It Takes Two to Tango

When they first emerged a couple years back, B2B exchanges were supposed to streamline everything from procurement to planning, providing new opportunities for businesses to forge partnerships, tap new markets, and save money.

Since then, roughly 90% of all trading exchanges have vanished, an attrition rate that is normal for any new business or product sector. But the B2B implosion taught a few other lessons as well, such as:
* It wasn’t going to change existing 20-year old trends of organizations consolidating–not expanding–their trading relationships to a few trusted partners.
* It wasn’t changing the brute economics of procurement. Promises of savings by eliminating the middleman sounded all too much like “I can get it for you wholesale.”
* Post 9/11, the idea of using trading exchanges to open up business processes struck the wrong chord.

But the death of B2B marketplaces is exaggerated. Instead, the ones making the cut are reinventing old private EDI (Electronic Data Interchange) trading hubs, where a single behemoth–say GM or Sears–creates a trading ring for its own suppliers. This time, substitute “Extranet” for “EDI Value-Added [read: Private] Network.”

The advantage on this go-round is that the technology (based on XML web services) is far more flexible and less expensive. But web services technologies are works in progress. Today’s standards–such as SOAP (Simple Object Access Protocol) messaging, WSDL (Web Services Definition Language), and UDDI (Universal Description, Discovery, and Integration) registries–are just the beginning. We still need standards for all those services that normal transaction systems provide to make trading safe, like security, authentication, prioritization, acknowledgement, and rollback.

Regardless of whether the economy recovers or sputters, B2B marketplaces will play incremental roles, making it a bit easier for smaller trading partners to link electronically with their big brothers, while providing the starting point for some industry sectors such as automotives to increase collaborative product development or similar processes.

The Internet didn’t change everything, and going forward, neither will be B2B. It will simply allow enterprises to consummate partnerships that would have happened anyway.

Show Me the Money

An old proverb of the technology industry is that, the nice thing about standards is that there are so many of them to choose from. To be fair, occasionally, technology vendors take the high road and agree to universal standards, with the Internet, and more recently, XML web services, being the best-known examples. Whether technology actually gets standardized boils down to one question: can you make money selling your own proprietary versions? For HTTP, HTML, and newer XML technologies, the answers are clearly no.

But the current debate over digital IDs is another story. Providing a standard framework for storing personal identifiers and preferences, digital ID systems let you shop anywhere online without having to constantly re-key your login names or passwords. Better yet, compared to cookies, you don’t have to be a programmer to edit your preferences.

Conceivably, if just one vendor had a lock on the technology, it could tax every online transaction. That’s put green in the eyes of companies concerned about Microsoft’s Passport digital ID system, which reportedly claims some 200 million account holders. And that’s why prospects for standards are cloudy.

But this isn’t just any ABM (Anyone But Microsoft) tale, because it includes more than just Sun, Oracle and their friends. The Liberty Alliance, Sun’s answer to Passport, aims to develop its own digital ID interoperability standards, and has already attracted the likes of AOL, American Airlines and American Express (and those are just the A’s). They’ve even “invited” Microsoft to join.

Will Liberty fare any better than, say, Java, UNIX, or the Mac, which Microsoft largely deflected away from its desktop empire? The key is that financial services, not technology players, control the dollars of online commerce. Outside the computer industry, major players may play with Microsoft, but on their own terms. That’s exactly what happened in the cable industry, where AT&T, the largest provider, bought Microsoft set-top box technology, but not exclusively.

Sun claims to be negotiating with other major credit card providers, but our guess is that at least one or two major issuers will endorse Passport to keep Sun and Liberty honest. History will likely repeat itself in emerging fields like automotive telematics where Microsoft and various flavors of Java are competing. With the feds folding their cards in the Microsoft anti-trust case, players outside the computer industry will end up enforcing their own frontier justice.