A day is day in the life of a connected market, but what of tomorrow?

Offering a powerful EDI Network API and Operating a VAN specialized for Service Providers frightened a laggard giant witless, and that’s  how the Loren Data Corp v. GXS Inc. antitrust case ultimately came into being

EDI Industry!!! He sued for YOUR freedom to compete…….

Owning a leadership position is a serious responsibility.  For Loren Data Corp, ECGridOS and ECGrid made a torpid giant angry. We can say it was foreseeable. Capturing success in the competitive EDI sector is what it’s all about. It’s about Knowledge.

GXS has no inherent knowledge, no founder’s sweat equity – the corporate body is only an agglomeration of their acquisitions, the 3 major VANs purchased, and a dozen or so e-commerce software entities. What we know of a GXS today is an investment puzzle, which built on the cooperative interconnects of the VANs they bought. Their top management is about as removed from the ‘art of EDI and Communications’, as the Auntie you shall visit this holiday season. Don’t believe me? Check out http://Glassdoor.com, and you will see reviews of GXS by dozens of well placed employees that bear out the rot I am referring to.

For the many skilled integration teams folded or hired later by GXS,  I am not besmirching your professional skills; I am conducting, via a series of expository posts, a top down analysis of why GXS is acting so contrary to such proven, honorable conduct that has built connected marketplaces  - and indeed built the interconnected VAN industry.

In denying to Loren Data Corp  peer message traffic exchange terms (non-settlement) that GXS grants reciprocally with all other VANs at scale, , translates as, “we have no vision, we are bereft of innovation, and all we truly own is a choke point, the amalgam of interconnects we consolidated from our acquisitions…..in other words, our pathway to TGMS is our only asset”

Therefore all take note of a truly Investment Grade company at the peak of vision and productivity. It’s not GXS, silly – it is Loren Data Corp.

It’s Loren Data Corp!  Bootstrapped by one owner, a peerless working portfolio of technology ,  and a decade plus of continuous operations at net profit, zero corporate debt, zero dilution. Curious then that a respected fund, Francisco Partners, invested in a shell-like GXS…..a company that committed preemptive antitrust violations reminiscent of an AT&T  of the ’60′s and ’70s.  That era of Institutionalized Antitrust (planned Antitrust, business as usual antitrust) was shameless.  AT&T’s routine of bulldozer acquisitions were always accompanied by an implied threat of (voice) traffic blockage (local and toll termination monkey business).

However, it was an AT&T Executive (Kingsbury) that facilitated AT&T’s era of reform. I still hold out hope that one honest man, a partner at Francisco, will ask GXS why are they doing this? Because, in the final moral analysis, cooperative interconnection built the EDI Comms industry and sustained it. Finally, there is a very strong business case for GXS cooperating with Loren Data Corp. I will cover that case in my next posting.

GXS can adhere to fair interconnections practices, avoid antitrust violations, potentially avoid FCC’s Common Carrier Bureau, and avoid becoming subject to regulations and tariffs.  All of the foregoing is  both quantifiable risk balanced against questionable and illegal practices, and at the very least, Tortuous Interference.

The Sherman Act, Section One, Per se violations*, as wrought by GXS against the industry’s thought leader, Loren Data Corp  the sole API Utility Scale provider? Such actions do not waft the odor of  Stewardship among the company’s peers. Several GXS Customers in their top-tier are very, very unhappy, and many more are disgustingly dissatisfied.

Refusing to exchange message traffic that contains UCC instruments (electronic purchase orders and invoices) between mutually contracted parties  (one on ECGrid VAN, the other on GXS TGMS VAN),  shows a weakness and an implied admission that GXS’ nonplussed clients understand all too well. They would, as a group, move en mass to a faster, leaner ECGrid VAN. The only thing stopping the mass migration of TGMS subscribers to ECGrid are operational issues. Loren Data, through expert network engineering and top-notch management, has never dropped a message in the entire history of this debacle - although the company has borne increased costs to steer traffic to TGMS, cost the other at scale peers are not burdened with.

Where is antitrust crusader Joe Wayland (DOJ’s newly appointed Antitrust Chief)? I would assume he is cleaning up several messes that were a direct result of several HSR (Hart, Scott, Rodino) reviews  jammed through the agency vetting process sans due diligence; otherwise, how could this happen? 

Blame the FCC for allowing an AT&T style monopoly to grow past the boundaries and benchmarks of a Common Carrier and sprout as an Essential Hybrid Message Switching Facility right under the agency’s nose  - I will stop short here.

Who cares if the PE Funded EDI Behemoth, universally reviled, squashes a singular innovator? Todd Gould, the industry’s lone advocate of Interconnection Equality has written that connected markets are always more economical for the end users, because interconnects support addressable endpoints  at the lowest costs.

Now does everyone see why this is called antitrust?  GXS burdened Loren Data Corp over their fear of access to EDI comms being universally democratized; Loren Data’s ECGrid VAN and API solve this singularly sticky wicket.  And, as all VANs in the past agreed to exchange  message traffic with their competitors over the last two decades, for the sole purpose of expanding the market. It was the one thing the VANs collectively got right. Since then, not one new VAN has entered the market, and the end users are investigating all sorts of VAN alternatives, even as the largest addressable population of trading partners is still VAN resident. Reform is but a policy decision away….but I digress.

There are no new VAN!!!!  Not for 10 years. The one VAN that opened access to new business (service Providers) is being knotted up  by GXS.,,,,,get it? Judges, Clerks, get it? Industry ? Get it?

Is it Bedtime for VANs, or is evolution possible? Check your innovation-compass, we are going on an expedition.

Upload, Download, Upload, Download, to check status of delivery go to your admin web page…..Upload, Download, call Netops support…..Ugh!!!! Horrible….bloody horrible…..

Renew VAN contract – 2 to 3 years term? What? How much? KC’s? Minimums per month? Ugh….

Request an interconnect to a TP on another VAN……How much ? Ugh……Unfair (so true).

New unexpected fees and the worst customer service experience ever. Where did these fees come from? You don’t like it? Tough. Threaten moving to a competing VAN or service provider you’ll be slapped with a monetary penalty. The unspoken, very ominous threat is that if you move, your EDI traffic will be routed into a black hole. Such punitive actions, even when threatened but not actualized, would result in criminal racketeering changes against any regulated telecommunications company. Take that to the bank.

But this is the obscure world of EDI Networks, a market dominated by a reconstituted monopoly styled after an AT&T of the 1960′s. The VAN in question did not gain market share via innovation (As Ma Bell did), but via PE that enabled the acquisition of four of the largest VANs predating the fabled consolidation….so you get the picture.

Now to reality -

When Todd Gould, President and CTO of Loren Data, created the ECGridOS Communications and Trading Partner Management API, he weighed the variables of investing the company’s resources and his time in bringing a disruptive service to a market that is infamous for moving slowly into new technologies. Todd placed a big bet that is just starting to pay off – but the potential is starting to manifest.

A) What kind of market reception should such a powerful API expect? Loren Data is handing developers the keys to ECGrid, the company’s Crown Jewel VAN; would developers care? Would they be enthusiastic? Is there enough expertise in the market to make hay with a 150 Function API, nearly a DSL (Domain Specific Meta Application Language), and create a community of developers, Applications? Or, would it just be an anomaly?  A Curiosity?  One for the books, but not a commercial success? ECGridOS is nearing 120 Million functions called – not a big number in the WEb 2.0 space, but there is not much to compare in the EDI Communications arena (No other VAN that manages its own routing table offers an API).

