Ray Van Eng (07/22/96)
After almost twenty years in existence, Electronic Data Interchange (EDI)
is being given a new life because of the increasing popularity of the Internet,
though some may say that a death knell is coming for certain segment of
the market if they refuse to adapt to the changing times.
EDI 101 - some fundamentals. Basically, EDI involves two distinct processes. Translation and mapping software are required to transform business data from invoices, purchase orders, shipping documents etc. into a format that EDI uses (a standard known as the X.12). It was then that the EDI data can be transmitted to its destination via a proprietary Value-Added Networks (VAN).
Traditionally, VAN vendors have been practically giving away translation and other software in order to generate the bulk of their revenue and profit from providing transmission services. But nowadays, the popularity of the Internet is beginning to pose a serious challenge for the VAN vendors to stay in business.
Without a doubt, the biggest advantage that the Internet has over the expensive proprietary network is lower cost. However, quality of service and security on the Internet are nagging problems. For example, a small supplier may save a few hundred dollars a month by using the Internet for EDI transmission, but one incident of a lost message can cost tens of thousands dollars of business with a big customer.
For that reason, you can be sure that the VAN vendors will continue to emphasize the potential pitfalls of the Internet being used as a mission-critical business transaction system. Yet for those vendors who only sell software, the Internet is just another pipeline. If there is a demand for EDI transmission over the Internet, they will simply provide the software for it.
For now, VAN vendors are offering fat ongoing commissions on usage fees to entice resellers to resell the VAN's EDI services. For example, AT&T is adopting this idea to help market their EasyLink VAN services. It is a business model strikingly similar to the one made popular by the cellular phone service provider in reselling their services via their VAR network.
It is estimated that only about 80,000 companies are using EDI today, most of them are medium to large sized corporations, but there is a potential market of 1.5 million small businesses that can also take advantage of EDI in their operation. When taken these figures into account, the Internet may pose a threat to the proprietary EDI VAN vendors, it actually presents an opportunity for the EDI market as a whole.
To augment a basic EDI systems, some software vendors are implementing electronic payment schemes to further enhance value for EDI users. With the co-operation of a bank, a supplier engaging in a EDI transaction can receive payment via electronic fund transfers (EFT) directly from the financial institution.
For those vendors who supply both software and VAN services such as the Harbinger Group, the renewed interest in EDI brought about by the arrival of the Internet is a godsend. The company is exploiting the situation by not only providing software for EDI over the Internet traffic, but also offering value-added services such as transaction archival services. Harbinger will keep transaction records for a period of three years to help settle disputes among trading partners at some future dates.
The inevitable has to come. Eventually, the Internet would take away a big chunk of the VAN business if not totally displace the VAN as a medium of choice for EDI traffic. On the other hand, the Internet will also create a bigger EDI market and more business opportunities for the enterprising entrepreneur.
