I spent New Year's Eve celebrating with family and friends this year. I'm on the road plenty, and thought I'd take the safe approach to holiday cheer. Being in one place gave me some time to think back over the year and consider some of the things I've encountered, people I've talked with, and business concerns that have come up. To say the least, it's been a busy year with plenty of rewards and an equal number of frustrations.
Just as I was hoping that we had collectively learned how to get along with each other a bit better, I got a call from some concerned folks at GXS about the most recent contentious issues cropping up in our little industry.
First, a little history lesson to set the stage. In the early 1980s it was common for different online systems with proprietary messaging systems to exchange information only between members of their own group. This was the case with email systems, where members of one ISP like CompuServe could not exchange email with other services like AOL. In the mid 80s this began to change as interconnect specifications were developed to standardize the message formats and connection protocols. Today it's hard to imagine not being able to exchange email with any other email user on the planet.
That protocol standard was also applied to the EDI industry, and the VANs generally subscribed to a common interchange protocol. This was a significant step in promoting the expansion of EDI. It allowed VAN customers to maintain a contract with a single VAN and connect to any number of trading partners through their single connection. This made the task of onboarding with multiple trading partners not only easier, but less expensive because it was only necessary to maintain a single contract with a single VAN.
As a supporter of eC-BP's tenets, this practice makes perfect sense to me. After all, EDI is all about the implementation and use of standards to transact business. Since those standards are in place and maintained in part by the VANs that move the data, it makes sense that moving data between the VANs is a trivial technical task. Granted, each VAN has its own methods and product offerings, but the good will and increased utility gained by providing a free and open data exchange helps to lower the costs and
Over the last few months I've heard from a variety of companies complaining about the tactics of both Linens n' Things and Toys R US with regard to how they are limiting connections with their trading partners. Both companies have decided that they will only accept connections through a single VAN, and that all their trading partners must forward their EDI traffic through that VAN. In fact, many companies practice this kind of rule, and it makes sense. Just think about how many cell phones you would have carry if the cell phone carriers didn't pass calls initiated on Cingular to the Sprint network. And that's exactly what the VAN interconnect provides... a direct passthrough from one carrier to another without the need for multiple contracts.
Unfortunately, both Linens n' Things and Toys R US have decided that there is additional revenue to be had by tightening the restrictions on interconnects. They have told their trading partners that they can still keep their existing EDI service, and that their transactions can still be forwarded to their Inovis connections... as long as they pay the "interconnect fee".
What's that about?
There's some commonality to the two companies, and it goes beyond their abbreviated middle names. Both Linens n' Things and Toys R US use Inovis as their VAN, and it's probably no coincidence that it's Inovis that is managing the interconnect and collecting the fees.
I can only speculate on the reasons for this change of policy, since Inovis has been a willing party to the no-charge VAN interconnect policy in the past, and still is with other hubs. Since there's additional revenue to Inovis coming from this policy change, the company must believe the increased income is worth the negative perception they are accruing. And since Linens n' Things and Toys R US are participating by informing their trading partners of this new policy, it's likely they are receiving some benefit.
Is Inovis' profit declining so much that the company needs to resort to extracting fees from its customers' trading partners? Are Linens n' Things and Toys R US receiving a portion of the fees either in cash or in reduced charges from Inovis? No one at any of those companies is telling me.
What to do
My contacts at GXS, who brought this to my attention are concerned that this practice may become a trend in the industry. A trend they are not happy to see, and do not support. Per GXS, "This is a horrible precedent to establish in the market. We have sent letters to Inovis making this clear, but Inovis asserts that this is the norm. It isn't the norm as far as we know it. This sets the industry back to the days when interconnects weren't around, and adds costs and administration to the trading partners."
Trading partners should put pressure on the hubs to abandon this practice, if indeed the direction is coming from the hubs. It is anti-growth, and this industry needs to encourage companies to come onboard, rather than put up obstacles to their adoption.
With that said, I hope everyone has started off 2006 with good news, more business, and fewer problems. See you on the road.