B) Is there enough cohesion within the present mesh of addressable TP end points (in the VAN market)? Current buzz concerns leaving VANs and buying into AS2 in-house installation. This ignores the  one and only saving grace of VANs: easy address-ability and the ease of routing a message to 400,000 trading partners around the globe. These are thinly provisioned services (as I shall expand on further), and ignoring for a moment the multifarious downsides of today’s VANs, the upsides have sustained the overall sector for almost 30 years. That’s right, the first VANs were born in the ’70′s.

However, certain VANs have stopped caring for their  clients. That’s another article entirely, but just look at the many EDI discussion boards, groups, and mailing lists documenting such weeping and gnashing of teeth. Something is very, very, wrong. There most surely are ways to deliver more value and satisfaction that will ultimately retain customers, just as providing great support factors into customer satisfaction… but that is not happening. What the entire VAN sector needs to do is a complete, top to bottom re-evaluation, and get on track to delighting customers, not merely satisfying them.

But this sad state of affairs could be turned around in a thrice. Let me tell you, that I am before all else an observer of this market. I KNOW that most mid-sized hubs and trading partners do not want to operate in-house As2 systems. They either find that out the hard way, and discover that managed As2 services are just as cumbersome as the AS2 in-house kluges. It’s a terrible way to gain a life-lesson.

It’s a hellish nightmare, what the industry is proposing as  VAN alternatives: As2, with huge license fees, creeping hardware requirements, annual $support$ for in-house crews, and the final blow, having to provide AS2 comms support for trading partners (they never asked for or required this much hand-holding with VAN mailboxes).

This myth is eating some companies alive. They say, to me, “Why oh why can’t the VANs just get their act together?”. Indeed.  Here is a little end of year story for my colleagues:

A professional without much capital, but lots of programming experience, went out to do it right: The newly formed team were experts in B2B & EDI, and they set out to get the communications setup so they could serve multiple clients. The new business would offer all of the modern data layer services, mapping, translation, and even more advanced multi-instance ESB’s that allow direct SQL attachment to their shiny new Cloud Services. They decided against offering only an “AS2 Palace” – because many of their potential customers had trading partners on VANs, and they were in no position to dictate that all of the TP’s (of every new client) use As2 and leave their VANs behind. For many good reasons, they needed both VAN interconnects and As2   – - –  oh! What to do?

They needed a holy grail. But, how does one define the “holy grail” of EDI messaging and transactional coms services?  What is the penultimate shape of a perfectly powerful, scalable, lean, agile, flexible, efficient, and cost-effective (cheaper than what is currently available) ?

All you experts on the Linked-in EDI Forums and the Yahoo EDI Mailing list…..not one existing system or a do it yourself AS2 comms package can be described by any of these adjectives:

powerful,

scalable,

lean,

agile,

flexible,

efficient,

cost-effective (Cheaper than today’s alternatives, at least)

Well, I’m waiting. Oh, please, don’t tell me you run a 3,000 user As2 system with 30,000 MDN’s a hour….that’s you…..not everyone…and you cost 100K /yearly, and took years to climb the learning curve.

We expect built-in services (as OS services, callable from any environment or scripted via  server-side languages,), for communications and messaging – email, http raw, some OS’ have fancy message queuing services in the base trunk.

For developers with ambitions beyond a typical supply chain end-user, EDI communications and associated partner-network management functions (mail-boxes, ID assignment, directories, messaging functions, reporting, tracking) call for really clever and lightweight provisioning. While the ultimate services being delivered can be indeed massive, the programmer absolutely requires these attributes:

powerful,

scalable,

lean,

agile,

flexible,

efficient,

cost-effective (Cheaper than today’s alternatives, at least)

Call a function and get your thing DONE ! – This comprises the ideal form of pure computing. Pure? That’s what IBM is betting on. Without infrastructure or very much knowledge of what has to happen behind the scenes, any service can be spun up and called from any development environment everything from SAP and Oracle implementations to WordPress and Visual Basic.

We should not even think about needing physical computing resources, but all of these lightweight provisioning services for modern-day EDI are now, yes now, able to make use of any resource with minimum costs, and , one need not posses a PhD to participate.

Recalling the story of the EDI professionals from earlier: They could not get a VAN to give them a native, reciprocal interconnect –  they were instantly considered upstart competitors by the B2B establishment. They could hardly find a VAN to sell them a mailbox…which is a poor substitute (actually a nonstarter) for a B2B Super Platform What to do?

Answer: First off, This B2B Startup business is very real, real company with real people who put skin in the game, and left their comfortable jobs to set the SME B2B SAAS world on fire.. Next, this is the story of more than one company, who are now ECGridOS developers , because they  tried everything else,  and found that was not one other EDI network messaging and subscriber management platform….none. They all discovered the value and meaning of Todd’ Gould’s (and IBM’s) enlightened concept of “call a service and handle your business”, otherwise known as “pure Computing”.  An increasing number of companies and B2B startups are doing exactly this….with ECGridOS.

Some are well-known marques in the Integration and Services sector . These companies all are turned to Loren Data Corp ECGrid, and ECGridOS….

The decision makers at these “vanguard” companies made their biggest bet on Todd Gould, the Founder of Loren Data Corp who built ECGrid, ECGridOS. and Unified As2; they concluded that Todd is, as I state,  probably the leading communications architect in the EDI sector – and that is why GXS is gunning for him.

They bet on the thought leader, and on the future of EDI services being lightweight and inspired. By signing on in the midst of the battle, they have explicitly or implicitly stated their intent to be allies – and a word is sufficient for the initiated.

Open Letter to our Regulators and the EDI Communications Industry

Dear Colleagues:

Periodically, I asses the sum total industry impact of the Loren Data Corp vs. GXS Antitrust action, and what (if any) action has fermented at various agencies – FCC, DOJ, etc., in short, is this case having an impact on our regulatory apparatus?

Is this case having any impact or influence on the behavior of the protagonists?

For a good long time, many of my Government relations had never heard of “EDI Message Routing Services”, or, Value Added Networks; yet the EDI Sector is older than the Internet (EDI is properly an application layer messaging service, using IP transport), and EDI messaging infrastructure used the PSTN. Even though EDI is obscure to regulators and lawmakers, it is a most vital networked market to our retail and manufacturing supply chains, global trade, logistics, and is required by small and medium businesses seeking to sell into these supply chains.

I have alerted our Nation’s regulators on numerous occasions, via briefings and emails, alerting them to the fact that this vital networked market is being consolidated to resemble a reconstituted AT&T of the 1960s.

“By who”, you say? By GXS Inc, backed by the Private Equity of Francisco Partners of the Bay Area.

“Why are they doing this dastardly deed?”  Well, there is much at stake; electronic invoices,  purchase orders, and numerous ‘transaction sets’, (as standardized by ANSI X12, UN EDIFACT, and others) are transmitted via EDI VANs. Two of these VANs are TGMS (operated by GXS) and ECGrid (Operated by Loren Data Corp). VANs provide EDI communications (Document Interchanges) between businesses,  and are critical systems in a chain of powerful services that make B2B markets….work. In addition to communications, VANs enjoy a legacy business selling software and services, such as retail and manufacturing software (accounting,  ERP) and also provide professional services, such as system integration consulting. However, our present case concerns the Loren Data Corp v. GXS Antitrust lawsuit.

