
In
1996, Sterling Commerce was charging $.35/KC (kilo-character) plus other
premium fees like interconnects. Their
annual report boasted a 25% profit margin.
Oh the good old days when the
best customers paid $30K for software, $10K to implement with the first
partner, and happily paid 18% maintenance each year and forget they ever had an
EDI system.
Then shortly after EDI met the Internet, AS2, and the next
generation of managed EDI integration Services in the cloud. It proliferated
EDI usage by driving down costs and delivered ROI end results in the EDI
investment. It took distributors,
retailers and big buyers from only trading EDI with the top 10% to trading EDI
with 80-90% of their trading partners for basic order to cash document
processes.
Today, we are in the third inning. VAN fees are in a range of $.03-$.0075/KC and
the only companies still buying EDI software are EDI supply chain business
service providers. Managed EDI service
providers have converted the entire old software user clients since they can
manage new trading partner implementation costs at approximately 10-20% of the
cost of an EDI software user bringing in a consultant to make that
connection. And the big buyer
distributor, retailers, who already have 80-90% of suppliers and vendors
implemented on EDI are now further leveraging these electronic information connections
with more data, visibility, and communication with inventory, product movement,
and logistic information. Which brings
to the title of this piece - the heritage VAN KC pricing model is obsolete.
The vast majority of cost associated with EDI is associated
to professional consultant setting-up, support, or troubleshooting an EDI
connection. These costs have been
reduced since manage service providers can re-sell the connection work done for
one client to hundreds or thousands of other subscriber connections. But the cost of basic simple VAN mailbox
network service of passing and storing raw data is based on server farms and
storage costs. Anyone familiar with the
income statements of EDI service providers will notice that the VAN
infrastructure server and communication costs make up approximately 10% of the
overall costs at most.
While EDI managed services have been growing naturally at a
rate of 15-20% a year for EDI service companies, the base VAN services revenue
is flat to shrinking. That is due to KC
costs falling every year since 1996 while volume has increased. Let's not forget AS2 direct EDI over the
Internet communication. However, this
type communication is not free. If one
would add in the support costs of AS2, with changing certificates and keeping
servers and back-up servers in an all-time up-time mode, it might be as much if
not more than current basic VAN costs. If costs of EDI and VAN services are not closely
correlated to the volume of data sent and end-users of EDI services want to
send more data but are not willing to pay per character fees for the data, why are VANs still charging by the KC?
It seems to me that the third inning of B2B eCommerce game could
be a big inning for the team who comes forward with a flat unlimited data plan
which promotes EDI users to share more data with more trading partners for inventory,
product movement and logistic status updates.
With more data comes more complexity in managing the data. This is the real opportunity. A flat-fee unlimited data network would get
the benefit of having the champion EDI users promote their network for
connectivity which translates to more customers/subscribers (although at a cost
$0 margin rate). Then the real
opportunity is opening up data management tools to the subscribers for premium
fees. Do these users have tools and
dashboards in their ERP to manage inventory, store level product movement and
logistic status updates? Are the
tools/dashboards any good? This might
launch the EDI VAN into demand planning and forecasting services.
Just in the last few months there have been advancements and
new VAN pricing strategies brought to the market. One such company is NewEDI.com . Quite simply, NewEDI.com is the Priceline of
the basic VAN service. You name your
price and NewEDI works to fulfill that deal.
An interesting approach considering all providers are considered equal
in quality and reliability but still a per KC model. Loren Data LD.com, has pioneered the
automation and integration of EDI service providers with basic VAN services. This approach take a costly step out of the
setup process - the human. And lastly,
we have the new contender, Infoborders, the EDI dashboard, visibility and
no-fee EDI testing platform is rumored to be working on a flat-fee unlimited
VAN offering for the market. Infoborders
plans to upsell reporting and visibility tools to clients.
Being around for inning one and two, I believe
the third inning will bring the crowd to its feet and a new front-runner to the
game.
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