It is back to basics for business-to-business automation as companies take a hard look at the real benefits -- and drawbacks -- of online exchanges

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THE BUSINESS-TO-BUSINESS automation story is no longer getting the rave reviews that were standard fare just one year ago. Professionals and analysts are realizing that, although the promise may still be there, the b-to-b tale is no different from the technology and business stories that preceded it. There are no out-of-the-box solutions, no instant panaceas to be found in the Internet, XML, or any other server products now available.


"The real problem with b-to-b is not so difficult to understand," says Albert Nekimken, an analyst at Input, a market research firm in Chantilly, Va. "After the VerticalNets and Commerce Ones jumped in to set up the infrastructure, many people thought that was it. So thousands of companies set up e-marketplaces and waited for businesses to come."

The problem, Nekimken says, is that this was only the beginning -- not the end -- of the b-to-b automation cycle. A tremendous amount of work remains to be done in the areas of enablement, integration, and adaptation of legacy applications.

"The vendor who is building or selling a b-to-b solution can be very persuasive in describing the benefits. But vendors only have to worry about what it takes to get there, since it isn't money out of their pockets," Nekimken adds.

None of this is news to Frank Campagnoni, CTO of General Electric's Global Exchange Services (GXS) division, which focuses on b-to-b exchanges for GE customers. Last spring, GE separated GXS from its General Electric Information Systems division for the express purpose of supercharging its next-generation b-to-b offerings.

"It is absolutely true that b-to-b is far more challenging than most people wanted to admit early last year," Campagnoni says. "But we always knew this. We still believe there is huge opportunity here, but there was a lot of vapor around b-to-b. Now it is subsiding."

According to Geoffrey Bock, an analyst at the Patricia Seybold Group, in Boston, this vapor has consisted of a general confusion surrounding b-to-b. "We are in a Gertrude Stein dilemma here: We don't know the answer because we don't know what the question is," he says.

Bock says the belief that b-to-b is merely about creating a more highly automated transaction system is all too common. "Just giving people a new way to buy and sell things doesn't necessarily add value," he explains. "If you don't clearly understand this, an exchange can just complicate things, because the value proposition remains unclear."

For this reason, Bock says that the only b-to-b exchanges which make sense are those that also simplify underlying business processes. The issue is not only about processing transactions more quickly, but also about re-engineering entire marketplaces for the online world.

A beverage b-to-b

One neutral b-to-b marketplace trying to re-engineer itself is BevAccess in New York. Founded in 1998, the company sells b-to-b services to the alcoholic beverage industry, including suppliers, manufacturers, wholesalers, distributors, and retailers. At the same time, the company must also deal with the fact that this industry is one of the last bastions of regulation, "the legacy of Prohibition," says Mark Sanders, president and COO of BevAccess.

That legacy also creates an opportunity, says Seybold Group's Bock. He notes that "if [BevAccess] can take some of the pain out of navigating the Byzantine maze of regulations this industry faces, there may be a compelling value proposition there."

Sanders of BevAccess says the company's common procurement process accomplishes this by allowing a small retailer or independent restaurant owner to log on to the BevAccess site and order products. BevAccess then routes the order to the appropriate wholesalers and distributors "in a manner that complies with all the regulations governing the distribution of alcoholic beverages."

Larger retailers can tie the software into their POS (point of sale) system so that when stock of a particular item reaches a particular level, BevAccess will generate a suggested reorder that can be routed to the right distributor.

All this assumes a certain degree of participation from retailers and distributors. For example, Glazer's Wholesale Distributors, a large alcoholic beverage distributor in Dallas, signed up with BevAccess to allow retail customers to order via the Web, and BevAccess provides the portal to make it happen, says Cary Rossel, vice president and CFO of Glazer's.

"We are live right now with a handful of retailers in Texas," he adds. "We see this as an investment in the future."

Waiting for the future

Although a small, one-store retail outlet can sign up with BevAccess and use the service in a way similar to how a consumer would use an ISP, things aren't so easy for larger enterprises. The issue here lies in the fundamental difference between human-to-machine interaction and machine-to-machine interaction.

"The human-to-machine interaction paradigm works well in the b-to-c [business-to-consumer] space," GE's Campagnoni says. "The payoff of a human sitting in front of a browser, however, is very limited for b-to-b applications."

This is why BevAccess helps its larger retail customers install and integrate software that talks both to the retailer's POS system and BevAccess' servers, which Sanders says can take as little as three days. For big customers, such as restaurant chains Bennigans or TGI Fridays, the process will probably take longer because they are custom jobs requiring integration with corporate software at company headquarters, adds Sanders.

One of the critical components of b-to-b integration is deciding which data format to use between systems. Choices range from ASCII files, which Sanders calls the "lowest common denominator," to high-level formats such as EDI (electronic data interchange) or XML. EDI remains one of the most popular formats, despite XML's anointed status as a worthy successor (see related article, above). For example, Sanders says his retail package customers tend to prefer EDI; BevAccess plugs into GE's substantial existing EDI infrastructure to process all of its EDI transactions.

But XML hasn't fallen out of favor: Both Sanders and Campagnoni still believe that because of its flexibility, XML will become the first choice for formatting e-commerce data. GE, for example, made a substantial commitment to b-to-b systems built around XML and the Internet when it created the GXS division last year to fully exploit Internet technologies such as XML to support GE's b-to-b networks. But Campagnoni says that progress is slow because "XML is creeping in, but it remains largely invisible."

This invisibility is due to the widespread deployment of older EDI systems and the fact that XML is not necessarily easier to implement.

"If you want to exchange XML documents with another company, you have to both agree, not just on XML, but also on a particular flavor of XML," Campagnoni says. "We still don't have the universal standards for XML that make this easy to support."

GXS has partnered with Edifecs, a b-to-b software vendor in Bellevue, Wash., to deal with these problems. GXS will use Edifecs' CommerceDesk platform to accelerate the process of linking two or more trading partners together. The trading partners may use different versions of XML and/or EDI, but CommerceDesk will translate between languages to speed up transactions.

Too good to be true?

It was both unrealistic and all too human to believe that the Internet, combined with XML, would quickly democratize b-to-b marketplaces, making it possible for any business with a browser to participate. Even the optimists have a word of caution when it comes to b-to-b automation: If there is not a definite, demonstrable ROI, cost and integration issues won't really matter.

GE's GXS division is addressing this with a recent offering called Express Marketplace. "We give smaller customers a low cost of entry [to exchanges]," says Campagnoni, noting that Express Marketplace would make it easier for small to midsize businesses to participate in b-to-b marketplaces with entry-level prices of about $10,000 a year and GXS handling integration and data format translation issues.

"These Internet-based b-to-b marketplaces are not plug-and-play," says Kimberly Knickle, an analyst at AMR Research, in Boston; however, Knickle believes that new b-to-b technologies will eventually turn e-marketplaces into more egalitarian forums. And she sees promise in several new hosted marketplace services.

"Companies like Red Knife, in Pleasanton, Calif., and Viquity, in Sunnyvale, Calif., operate as ASPs [application service providers]. They can take care of integration issues for you, things like translating EDI into XML. They also try to keep costs low," Knickle says. "I still think it's true that markets built around XML and the Internet will make it easier for trading partners to participate than the old EDI and VAN [value-added network] systems."