As we shall see, EDI Communications are bound to the sale of software and professional services. It’s a lucrative business sector, and gaining control over the “comms channel” is but one step in hammering out an unassailable niche, without having to innovate a thing. Think of Interconnection denial as a lever to threaten clients and competitors.

For a good long time, all of the VANs cooperatively “interconnected” with each other, so that parties subscribed on a different VAN could reach any other party (trading partners, in supply chain parlance). When you or I dial a phone, we don’t worry about which phone network our family members are on, or which email provider a colleague uses. It all just works.

In the EDI Messaging sector, GXS acquired three of the top traffic carriers in the EDI market: IE (ex IBM VAN), GEIS (ex GE VAN), and Inovis (the #2 VAN in 2011), GXS now has 65% to 80% of all EDI message traffic (depends on which analyst you read), #2 is now IBM Sterling, and #3 is up for grabs, let’s say Easylink, now owned by OpenText.

Normally when consolidation occurs in a Network effects market, we let it slide as long as the consolidator practices good interconnection hygiene.

Explanation: Good Interconnect hygiene is when a market leader, or any network actually, does not impose undue limitations on agreeing to interconnect with a competing network. This serves the end-users, above all. A well interconnected market allows end-users to change their EDI provider, and interconnected markets ensure that an influential Retailer, like Lowes or Target, can’t force its suppliers to be residents of any one network …..like GXS.. Interconnections are even more special than I am letting on here, as they have the power to simultaneously enhance and limit  network effects. Yes, yes, it is strange.

Interconnection is a competitive lubricant and a hedge against monopolization – Companies like Loren Data Corp, 25 years in the EDI messaging business, create innovative messaging technologies that allowed the first EC Service Providers, like SPS Commerce, to bring Web-based supply chain solutions to the B2B market, at much lower costs, and with greater functionality – the EDI service providers drove out costs and added value.

However artificially birthed, GXS started interfering by denying interconnects to a peer-competitor, Loren Data Corp ECGrid®. Although GXS benefitted richly by building on the network traffic foundations of its three acquired VANs – these VANs grew their current market stature via the liberal interconnect policies of their peer-competitors in the EDI market!

GXS bought its way into the market, made acquisitions to concentrate messaging traffic from the three top VANs, and commenced the great experiment to stifle competition via interconnection abuses under the FCC and DOJ’s noses. So far, so good, as there has not been a peep from the agencies….murmurs, maybe….not peeps.

The seemingly cool response of the DOJ’s antitrust division is puzzling, as the division is now under the leadership of Joe Wayland, (an antitrust expert known never to shrink from a battle). The DOJ made a mess of vetting GXS-Inovis merger under the Hart-Scott-Rodino anti monopolization statutes….therefore one would speculate that Attorney Wayland would at the very least prevent GXS from openly abusing smaller competitors via Interconnections…which are the most piquant and brutal anti-competitive levers.

These are not facilities-based interconnections, but are virtual IP (routing) paths with zero operational overhead? Now you know that this is not a capital resource based denial, as in the Internet backbone market and CIX cases, nor is this a common carrier mandated LEC-CLEC fiber interconnect dispute.

VAN Interconnects are software configurations that move message traffic from one trading party on one VAN, to the destination trading party on another VAN.

Where Interconnections play a central role in maintaining a competitive market, is in maintaining the end user’s freedom to choose an EDI network based on well-known market calculus: selection of a provider based on price, features, and quality of support services – all together, these attributes spell value to consumers.

Even before transitioning to IP-based messaging, VANs used the PSTN to interconnect with each other, routing messages to collegial competitors when their subscribers needed to trade with a supplier on the competitors VAN. .

Such cooperation was a real ‘network effects laboratory’; it proved that liberalizing the granting of interconnections was beneficial to the EDI marketplace. And, as far back as the 1960′s, ( VANs were Mainframe time-sharing systems then, liberal and generous interconnect policies allowed the EDI VAN market to flourish through the ‘60s, ‘70’s, 80’s, and 90’s right till 1999, as long as the competitor VAN had at least one real trading partner with a requirement to exchange EDI data on one’s own network.

To this very day, when a far-flung VAN, even one located in the EU or Australia, contacts Loren Data Corp Network Operations, they can generally expect they will be allowed to interconnect (recall, these are soft circuit configurations), as long as it can be verified that they have a real customer that requires message exchange with a trading partner on ECGrid. So it is with just about every VAN we can name; ECGrid has formal and informal interconnect agreements with ~40 true VANs (EDI network that manage their own routing tables) , Service Providers, X400 mail systems, and direct connections to retail and manufacturing supply chains.

Almost 100% of VANs, including ECGrid, do not charge for interconnection to bona fide peers, as all EDI transactions are bidirectional and reciprocal – all originating messages receive responses – therefore, two-way billing (full settlement) is not efficient or warranted.

Non-settlement interconnection is also the norm in Internet backbone market peering – although astute observers of networked markets are aware that an increasing amount of Internet data traffic is being accomplished via paid transit agreements , due to the plummeting costs of wholesale IP packet traffic.

GXS Inc. has now achieved the status of Common Carrier and Essential Facility, by anyone’s measure, and has started the grand rip by denying Loren Data Corp a non-settlement interconnect to TGMS, GXS’ VAN destined to take over traffic from its three acquired VAN properties.

If not for the amazing network engineering acumen of Loren Data’s Founder and Chief Technology Officer, Todd Gould, and his super netops VP, Crystal Kuczynski, such clumsy actions by GXS would be damaging….but presently, these actions are impacting only the cost of operations, not customer traffic. That could change of course, but network relations continue to remain remarkably stable within the domain of message traffic reliability.

GXS will attempt to strangle Loren Data Corp, establishing a precedent if DOJ and FCC do not act. As we speak, GXS is investing unlimited legal resources in its defense of LD’s antitrust case and appeals, and the further attempting of getting rid of the EDI market’s only Network API provider – the one EDI network that services the wholesale service provider constituency. Now, the smart one’s get it. API =  democratized access for anyone with skills to code, and Todd has let the genie out of the lamp – he actually let the genie out ten years ago, but the ECGridOS API is so unique and powerful in the EDI network operations market, that the theme song ditty I wrote for its introduction as a sort of clever-funny hook, is now true. What do you think?

The Service Providers make it cost-effective for small and medium businesses to process EDI, and Loren Data ECGrid makes it easy for the Service Providers to connect to the global mesh of EDI B2B Commerce networks. GXS can’t stand this. They do not want service providers in the market at all.

Loren Data Corp’s President has GXS’ position and thinly veiled contempt for Service Providers, like SPS Commerce, memorialized in a letter penned by GXS Executive VP Steve Scala.

FCC’s inaction is, in essence, the quiet sanctioning of a toxic monopoly under the regulatory nose. The EDI market is not an “Enhanced Service”, is not a content service, it is a hybrid, telecommunications message switching service that essentially replaced TTY and Telex when computers entered the enterprise – and applications specific messaging (EDI) created the need for VANs.

VANs spontaneously interconnected with each other to grow the market, and now, PE has come to use Interconnection in order to monopolize and harvest the goodwill, innovation, and profit that other VANs and EDI alternative providers built. Under FCC’s and DOJ’s nose.

