Are e-marketplaces dead? Some major European appliance manufacturers and their customers don't think so.
[From iSource Business, August/September 2003] A few years ago, with the Internet boom in full swing, Europe's major appliance manufacturers were happily pursuing their separate initiatives to use e-business technologies to electronically connect with their retailer and distributor customers. Like their counterparts in the United States and elsewhere, these companies were counting on the Internet and other new technologies to help them automate processes within and beyond their four walls as a way of improving customer service while reducing costs.
Five of those manufacturers — including Germany's BSH Bosch und Siemens Hausger`te GmbH (BSH), Electrolux Home Product Europe, the European division of Benton Harbor, Mich.-based Whirlpool, Italy's Merloni Elettrodomestici and Holland's Philips Consumer Electronics — together represent more than $65 billion in worldwide sales and employ almost 370,000 people around the globe.
But despite their own enormity, in the highly fragmented, $33 billion European market for white goods — home appliances of all sorts — these five manufacturers had to deal with literally tens of thousands of smaller chains and individual retailers. "In Europe, we have 100,000 retailers, and even the top 20 retailers represent less than 40 percent of the market," explains Gustavo Minacci, director of e-business for Whirlpool Europe.
This fragmentation presented a major challenge for each of the manufacturers as they set about their sell-side e-business initiatives: how to link with their thousands of retail customers in a way that would be affordable not only for themselves but also for the retailers, many of which were mom-and-pop operations with just a few outlets.
Meanwhile, as each of the manufacturers pondered their shared conundrum, and as some of them moved to establish Web portals for doing business with their customers, the retailers had their own challenge to consider, namely the prospect that each manufacturer would pursue its own e-business solution, forcing the stores and chains to use five different systems, adopt five different standards, and spend their days punching in passwords and bouncing between five different Web portals to determine product availability, verify prices, place orders and check delivery statuses.
In short order, the retailers' concerns began to filter back up the supply chain to the manufacturers, according to Frederic Marie, e-business director for Electrolux Home Products Europe. "We listened to our customers and decided that we should sit around the table to see what we could do together to satisfy their needs."
Motivated to Get It Done
Thus was born the idea for Tradeplace, a joint service venture formed in 2001 initially by three of the manufacturers — BSH, Electrolux Home Product and Whirlpool Europe — and later joined by Merloni (in May 2002) and Philips (last September). The aim of the initiative was to create an umbrella for the companies' existing portals that, at first, would provide retailers with a single point of entry, accessed through a Web browser, to the manufacturers' systems. The retailers could then search for product information and availability and place orders with any of the manufacturers without having to log into different systems.
The vision then called for moving the retailers to system-to-system integration through the Tradeplace Message Hub to communicate electronically with the manufacturers. In this second phase, the hub would receive messages and requests from one partner, reformat and translate the data as necessary, depending on the intended destination, and then send the data to the appropriate addressee. Theoretically, the hub would be able to handle data formats ranging from traditional electronic data interchange (EDI) to the latest XML, or even data from Web forms for retailers with just a PC and Internet access.
The attraction of this ultimate vision was that all the participants would be able to use their existing information technology infrastructure to communicate with the hub, eliminating the need for investments in costly point-to-point integration with multiple partners while providing convenient access for the retailers to all the manufacturers through one portal.
Great concept, but various cultural and technical obstacles had already torpedoed efforts to build such hubs under the banner of e-marketplaces in the late 1990s and 2000. First, what would motivate numerous competitors to sit down at the table together and, ultimately, participate in a venture that would have their confidential data flying back and forth through a shared hub?
Marie offers a simple answer to that question: "Pressure from the customer was the main driver. Our CEOs quickly realized that we could continue fragmented and without any consensus, but at the end of the day we would reach a deadlock one way or another in terms of our customers."
But Marie goes on to note that once the manufacturers' chief executives had accepted the shared hub concept, the process of driving the initiative forward was facilitated by the appointment of a management team for the project that included technical leadership from each of the participating companies, including Marie and Minacci, as well as Michael Steinborn, head of e-commerce management for BSH; and, eventually, Mauro Viacava, chief information officer for Merloni; and Karel Van Der Horst, head of e-commerce at Philips.
On the technical side, the challenge was to establish a platform that could play nice with the various front- and back-end systems in use at the manufacturers and their distributor and retailer customers, while also providing for real-time messaging. Another requirement: the ability to guarantee that the information passed through the hub would be secure, in part to satisfy any participant concerns over confidentiality but also to comply with European Union antitrust regulations. And the founding manufacturers set the goal of finding a cost-effective technology solution they could get up and running quickly.
Criteria for a Provider
Adding up all these requirements, the Tradeplace management team elected to seek an independent solution provider experienced in real-time XML integration for connecting heterogeneous systems.
In addition, Tradeplace sought a provider that could offer an application service provider (ASP) model, which would eliminate the need for the manufacturers — as well as their customers — to make major investments in IT infrastructure and reduce the necessary initial funding for the project. An ASP model also would offer the opportunity, Tradeplace believed, to get their model up and running quickly, since it would presumably leverage existing infrastructure in place at the solution provider.
