So today I’m speaking on a panel at the SharedServices Link e-invoicing Europe 2011 conference in London. The panel includes members from our main competitors in the invoicing space. The topic is something I am passionate about: interoperability between different networks.
I’m pretty sure this discussion will lead to a lot of lip service from everyone saying they all see interoperability as an important goal, a little bit like when politicians meet and declare they all want world peace.
The reality, interoperability; the ability for customers of the different networks to talk together, is dependent on the business case of these networks for engaging in collaboration with the other market players and when you start to analyze that, the picture quickly becomes a bit more suspect.
Traditionally most EDI or e-invoicing networks have had three main costs (plus a large range of smaller fees):
1. A transaction fee for the supplier who need to send an invoice
2. A conversion fee for each transaction if the network needs to convert from one invoicing format to another
3. And sometimes a transaction fee for the customer to receive the invoice (yes – double-dipping!)
This has led to an industry where there traditionally have been little interest in interoperability, the operators have instead been touting the message “just send us any format you have and we will take care of the rest” or even telling the customers that they have special needs which require them to have their own format. This is why we now have about 5000 EDI formats globally, with each new format meaning new revenue sources for the EDI networks. This resulted in little incentive to consolidate.
Then in the 90’s something happened, a new breed of networks arrived – like OB10 or Ariba, these are typically called “closed” networks, as they don’t really interoperate, but instead force the suppliers to join their network. Again the business case for this is good. Since customers often balk at paying for transactions to receive invoices, you really need the suppliers to make more revenue and these networks have. For example, OB10 charge 1€ for a small supplier to send an invoice on their network (list prices from their website), likewise Ariba charge a percentage of the invoice from suppliers to send an invoice to the customer!
This of course makes having suppliers in the network extremely lucrative and therefore there is very little incentive for these networks to interoperate with other players. Obviously doing so just means risking to loose suppliers to other networks and thereby their lucrative transaction fees. For these reasons I expect to hear that all operators claim that they want interoperability today, but I also expect them to do very little in that regard.
How do we change this?
Before we created Tradeshift, Mikkel, Gert and I worked for the European Commission to create an interoperability framework for invoicing in Europe. This project was just like another interoperability project 20 years earlier driven by government; the other project was GSM and is probably one of the most successful examples of politically driven standardization of an area, except for maybe the Internet. Just in the same way we believe that the PEPPOL project is a strong driver for interoperability in Europe, when governments (so far 14 countries are participating) and EU will start mandating this down the road.
But this is not enough. Politicians can only push for interoperability, if there is no action from the operators in the market, if there is nothing to win by pushing for interoperability from the political side the operators won’t move. That’s why we have created Tradeshift to be different and we started with the business model.
We don’t charge per transaction or conversion (we instead sell advanced services like real-time business intelligence and masterdata to our customers), we don’t have 5000 different formats, we just have one and it’s based on the open OASIS standard UBL. If you want to integrate with Tradeshift you can just go to http://tradeshift.com/integrate and we have four different ways to do this, using either our publically available API or one of the other integration options.
So next time you hear your e-invoicing vendor talk about interoperability, just ask him what their business case for interoperability is.
Tradeshifts is free.
