the Monster tries to achieve. Do you hear from your partners that they are not on your exchange, it's too expensive to onboard, too many "you need to do this" comments?

Do you have exit strategies, have you made provisions in advance on IP ownership?

If you want more background on how this has come about, go here.

The Monster has issues...what does it means to your supply network?

Is your network of choice also the network of your partner? What you may experience is that supply network partners that have selected an alternative Integration Broker belonging to the clan of another "Titan" are sometimes reluctant to connect to your service provider. More and more you will realize you are not the only one paying money for the service, but the former prince on the white horse is acting as a war lord and collects toll fees from your business partners as well. Either in the form of roaming charges or in the form of outright commissions (Basware, Ariba e.g). What you pay is not the full ticket price. Why would you care if someone else is paying the bill? Realize that the business partner generally also works with some sort of Integration Broker on his end and is confronted with double cost. As a result the total cost for the supply chain and the cost benefit analysis will be impacted. Quite often this leads to business partners declining your invitation to connect supply chain processes electronically and prefer to continue to exchange paper, PDF and spreadsheets to avoid the fees you are not even aware of.

This is a very undesirable phenomenon from supply chain transparency perspective.

You get the idea and want to know what can be changed? Go here directly.

What liability you are accumulating?

Are you are paying for integration as a service ? As long as you keep sipping the Kool Aid of your service provider it may feel OK. What happens however if for any reason you want to change service provider? Have you thought through this likely scenario? If no strictly agreed IP and documentation requirements are in place with your service provider, he is not likely to help you as a leaving customer. Even if you have the documentation and the mapping sheets, business rules, master data conversions etc. you will still need to go through a re-implementation, because your service provider's platform is built on his proprietary software and the code is not portable to any other platform.

Hence the supply chain risk and the switching cost involved suddenly become an unanticipated issue:

  • If you don't have all documentation, reconnecting existing partners means risk
  • Processes working well today may be broken tomorrow while your partner doesn't understand: You are changing, he isn't: Why should he spend time and effort to re/implement?
  • You suddenly need an IT budget of probably 2-3 times your annual fees + internal IT team that isn't budgeted, because this is now budgeted as SaaS operational cost.

These are examples we encounter in our daily work with people's monsters.

To-succeed-you-must-share

Supply Chains are not monster free

Transparency is at the heart of the new paradigm for the Supply Chain.

There is a Proverb "People who are able to do something well can do that thing for a living, while people who are not able to do anything that well make a living by teaching" From George Bernard

Obviously we aren't analysts or journalists teaching you about a problem or a trend in the market. We are practitioners caught in the middle of the wrath of the titans and monsters. Together with some of our customers we have devised an alternative model; more transparent, easier to operate and serving the interest of our customers and not the interest of the platform itself, the monster might just be the 1%.

  1. If you pay it, you own it
  2. You know how you can get out before you get in
  3. Business continuity with your supply network ensured
  4. Interoperability in stead of platform size as decision criterion
  5. Prepare for disruptive change: Open integration Models

These are the guiding principles of a more open and fair approach to hosted integration services; preserving the benefits but curtailing the potentially abusive practices of service providers chasing dominance on information and connectivity. In this respect observations on how Facebook and Google operate in the consumer market are not that different from how business networks operate in the B2B market.

So simply, what did we come up with together with our customers as the new paradigm described from a solution perspective here.

Read more about how we applied the 5 principles here.

Are we living in the last years of Rome?

The signs are certainly there: Acquisition premiums of integration brokers by other networks are beyond reasonable economic return if somebody isn't going to pay for the party otherwise. Pushing the analogy we see customers in the role of citizens starting to become unhappy because the service providers they thought to be hiring in a democratic process start acting in their own self interest and preservation. Thirdly new technology and business models based on sharing and merit are becoming available that make Rome and its model less inevitable as its leaders and pageants currently perceive.

How is the monster you built across your supply network ?


The Monster's rise

In a not so distant past emerging providers of hosted integration services, also being referred to as B2B hubs or B2B networks emerged as an alternative to a software based approach of creating point to point connection from companies to their supply chain partners such as customers and suppliers. The benefit statement was clear: 

  • Connect once, reach all
  • No maintenance burden on internal IT organization on partner connection changes
  • Service based pricing model

Hosted B2B integration service providers were doing two things: Firstly, increasing the size of the market by offering a more efficient process at lower cost, thus increasing the number of B2B connections. Secondly, fighting the enemy: On premise EDI software packages and System Integrators making their living of establishing and maintaining these point to point networks. The interests of service providers, their customers and their supply network were aligned, hence the success of the model.

With the uptake of the B2B service providers the market forces started to change: Existing providers were acquired by IT megavendors to off-set loss of business in the traditional point to point market. Subsequently, vendor valuations based on the size of their networks and the recurring revenues generated sky-rocketed to near internet bubble years amounts. Even loss-making companies were acquired for multiples of their annual revenue.

Today the market is more mature: Consolidation is still taking place. Analysts like Gartner stopped following the original Magic Quadrant™ and now established a new Magic Quadrant for Integration Brokerage and this is now supposed to be a $ 1,5B market annually.

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The 5 principles of Open Sharing

1. If you pay it you own it

Definition of how you interact with your supply chain partners is your IP and not the IP of the business network: They make their money on your content. We provide the service to enable it. Therefore the solution is based on Open Standards (UBL 2.x) translation and Open Source software. With an OpenSoure based CPAL licensing model the customer owns what he pays for and the service is a true service, not a license in disguise.

2. You know how you can get out before you get in

We like our customers to stay with us for merit like our premium service, reliability of the data exchange and expertise in supply chain understanding. By relying on Open Source and Open Standards we provide a very transparent mechanism to get out. The content you own is simply portable; conceptually but also in practice.

3. Business continuity with your network ensured

We will never charge cost to business partners for either migration or operating fees. Therefore the fees our customers pay directly represent the true TCO. If you choose to make arrangements on distributing cost and benefits of the automated supply chain process with your partners, the, that is not our role but the role of contracting parties.

4. Interoperability in stead of platform size

Gartner rank B2B network size as the only "high" criterion in the evaluation process for Integration Brokerage. This favours a "size matters" approach which is convenient for both service providers and decision makers. We believe interoperability is in fact more important: Not one single network will ever cover all your supply network, so choosing one is a fallacy and you will either cut partners out or need to make extra investments in interoperability which is against the interest of the service provider. Hence low penetration rates in your supply network for full integration: typically 20% and defying the business case in the first place. Our game plan is an open model without roaming fees or 3rd party charges. There is no hurdle to adoption. True drivers for benefits from automated supply chain processes between customers, supply chain partners and our compensations are aligned: Pay as you save.

5. Prepare for disruptive change

Open Integration Models are emerging. We are not the only one recognizing the limitations of proprietary hubs. API's are a trend today as an alternative for connecting to external supply chain processes and platforms in an "inside out" approach using Enterprise Service Bus (ESB) technology or iPaaS solutions. If the prediction comes true that by 2016 API's will be used for 50% of the B2B transactions, this is disruptive to the business models and valutations of Integration Brokers. In an Open Source based model this makes no difference: The technology is agnostic to exchange the content via an API or via a message and the customer will just consume the service to connect to the API (which is then his IP and portable to any other platform like an internal application or EAI tool).

By integration of the IB functionality to our model using again OpenSource based Process Integration capability and portal technology we support a hybrid model where any process available electronically can also be executed via the web on the other side.

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