Early Release Abstract – Examining the Qualitative Attributes Used for Selecting Investment Worthy Ventures in the B2B IT Subsector

Examining the Recent History of Qualifying Investment Worthy Target Ventures in the B2B IT subsectors.

Alan D. Wilensky, Analyst and Industry Relations Advocate
bizQuirk, LLC.

Abstract

Is the The B2B IT sector a difficult arena to source and place capital or, conversely, to harvest capital out of such deals? According to a diverse pool of analysts, including several specializing in the enterprise software and services sector, the past 15 years of high-profile B2B tech company consolidations driven by certain PE funds, has resulted in a reduction in overall availability of mid stage direct placement capital deals for well-established, maturing ventures poised for growth. This reduction in capital resources, and how it came about, is a troubling tale. The epilogue is even sadder as if that were even possible, describing the pollution that occurred in the aftermath of the B2B consolidations. The selection criteria and commonsense values became out of phase, upside down, leading to long-term damages. These are the wages of fear and doubt that reliably occur when sound targeting attributes are ignored. Applying the corrective selection targeting criteria  – no MBA required – when the next phase of capitalization restarts – and we shall see that these mature, well led, clearly innovative B2B ventures come to the surface, with long-established continuities of private ownership; these ventures have been overlooked en mass for the past 15 years in the B2B IT subsectors.

While it seems a bit  farfetched to state that, “better companies were deliberately ignored in favor of the now well-known, (even infamous) weeble-companies tagged by PE’s for toxic consolidation). They were all past their prime,  overstaffed, overstuffed, having long abandoned their founders drive and vision, and eschewing the technical staff’s architectural and system acumen.  The sordid mess. in a nutshell, stank of corruption, but there is still hope….

We all know that no one can stop a true inventor –  the Edison’s, the Teslas, the Jobsian leaders….these brilliant, hard-headed, are true to themselves (and to the very wordInnovators  –  they never go away, they continue to innovate and improve, and gain more ground.  Continue reading

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EDI Communication market up in the air, up for grabs, consolidation notwithstanding

My analytical writings for lawyers and regulators have covered the dynamics of interconnections between networks in general and VANs in particular. To say, “The VAN industry was built upon collegial and permissive interconnection policies, in order to create and sustain its nascent sector”, is an ex-post facto spin. The facts are more raw.

I believe that this industry sector called “EDI Value Added Networks”, is in potential jeopardy unless it regains a unity of purpose. That is the sum total of the client satisfaction surveys aggregated from 3 major investment banks, plus my own focused telephone survey of GXS hub class clients, over 800 in total. All of the normalized results point to a damaged and deflating sector. Meanwhile, the transactional volume climbs, which is an indicator  the health  of the underlying technologies – however, there is ample room for improvement even in the tech space of EDI systems.

The EDI Comms industry, writ large, is the beneficiary of a vision, but finds itself running on reflexes, reactions, which will not allow the market to continue forward. If my colleagues do not consider the outlook quite so black, it makes the situation worse – as an institutional blindness may be setting in amongst analysts, and it’s our job to watch things closely from afar, to point out missing elements, while taking the temperature of the customers. With that all said, I don’t like what I see, and if GXS’ track record is being swallowed whole by savvy Opentext, this is just more fodder for negative speculation. Additionally, the endemic weakness of SPS Commerce in its back-end services infrastructure, counterpoised against its stock price and market cap, seem disconnected from the standpoint of critical reality….this baffles me, but at least SPS has created efficiencies in the market for the SME suppliers. I can’t see one good thing arising out of the GXS PE funded rollups. I can say there are many ex-Inovis customers that were thrown onto the GXS heap, and they are a very unhappy user population. Take that one to the bank with the previous generation of ex-IBM IE customers. Never has a 100% functional and robust VAN property been intentionally broken by its new owner, like IE was by GXS. Awful bloody awful, it was.   Continue reading

An Influential and Long-Lived Partnership – SPS Commerce and Loren Data Corp solidify their relationship

And in other developments, Loren Data Corp and its major account relation, SPS Commerce, are finally pulling in the same, sane, direction:

SPS CEO, Archie Black, now stands with Loren Data Corp President Todd Gould, endorsing Mr. Gould’s vision of how connected markets should work.