Each VAN that GXS Inc. acquired used reciprocal, non-settlement Interconnection to grow themselves within the market. Now that GXS has cash equity and credit facilities established by their beneficial owners, Francisco Partners – they shall use the aggregate power of these inter-network connections to thwart competition, strangle innovation, and drive away any incentive for investment in R&D.

Factoid: There has not been a new VAN started up since 1999? That was ICC, and they sold out, Soft Share caved to an EU buyout. Easylink, the #4 VAN, sold out to Opentext – why stay in a market when a monopoly has 65-75% of message traffic volume and a border choke point? GXS can can take away your reciprocal connectivity to any trading partner on TGMS…..and all VANs need to reach clients on TGMS!!! After all, they bought up the top 2/3 of the market.

In the not too distant past, FCC and DOJ acted to make sure that AT&T did not succeed in stifling competition in long distance (MCI v. AT&T, DOJ amicus curiae and FCC in rulemaking) and in third-party connected equipment. (Caterfone v. AT&T).

My dear colleagues at the two agencies charged with protecting our communications markets from being easily monopolized: are you simply going to let GXS become an AT&T style Leviathan in the EDI Communications market?

In this age?

Please, I invite anyone to leave a comment on this pressing issue.

Why use a VAN for managed AS2 ?

I saw this thread on AS2 Hosting vs. In-House configurations, a perennial favorite topic of flames on LinkedIn  EDI Forums. My response was too lengthy to post there, so here is my take:

Use a VAN to manage AS2 if you are serving multiple clients, or if you are a major Hub or a F2000 supplier who has had enough of the overhead of in-house AS2 systems, hardware, labor, volts, watts, support costs, and hassling with server down-time.

Just make sure that when you choose a communications provider, that you choose a great VAN or data center communications utility shop, a visionary, a company with True Value Added. not the commonly found… “Value Subtracted Networks” of today;  so….

Safeguarding the VAN Interconnect from becoming ‘just another tool” of the monopolists.

The good folks of Loren Data are well immersed in a process of ‘Obtaining Justice’; the founder, Todd Gould, rediscovering, yet again, that even legal professionals specializing in antitrust, techno/telecom/network effects, are occasionally fallible in not being up-to-speed on the complete application of said subject matter, i.e.,  how competing networks often leverage interconnections to  in order to strangle competition.

Therefore, once again and with feeling: Interconnections are special.  Interconnections belong to an awesome powerful class of intersecting market forces that harbor powerful societal externalities (consider for a moment  an AT&T’ of the 1970′s, hegemony intact, the fallout on economy and society had there been no consent decree, no MCI antitrust win).   The convergence of competition, innovation, and our very standard of living are intimately bound up with this (seemingly) foreign concept of competitors working in détente to  create, sustain, and simply build new communications markets. These Meta Systems, such as the Internet and the long distance voice networks that span the planet, would never have endured – because the intuitive course of action would be to do the opposite –  never connecting to any competitor. Right? Why is that? Be patient.

For the truly curious and older readership, I ask that you take an interim assignment and mentally, meditatively recall these three names and the services they purveyed: CompuServe, AOL, and Prodigy; three systems, for their time quite large in subscriber populations, failed as isolated, private networks – and as some know, all are but gone today or totally transformed in business model (quick hint, that’s AOL), with only their embers and cast-off husks subsumed into diffuse ventures. Long ago they were leaders for a time: CompuServe, AOL, Prodigy, and a  few others lost to the sands of time. Will the Internet ever perish? The answer as we all know is that it will endure, evolve, and remain not only a system of communications, but also as an engine of innovation and imagination. Why? Interconnections between competitive systems – permissive attachment policies – and…….standards.

Interconnections are neither partnerships, nor synergistic marketing nor other business relationships.

Whether the interconnections are in corporeal form, such as cables, routers, racks of comms gear, etc. or in virtual incarnation as b-directional exchanges of party to party message traffic – interconnects exist in a totally different class of “technical market accommodations” unique to themselves alone.  We are sure in this age of the Internet, itself a system of interconnected, independent networks, that  competitors who are otherwise fully meshed across their systems via interconnections, are just as often at each other’s throats when competing in the market. When was the last time you had concerns over which phone network served a loved one, which ISP your supplier used, or what system delivered their email? We do not concern ourselves about these matters due to the power of interconnection.

It was not always so.  With billions at stake, even such competitors engaged in acrimonious litigation over contracts and corporate misdeeds keep their hands off interconnects. When billions in customer goodwill is at stake, competitors still interconnect. When markets are a deemed ‘too important”,  the laws of common carriage legally mandate interconnections between carriers. When connected markets predating the internet were forming,  such as EDI VANs,  the founding VANs instinctively sought  interconnection with each other, because the subscriber demand was compelling: no supply chain manager in their right mind would contract a VAN that refused to route inter-system message traffic among a  growing cohort of global EDI commerce systems – they would never consider asking their trading partners to collectively reside on one network –  especially a network that refused to connect to other VANs! That golden era of permissive interconnections expired exactly ten years ago, in the acrid explosion of the ICC debacle. (see Todd Gould’s excellent posts on the subject).

Yet this is the essential argument of GXS – that all should home to TGMS VAN. The 70 or more existing interconnect agreements that GXS does have with other VANs? They are all encumbered by contractual limitations and a well-known common threat to never,  ever transit traffic off the destination network: “…messages shall not leave the interconnected VAN for another host system”. Thus, GXS, in several letters, has admitted to what some legal specialists have termed a horizontal tying agreement (do this, if you want an interconnect to the largest VAN in the world) – considered a potential per se (illegal on its face) violation of the Sherman Antitrust Act, Section #1. Plainer still: “Thou shalt not connect your VAN to a service provider if you want a TGMS interconnect”.

The Foggy Gap

With carrier regulations and mandated interconnects on one side, and deregulated services of the Internet era on the other – crisscrossing and subsuming each other’s services,   migrating from one shore to the other (VOIP, IP Data, Telex, email, EDI) …..we  see that there are many examples where the regulators have failed to protect markets with an appropriately light touch. In the present case: EDI messaging services and the denial of a traffic exchange agreement between two competitors at opposite ends of the size and capitalization spectrum:

1) GXS is the largest Value Added Network (VAN), financed with a billion dollars of the cash and credit facilities of mighty Francisco Partners of the Bay Area.

2) Loren Data Corp. Not the smallest VAN, but tiny compared to GXS, and more importantly, the recognized innovation leaders of the sector – and therein lies one ingredient of the fermenting dispute. All of the technology brought to the EDI Communications market by Todd Gould, Loren Data Corp’s Founder and CTO, is concerned with lowering barriers to market entry. This just rubs GXS the wrong way. Loren Data’s network, ECGrid, is an engineering marvel and a rethink from the ground up for new age Service Providers – the on-demand B2B Applications specialists that made their mark by lowering (on the application side) the cost of B2B systems for mid-market end-users, this was accomplished by evolving web-based technologies long, long before GXS even considered managed services. GXS hates the service providers…..hates them with a passion. Hates them enough to create  perversions of standard EDI nomenclature – creating new words to confound the laymen and Jurist alike. Read Todd’s blog for examples of how the legal process is being perverted with just such ‘for dissembling only” nomenclature.