After scouting out potential technology providers, the Tradeplace team tapped Hubspan, a Seattle-based company founded in June 2000 with expertise in outside-the-firewall integration, to connect multiple trading partners through a single point of integration. Marie said the CEOs of Tradeplace's manufacturer members initially expressed a certain degree of skepticism about using a non-European provider due to response time and data traffic issues, "but we were able to demonstrate that Hubspan was the right partner, with the most experience in the market and with the best quality-price ratio."
Hubspan worked with the Europeans to set up the Tradeplace Message Hub (TMH) as the joint services platform for the exchange of both real-time (synchronous) and store-and-forward (asynchronous) business processes between Tradeplace members and their customers.
The provider brought its machine-to-machine and portal-based integration tools to the table, along with its network services and transaction processing infrastructure. In addition, at the outset of the project Hubspan participated with the manufacturers in a weeklong forum in Milan that brought together the IT thought-leaders from each company to work out a common XML-based language that would be unique to the hub.
The result, called TradeXML, is a stripped-down, verticalized version of the XML language to meet the specific needs of the appliances industry (including, for example, a common set of design specs for a "washing machine") and to correspond to the types of real-time transactions that Tradeplace was created to support (such as price checking and inventory availability).
Behind the Scenes
Tradeplace officially launched in December 2001, but even before the hub's debut the manufacturers were working to bring their trading partners onboard with the initiative. Part of this evangelization process involved explaining the need for, and benefits of, the hub as a single point of entry to all the manufacturers.
Perhaps even more important to the midsize and smaller retailers was the low cost of entry and the brief implementation times necessary to begin using the system. In fact, the cost to the retailers and distributors was (and still is) nil, and using the Web portal to access the manufacturer's system to check availability or place orders required only registration on the Tradeplace Web site to get started.
Marie acknowledges that some customers were leery of the time and resources that would be necessary to move to system-to-system integration. "But they started to realize that we are talking about something that is really a very short time. The integration can be done, basically, in a month, with a minimum number of resources."
In addition, Tradeplace has helped its retailers along by providing an onramp kit, a lightweight set of sample code that partners can download to help them get through the necessary integration steps. Trisha Gross, vice president of marketing and client relations at Hubspan, explains that the kit helps the partners with enveloping and communications, the hardest part of getting integrated.
The Long Road
Since its launch in seven European countries in 2001, more than 11,000 users have registered with Tradeplace to use the browser-based solution, and the hub, which is available in multiple languages and has expanded to encompass retailers in 15 countries. At present, 55 trading partners have established or are in discussions to establish system-to-system connections with the hub via XML, Tradeplace's second phase. Other examples of transaction types that will be released within the year for this phase are delivery notes, an electronic billing process and sell-out data, which alerts the manufacturers when a product is purchased so they can better forecast production.
Additionally, Marie said the fourth phase is scheduled to roll out in Belgium by the end of July or September, and it will consist of a common portal platform that includes a library of diagrams and listings of spare parts.
Marie and Minacci did not discuss how much Tradeplace's founders had invested in creating the hub, although they emphasized the manufacturers' strategy of going with an ASP was to keep initial investments to a minimum. The bottom line, they said, was that the return on investment was sufficiently self-evident — in terms of sharing the cost of the integration platform, improving efficiencies in distribution and enhancing customer service — that the manufacturers' top executives agreed to fund the project. And because the initial investment in the hub was relatively low for each participant, Tradeplace has been able to focus on steady, gradual growth in its user base rather than feeling pressure to push for the kind of explosive increases in participants that seemed to doom so many of yesteryear's over-marketed, under-utilized e-marketplaces.
As far as lessons that other companies might take from the Tradeplace project, Hubspan's Gross says the Europeans' experience demonstrates a fundamental truth of which many companies often seem to lose sight: If you're going to implement a new technology that affects your trading partners, make sure from the get-go that your partners can handle that technology, too. "Ease of adoption, not only for yourself, but for your partner community, is critical," she advises. For example, the TradeXML language that Hubspan developed for the Tradeplace implementation lowered the barrier to integration with the hub by taking a minimalist approach, reducing the complexity "to the lowest common denominator of technology," as Gross puts it.
According to Marie and Minacci, the manufacturers are continuing their efforts to bring additional trading partners onboard with Tradeplace, both the Web-based side and the system-to-system side. "Ultimately, the goal, which is really a dream, is to be able to handle most of our transactions — or all of our transactions with most of our customers — this way," says Marie, while adding that particular channels or specific processes, in the end, may remain outside the scope of Tradeplace for some time, if not forever. In any case, he says the manufacturers understand that the move toward integration will be evolutionary rather than revolutionary. "There is a long road here," he says. "We can say we are really live now, and we are starting to be appreciated by our customers — they see the real benefit. But before we get everybody [onboard], it's going to take a while."