Sustaining healthy  competition and innovation in connected marketplaces.

When “network effects” are present, then interconnection abuses are not far behind due to their extremely tempting nature.  In the case of Loren Data Corp v. GXS Inc, one may substitute “non-settlement message routing agreement’ for ‘Interconnection’ – if it so pleases). In the  regulated world of telecommunications and common carriers, the FCC operates a system of bureaus for guarding against predatory trade practices unique to networked markets. For unregulated services, such as EDI, the justice system is at a loss to even begin to untangle what are business disputes, and which are  practices of a monopolist using internetwork connections as anticompetitive weapons.

Building and sustaining connected markets is not a trivial  matter. In the arena of antitrust law, many legal professionals are not up to speed on how markets are affected by a large actor exploiting inter-network connections. We all would have to be transported back to AT&T consent decree era just to find any “essential understanding” of how connected markets respond to monopolization of interconnections, and how perverting message routing paths can stop innovation in its tracks. Does any reader here believe that we would ever have enjoyed cellular phones or the Internet as we know it, had AT&T’s hegemony gone unchallenged? C’mon.

Rolling up large subscriber populations via the leverage of Private Equity, and subsequently perverting interconnection to legitimate peer (s) has profound economic effects on the entire market. In the case of a company like GXS, specializing in EDI messaging among trading partners in a supply chain, the aggregate subscriber population is important, true, but the type and weight of the subscribers are even more important in the VAN world.

Using the tremendous capital resources of Francisco Partners, GXS purchased GEIS, IBM’s IE VAN, and Inovis. The resulting +50,000 subscribers are weighted almost exclusively in favor of large retailers and manufacturers – whereas most of Loren Data Corp’s ECGrid subscriber population is biased towards the suppliers and mid-sized businesses. Therefore, GXS bolsters its refusal to interconnect ECGrid with TGMS, by exploiting the relationship between trading partners and their “hub buyers”.

Translation: the suppliers have no leverage in their relationship with their Hubs on TGMS – and therefore cannot properly advocate for Loren Data Corp (many wish that they could speak up in favor of ‘supplier independence’).

A growing number of mid-sized suppliers obtain services from Electronic Commerce Service Providers who are the primary clients of ECGrid – it is precisely these Service Providers that GXS loathes to the depths.  The scale of GXS’ contempt for service providers on ECGrid is legendary. They (the Service Providers, SPS in particular) have put downward pricing pressure on many of the services that VANs used to specialize in, and profited richly by.  By innovating and delivering web-based EDI solutions, companies such as SPS Commerce have beat GXS at their own game.

It’s not surprising that SPS Commerce and other EDI solutions providers use Loren Data Corp ECGrid – for value, support, and advanced communications features. This is the #1 reason GXS has taken a preemptive strike against Loren Data Corp: because Todd Gould and company service SPS Commerce, and have optimized their network for the rapid deployment of other innovative EDI businesses, so, GXS sets its sights on destroying the EDI Sector’s preeminent advanced communications innovator.

Fully briefed by your’s truly, the FCC is the natural go to agency to fix this G-d Damned mess, as the one bureaucracy that is  intimately familiar with the economic impact of interconnection arbitraging on competition. As of this writing, the Agency has, at various times, turned its attention to and away from the mechanics of VAN interconnects, even though the market is on the precipice of dire trouble.  Loren Data’s Desperate Dispute over Interconnection to GXS TGMS is merely one opening gambit in GXS’s efforts to monopolize or otherwise distort natural competition in the VAN market.  Now the largest EDI VAN, and each year, GXS bleeding out 8-10% of its TGMS subscribers while under pressure to perform financially. The marching orders could not be more clear: Start making money…boyzzz.

Among all of the VANs that GXS interconnects with,  they chose to joust with Loren Data Corp.  The obvious danger read by GXS is if Loren Data get’s its hands on even a modest amount of capital or partners up with a technocratic institution at scale – and there you have it – the technology and advanced architecture that Todd Gould has lavished on ECGrid and ECGridOS, and his wildly rich Unified AS2 solution, will go from under-marketed EDI advanced arsenal, to the preeminent and proven technology portfolio it truly is. So it seems that GXS’ disparagement of Loren Data Corp viz Interconnection, actually belies a fear of Todd Gould’s architectural prowess in B2B Communications Platforms…….a strange but powerful approbation, as it comes from the best financed company in the EDI business, yet one that has absolutely zero innovations on the books. Now I get it.

Cross Post from Loren Data Corp’s President’s Blog: Antitrust Case Update

Without any editorial distortion on my part, Todd Gould, Loren Data Corp’s President, has posted an update on the upcoming appellate hearing (oral arguments) in re Loren Data Corp v. GXS Inc. It is an important update.

http://www.ld.com/update-on-antitrust-suit-against-gxs/

The present EDI era is …

Our present era is one where new EDI Communications are devolving into As2 islands with virtually zero addressability, and a collapsing system of legacy VANs that have done nothing to collectively address industry standards, user issues, and network enhancements. Want to know more about the inevitable “forced evolution” of the commerce communications sector? Would you like to know if there is any personality, however obscure, performing masterful feats of VAN re-engineering in virtual anonymity, while the ostensible leaders of the sector stew and do nothing? Stay tuned right here – on 9/21/2012 this author will break it all open, showing the emptiness of the current market, and the one or two glimmers of hope, and real technology, that will return the B2B Comms market to sanity, productivity, and value through innovation. Stay Tuned.

EDI Value Added Network Sector: They Under-Serve the all and the some, while their architecture remains undone.

Watch the Visionary Create New Architecture, while the laggard incumbent cuts internetwork pathways.

Meanwhile, also watch as the UK’s OFT and our FCC listen and nods, and drag feet, while having the power to act. meh… Let’s celebrate innovation.

In the EDI Communications sector, the incumbent networks have made a fine art of sitting on their laurels. But Todd Gould, President of Loren Data Corp, engineered and nurtured ECGridOS, the only EDI Network management API that has grown to over 150 well disciplined functions.

The project started in 2005, just as Web Services started maturing as a robust method for remote method invocation. Todd did not garner a great deal of encouragement from the industry’s leaders – quite the opposite, really.  At several VAN Summits and X12 meetings, an un-maskable interest manifested alongside a kind of ‘facial disparagement’ by the ‘EDI cognoscenti’, all due to Todd’s massive engineering chops in creating the ECGridOS API.

ECGrid® (Loren Data Corp’s Advanced EDI network) was already a tour de force in the VAN world – it is the EDI Network preferred by large service providers – even the ones that don’t currently use ECGrid wish they did (and before long, they probably will).

Evangelizing the concept that B2B programmers and integration specialists are all aspiring EDI Network Owner / Operators. These professionals simply desire sufficient autonomy over their EDI network operations and connectivity, so they can service their clients by operating their own Virtual VAN, without the need to  build racks, negotiate internetwork agreements, etc.

Therefore, Todd’s node-based ECGrid architecture with a OS/ Kernel like RMI, is congruent with modern SOA philosophy:  Grant  developers operational control over their user space, allow flexibility in the management of metadata, network processes, and payloads, while maintaining ECGrid as a safe, secure, multitenant universal comms host.

However, when Todd initially went to market, there were few kudos. The VAN universe remains thus: strictly limit network functions and resources.  And, of course, as we see today, uploads and downloads are the sum total repertoire of the functions offered by most EDI Comms providers (at the Comms layer).

There is not one other VAN in today’s EDI market that offers a programmable interface - and unified As2 + VAN message routing with complete message status and directory services (name to QID / GLN / To name resolution) via a function call. The implications are that now, EDI Comms and Trading community management can be embedded into software, such as ERP systems, as Loren Data ECGridOS partner NetEDI has shown, and many others have proven. See the use cases on this site.

Yet, being the indefatigable and  dogged engineer that he is, Todd persevered and evolved ECGridOS, and a slow adoption followed, at first, but the early adopters were more than simply enthusiastic – they were “betting the farm on the ECGridOS API”, and they were building their new businesses on Todd Gould’s network OS API Kernel – which is still the only EDI API for trading community management and EDI communications.

Never one to rest and say, “88 functions, what more could anyone want?”, Todd has debuted (in beta) a coup de grace,  Unified VAN and As2 message routing.That’s right, rather than spending 100′s of M$$$K$$$$ in VAN contracts and the As2 expenses of software licenses, suport, machines, labor, etc. just to service a diverse cohort of trading partners, ECGridOS encompasses  the Virtual As2 channels, unified  with VAN message routing via the ECGridOS API.Any programmer can now answer that age old question asked by every client since the stone age: ”where get partner communications without breaking the bank and taking on massive internal infrastructure.?” The answer is easy….tell your customers that their EDI Comms and partner management is built into your software, or B2B SAAS, or has been always been integrated into the system you just installed! Programmers and B2B consultants can deliver the services the clients always needed, via a system that is more powerful, flexible, and extensible than any current VAN. Your clients will love you more than ever before.

So, to address the adoption curve and lifecycle issues of API initiatives…….put a hard headed visionary in front of the project…..Todd did, he did it himself, against all odds.

See more about the ECGridOS API at http://ecgridos.com and the docs at http://ecgridos.net

Interconnection as an Anticompetitive Weapon

Consolidation of the Value Added Network Market

in re Loren Data Corp v. GXS Inc.

Alan D. Wilensky, Analyst,

bizQuirk Market Strategy

Author’s Note: within seconds of posting this article, I received email asking me for links to Loren Data Corp’s web properties, so here:

http://www.LD.com

http://ecgridos.com

http://ecgridos.net (API docs)

An innovative B2B network communications company is struggling to survive its decade-long dispute against the largest company in their sector. We might cast Loren Data Corp. as the Rebel Alliance, and GXS, Inc. as the Empire, but that would make me nerdy. This dispute properly concerns interconnection policies: how do competing networks cooperate by way of interconnections, in order to create functional markets that attract, serve, and retain their subscribers?

We instinctively know that our calls, emails, and each web site we visit makes its way to our homes and mobile devices via an amazing mesh of independent, competitive networks.  We never know what network our customers or family members subscribe to, nor should we – we just dial, search the web, or hit a send button…..it’s magic, it really is!

Networks must compete with each other, yet also collaborate via interconnections in order to indulge our illusion of seamless communicating; the fact that we don’t have to think about it speaks volumes about how far  these connected industries have come, and how far networking technology has evolved.

There is no doubt Interconnections are important. But, what happens in unregulated markets when things go awry, when Private Equity rolls up the top three EDI Network Operators (VANs) in the sector, and then refuses interconnection  to “select competitors”?

Interconnections between networks are a very powerful competitive force. This is why certain markets deemed ‘too important to leave to competition alone’, were regulated under “Laws of Common Carriage”, roughly defined as:  1) carriers must accept all who apply for their services, and 2) the carrier must agree to interconnect with licensed, or otherwise bona-fide market serving peers.

The meat of the issue lies in understanding the antitrust arguments brought by Loren Data Corp, boiling down to GX’S denying an interconnection to its TGMS (Trading Grid Messaging Systems) VAN (Value Added Network). Loren Data Corp’s EDI Network operates under the Trademarked Brand, “ECGrid®”.

The question of recourse:

When a large network simply refuses to interconnect with a smaller competitor, what recourse does a smaller competitor have?

The answer depends on whether a market sector is regulated (i.e., telecoms) or deregulated (i.e., the Internet).  In markets that are subject to the laws of common carriage, the FCC provides avenues for petitioning and enforcement, as well as maintaining a system of “bureaus”, for monitoring and applying corrective actions when necessary. The Wireline Competition Bureau is such an office in the FCC that monitors, you guessed it, wireline telecoms.

EDI communications carried by VANs are presently not regulated by the FCC, although the most superficial research shows precious little consideration or due diligence was undertaken by the FCC when VAN communications were swept into the “unregulated” pile.

The telecommunications reform act of 1996 created a deregulated class of services – such as pure data communications, and most Internet services, (the Web, email, most VOIP, and peer-to-peer communications, such as Skype and IM, generally). The 1996 Reform Act sought to foster growth by lightening the regulatory burden that plagued the telecoms sector, and for the most part, it worked. But not for services predating the Internet, such as EDI VANs.

Providing relief via the regulatory channel would require EDI VANs to be placed under the rubric of the Laws of Common Carriage. The FCC would need to research the sector, and define the market parameters  (size, capitalization, current interconnection practices, past history of litigation), that would trigger the regulation of certain VANs. The entire process  would be kicked off by a petitioner, often an aggrieved party, or by an industry coalition of allied competitors. It would not be a speedy process, but in some cases, the agency can act more quickly than the courts. There are also hearings and appeals procedures for any opposing parties.

Creating new regulations for EDI VANs can be properly called a long-shot; the momentum at FCC  remains firmly tilted in the direction of further deregulation.

Deregulation falters when considering Hybrid Communications Services Predating the Internet

The race for the Agencies to encompass telecommunications carriers that offered data processing services resulted in a question of regulating “hybrid communications services” – defined as “services wherein the data processing capability is incidental to the message-switching function or purpose.”

Nothing better describes EDI Communications over VANs. EDI messages travel from party to party, carrying valuable, time-sensitive content. The electronic business documents in their EDI format, such as invoices and purchase orders, are exact analogs of their paper counterparts, yet perform a more demanding service within modern supply chains. The drive to economize manufacturing and retail inventories, known as “just in time”, and “lean processes”, are wholly dependent on the electronic, real-time nature of EDI supply chain transactions.

The recourse arising from recognizing EDI VANs as hybrid communications services is bolstered by the concept of Bailment. Bailment occurs when a third-party is paid to convey an item(s) of intrinsic value to another party. Bailment is fundamental to the laws of common carriage.

EDI messages are mission-critical, real-time services that businesses depend on.  Retail supply chains and manufacturing procurement systems depend on EDI for system to system order-management and trading-partner community integration. We are talking about trillions of dollars of trade purchasing and supply side fulfillment , and VANs are the medium that represents the movement of this trade.

In the context of Loren Data Corp v. GXS, the regulators  simply need to realize that EDI is important, and that most EDI communications are business documents (invoices, purchase orders, and shipping advisories)  traveling over VANs, and VANs take bailment of EDI messages from the sender, and convey the unaltered message to a recipient. Postal Mail, overnight couriers, and freight companies are all governed and licensed as common carriers subject to bailment; EDI is the equivalent of Telex orders sent between computers. EDI is not an enhanced service.

The regulatory formula for declaring PE funded VANs that are “offspring of Consolidations”as the first candidates for common carrier regulation.

A regulatory formula for petitioning might be constructed as follows: EDI networks (VANs) are Point to Point message switching services, taking bailment of the valuable, time sensitive messages from sender to recipient. EDI is essential to the conduct of mission critical trade communications, with capital orders for goods. Mistimed, delayed, or repudiated electronic orders represent the risks associated with EDI in modern supply chains.
EDI messaging is therefore a hybrid communications service subject to laws of common carriage and bailment.

The largest VAN, GXS, funded with Private Equity, consolidated the subscriber populations and aggregated interconnections of the previous top three VANs.
GXS should be the first Value Added Network considered for regulation as a Common Carrier, and should furthermore be mandated to adhere to interconnection practices designed to foster fair competition within the sector.

The supply chain integration market, served by the VANs, is best served by a wide spectrum of competitive EDI providers who actively innovate and vie for all segments of the market – courting the large enterprise all the way to small businesses that are eager to EDI enable.

Failing Regulatory Relief, Recourse falls to the Sherman Antitrust Act

This is mainly a discussion of network interconnection policy. When regulation fails, the intersection of competition and law bring us to the Sherman Antitrust Act. There is a growing judicial record on Network interconnection practices and competition: these are so-called ‘network effects’, whose effect on competition is real, and almost always involves interconnection disputes between competing networks.

Network Effects (from Wikipedia) “When network effect is present, the value of a product or service is dependent on the number of others using it – also, the number and quality of the resources attached to a network (interconnections to other networks, a related influence of network effects)”, example:

GXS Inc purchased the top three VANs, therefore the trading partners attached thereby are amplified in value due to network effects. Alternatively, anyone using EDI or providing EDI services MUST cross the GXS border.

The Central Dispute

The plain reading of the dispute is GXS’ refusal to provide reciprocal message routing between TGMS (Trading Grid Messaging System), its preferred VAN property, and Loren Data Corp’s VAN, ECGrid^®.

VAN interconnects are ‘software configured’ routing policies for delivering message traffic between competing VANs. The VANs provide electronic mailboxes and supporting services that facilitate commercial trade. VANs are best conceptualized as private email systems used for sending standardized messages concerned with the buying, selling, and shipping of goods between trading partners, and much more.

This dispute reeks of anticompetitive musk – a smell wafted by a panicked C-Suite that is plum out of fresh ideas. In my opinion, as an analyst specializing in the B2B tech trade, there will never be a GXS IPO.

In my personal opinion , GXS fears Loren Data’s founder, Todd Gould, whose knowledge of EDI Network architecture is expansive, and whose ability to innovate is limited only by the speed he can code and debug. Todd is just hitting his stride, and has innovations aplenty in his pipeline. GXS could only wish to approach Todd Gould’s fecundity in their EDI Communications products.

The Size Differential:

GXS is backed by Francisco Partners, a private equity fund in San Francisco (others funds have minority holdings). With 2800 employees, GXS, Inc.’s gross revenues hover around $450-500M/year.  GXS files forms 10K and 10Q with the SEC. For more details, search the Edgar System @ SEC.gov.

Loren Data Corp. is, by any measure, a small business. With a twenty-five year tenure in the EDI business, the company has gross revenues that waver about the $1M/year mark. Loren Data has five long-term employees and contracts with this author as an industry relations analyst.

The company is a lean, bootstrapped entity with an enviable low-cost of operations. Loren Data Corp could have certainly grown its revenues by a conservative 3-5X, had it not been thwarted by GXS routing issues, as well as being hampered in its line of business by GXS actively damaging its reputation, starting as far back as 2002.

Note: In spite of all of the damage attempted by GXS, in all of its forms, Loren Data Corp ECGrid has never dropped one Byte or character of message data – never. The company maintains functional routing arrangements that  handle data bound for any Trading Partners on GXS Networks . However, “functional” is not “equal”, especially in a competitive sector, and certainly not in the way that GXS offers standard VAN Interconnect reciprocal message routing to networks  with fewer subscribers and less traffic than ECGrid.

The lack of a native TGMS interconnect is costly, damaging to the company’s otherwise stellar reputation, and incurs additional labor.  Todd, an amazing network engineer, the very best of the best, sees to it that any routing deficits are always minimized via some very clever  (and totally unnecessary) engineering. The most damaging aspect of GXS actions are the ‘whispering campaign’. engaged in by their large support organization – whose megaphone amplifies the effects of routing problems, by pointing fingers at Loren Data Corp, as “not a real VAN”, as issues being the fault of ECGrid Netops staff, when the reverse is virtually always true. If anything, those in the know, know that ECGrid is the Cadillac of EDI Networks, and TGMS is a horrible, unreliable kludge.

For a deeper understanding of the precise damages wrought by GXS upon Loren Data via Interconnection Arbitraging of  TGMS routing policy , see the court transcripts or contact the author. There is so much more than mere data blockage at stake, and these actions by GXS are damaging to then entire EDI market, from end-users, to service providers, and consumers.

The Upcoming Appeal

Loren Data Corp’s initial Federal district court filing was not the company’s best moment. Although represented by a sincere and competent generalist attorney, antitrust cases within the networked market domain are best represented by specialists. The company’s first efforts were soundly thwarted by the District Court Judge, who stung the company by dismissing the majority of the Sherman Act Charges.

The lower court dismissal was brought to a well-known trial lawyer experienced in high-technology markets. Atty. Glenn Manishin confirmed the company’s lay reading of the Judge’s opinion – an extremely harsh rendering of the Sherman Act, favoring the monopolist, and thwarting out of hand the ability for a disadvantaged smaller party, Loren Data Corp, any opportunity to conduct discovery and prove their case.

The appeal reaches the 4th Circuit in Richmond, VA in September, if no other delays intervene. If Loren Data Corp and Atty. Manishin prevail, the case will be remanded back to the MD district court, and discovery will commence. But far more important, this will be a vindication of the basic charges originally presented against GXS.

Background

The Fiasco began with GE’s selling its GEIS (GE Information Services) division to Francisco Partners as lead PE investor, and a pre-planned takeover of two major VANs: IBM-IE, and in 2010, Inovis. Globally, the Francisco PE juggernaut went on to buy ninety percent of the UK EDI market (as measured by message traffic), while Great Britain’s anti-monopolization regulator ignored the numerous and bitter complaints of England’s competing EDI Service Providers.

Loren Data Corp.’s founder, Todd Gould, was bidding to provide services to IBM’s IE VAN, even as its was in the process of selling out to GXS….even as the deal was being rammed through the regulator’s maw in 2005. Strangely, IBM must have had a bout of ‘buyer’s remorse’, and purchased the New 2nd place VAN, Mighty Sterling Commerce, now part of IBM WebSphere.

As a scrappy, typically entrepreneurial business existing solely by its founder’s foresight and creativity, Loren Data Corp. was just trying to compete against a newly formed GXS soaking in capital. Todd was asked, and provided, DOJ’s antitrust division with insight on the all but assured toxic results of the Inovis acquisition.

All was for naught, as the predicted deleterious effects have materialized, in spades—and now we are all so blessed as to have a bona fide, AT&T-style, toxic monopoly in the EDI communications business.

For journalists, the key point in covering this story reads thus:

The monopolization of the EDI communications market is not occurring because a PE fund (Francisco Partners) rolled up three competing value-added networks into GXS, Inc.  Rather,  it was the act of breaking a settled industry practice:  non-settlement routing among cooperating , competitor VANs.

The implications are manifold from a competitive, regulatory, and economic perspective. Primarily, without cooperative routing, the global network of VANs never would have materialized; interconnections made the market, and interconnections maintain the market. The same justification exists for the Internet – there is simply no  way to conceive of today’s Internet without peered interconnection.

Therefore, GXS breaking the cooperative interconnect model is more than mere competitive ruthlessness; its absolute proof that the leadership of GXS harbors nothing but contempt for the industry they deign to serve.

We simply take for granted all of our communications occur at any point in time over a mesh of competitive networks: Internet, phone, VOIP, e-mail, and even utility meters. Gaining control of networked resources, combining networks and buying up the subscriber populations – all an opening gambit in the game called ‘interconnection arbitrage.’ In this case of (GXS) refusing to honor data traffic of a smaller company (Loren Data Corp.), we see a prime example of network effects.

AT&T, once all-powerful, and with absolutely zero competition in long-distance services, purchased 100% of its nascent regional competitors. Any competitor would have to interconnect with AT&T merely to exist. AT&T had harnessed the power of the network effect before the term was even coined. AT&T filled its coffers with outrageous metered long-distance and local calling fees, all based on confounding time-of-day calling plans. Likewise, any EDI communications network simply has to cross a GXS routing border to exist – and therein lies the rub, and the seeds of potential FCC enforcement, and antitrust charges that survive the upcoming 4th Circuit Appeal.

It took a newly created FCC and the courts to battle to the brink of a verdict, and ending in a consent decree. Almost simultaneously, MCI won its antitrust appeal in the Supreme Court. A span of thirty years had elapsed in order to begin the divestiture of AT&T into the BOCs, the Bell Operating Companies.

While the key players in Loren Data Corp. v. GXS, Inc. are not quite as infamous as AT&T and MCI, lest one think that EDI communications are somehow trivial, consider that trillions of dollars in orders, invoices, and shipping advisories are communicated over hundreds of cooperative EDI VANs.

The FCC partially awakens from its Institutionalized Torpor, and the DOJ is certainly watching

After several detailed briefings to the proper regulatory bureaus at FCC,  as well as to the office of the Commissioners and the General Counsel, FCC may finally be warming to the concept that EDI communications over VANs are not simply enhanced Internet services, but are within the agency’s jurisdiction under the laws of common carriage.

The Remedy

GXS, Inc. needs to be divested into its original component companies, and forced to compete on a level playing field. The least relief that courts and regulators should grant is a consent decree, minimally forcing divestiture of the GXS VAN properties (TGMS particularly) into a standalone company operating under the laws of common carriage. Under such a scenario, GXS would become a) one B2B IT integration company, doing what it loves, and does best, i.e., managed services, and b) TGMS would be a separate entity, with the FCC baby sitting its ill-behaved former executives, and making sure that inter-VAN connections are treated with the proper, industry affirming respect they deserve.

In closing, I leave my colleagues with some open-ended questions for the comments section. If you are one of the rare supporters or paid shills for GXS Inc, and you would like to rebut my many diatribes, please do so below.

1. Why is GXS, a giant EDI network operator, abrogating industry-accepted interconnection policies?
2. Why would GXS use interconnections as a means of harming a competitor?
3. Why do YOU think that there is no outrage in the market? From other market participants (competitive VANs)? The trading partners who are GXS clients? These companies are the unwitting heirs to a damaged market, when the sole VAN that caters to service providers is eliminated.
4. Is the inverse possibly true? Is GXS averse to easy and cost-effective EDI communications services?
5. How does Loren Data Corp. threaten GXS? We have reiterated ad nausea the differential in size, revenues, etc.
6. Why did the DOJ and FTC, and even the U.K.’s Office of Fair Trade, close their collective eyes at this egregious, yet fixable act of interconnection arbitrage?

Understanding Product Segmentation in B2B Communications

I salute those who take ownership of an IT sector, committing the time and effort to monitor a select cohort of vendors.  A pithy and succinct briefing can illuminate a bizarre acquisition (SAP + Ariba ??),   while providing the informed commentary required to comprehend a product ‘s maturity cycle. The B2B IT sector of late is  especially ripe for some unbiased research outside  of the big two, so I was fortunate to discover an unbiased agency on the LinkedIn forums. And we sure need some sanity in the B2B comms sector.

B2B communications - it’s a term of art that formerly referred exclusively to EDI over VAN communications. Now, B2B Communications cover the gamut of MFT (managed file transfer), EDI via As2 peer connections (EDIINT, an obsolete term, as IP Transit is the norm ), and other transactional systems, software, and protocols that have come and gone; all have been variously pressed into the service of B2B communications).

It’s great, therefore, to have an experienced, cogent, and no-nonsense guide to the B2B Comms maze. Ann Grackin of ChainLink, (an independent B2B Product Research Shop), is an ex-AMR VP, so she wears the “no-bullshit‘ logo on her virtual epaulets; I covet that insignia dearly, and I strive to maintain a ‘No BS Zone’ in my work as a retained product advocate / evangelist.

Analyst Grackin recently released a sector overview of B2B Communications, and it’s fantastically well done. The brief includes a few lesser-known vendors and service providers, such as Loren Data Corp*.   This underscores her expansive purview in covering the sector.  Ann does not require my paltry linkage; her briefings are extremely well researched and widely circulated, so I am referencing this particular article.

B2B communications, particularly EDI messaging in supply chain communities, is undergoing a triple whammy of PE driven consolidation (by GXS and lesser others), momentum shifting (a VAN exodus), and changes in infrastructure (Cloud Computing). The whole game is changing, and I’m fortunate to work in the shadow of a leading architect in EDI Communications services (Todd Gould, President of Loren Data Corp). As an observer of B2B enabling services – how they affect the mid-market – this is my time to make some piquant observations.

Short analysis: Closed B2B Communications Architectures, or those without a “platform vision” = bad for mid market business. Without the ability to differentiate, verticalize,  or support the creative efforts of   developers, comms architecture becomes an obstruction, rather than a catalyst.

Good B2B Comms Architectures that are developer friendly, extensible via well-engineered APIs, providing a cohesive platform upon which to BUILD applications  = Good for the Mid Market Businesses, because they foster creativity and innovation.   

API’s that empower the developers – these are the first element in reducing friction. Driving out costs, eliminating false obstacles, eschewing institutionalized complexity – this is the spectrum of challenges that will set the stage for a mid-market renaissance beyond the supply chain. Meanwhile, I am on a sharp lookout for any innovation, or partnerships, that are complementary to this vision of “B2B Communications as Platform Services”.

Stay tuned for a follow-up article on the elimination of “institutionalized complexity” in B2B Communications systems.  B2B communications seem to be under siege,  and a battle is being waged by solitary “warriors.” They should be working together. Yet, it is poetic nonetheless. , that a sector’s salvation resides on rather slight, but psychically strong shoulders. For the moment, I shall state the following:

Asking B2B market participants to willingly abandon (or to never have) a fully addressable, global communications system and supporting services (directory services, ID portability, etc.), is …… ”madness”.

*(I have a relationship with Loren Data Corp as an internal product analyst and industry relations advocate).