Most important is that these two companies will now directly oppose the worn out GXS notion that Daisy Chaining (a term of art) is a deficient topology in a networked system, as GXS would have an uninformed public believe. The absolute opposite is true, as we all know: Good Networks Hop Well. Internetwork systems, message routing systems, and WANs, all tolerate and even optimize for hand-offs to cooperative systems. The internet is Daisy Chaining made a science. Email, as the “killer application” of the Internet, is designed to tolerate N-relays.

Furthermore, if your messaging system can not tolerate intermediate routing, enhanced traffic handling, or more than one hop, then your technology is questionable and deficient. Make no mistake, my colleagues, when GXS says, Daisy Chain, they mean, “we want both ends of all supply chain transactions, the hub and the spoke, all to be resident on GXS VANs….period.    

SPS Commerce, having spoken out in direct public support of Loren Data Corp, has underscored the competency and operational excellence of Loren Data, as SPS’ preferred EDI messaging provider.  Todd Gould, Loren Data Corp President and CTO , designed the efficient and innovative ECGrid VAN,  the ECGridOS Web Services API, Unified AS2, and a new generation of products emerging from this intrepid and resilient thought leader of the EDI communications sector, and his scalable ECGrid platform.

This approbation by SPS Commerce signals that more stable times are potentially within reach for the interconnected VAN sector. SPS and Loren Data, two upstart companies with remarkably individualistic and obstinate leaders, will be working together to improve the stability of the EDI sector, as they wield their combined influence to safeguard and stabilize the integrity and deliverability of EDI interchanges across the global mesh of cooperating interconnected VANs and service providers.

This partnership should reassure nervous CIOs’ and supply chain managers – especially those seeking a path beyond the GXS induced network discontinuities, that there are options for these disillusioned, soon-to-be ex-GXS customers.

The B2B Advocate’s Long Term Engagement – How long is too long?

I state in my outreach to new clients, “my engagements run 90 days to one year, maximum 18 months”.

At one year, the client has internalized my orientation briefings, we have assembled and pushed out several campaigns – or I do the pushing, solo.  Sometimes I upgrade a CRM with inbound automation, or set up cloud CRM with analytics matching and lead capture. All of these supporting systems are nothing special; I am not a sales automation guru, I am an advocate for companies who are not being heard.

I practice Active Voice Advocacy, writing posts and articles, creating simple diagrams or animations, if needed, and tracking the organic searches. My best work is done via direct outreach to potential partners, licensees, investors, and early stage client prospects. My work moves forward in parallel with my client’s internal marketing  – unless the in-place message or campaign methodologies are dysfunctional, and the product’s identity is at stake.  In these cases, a clean sheet approach is taken.

A year into the contract, I have sampled the sales channels and researched potential partner opportunities and competitors.  I refine the language that describes and differentiates the product – that language is worked into my articles and other channels. The goal is elevating a client to thought leader or innovator in the eyes of the sector’s trade press, analysts, and buyer constituencies. 

I can only try – and yes, it does help if a client actually has the goods – I do need something to work with.  Thankfully, many unknown innovators and true unrecognized thought leaders still languish in the Enterprise and B2B IT sector, and being able to play even a small role in their emergence is always a great honor.

At one year plus, I see diminishing returns on my services, but 50% of the time, I can go 18 months. Even with unlimited ideas and campaign variations, even standing in for the product manager for a while, etc.,  my true value is to create maximum momentum in the time span of less than one year. 

I think you see where this is going. I am never contracted to enlarge a company’s workforce; there are far less costly means of getting such sales and marketing tasks done. And, believe me  – I price  my service for best value, and my clients say I am priced below the market. 

 

Who defends GXS actions under alias?

Im sure that most freelance EDI Guys and Product or Sector Advocate / Analysts are busy guys and gals, getting work done or finding new work, even when you are presently engaged, ’cause that’s how us self-employed guys do it….and our customers know that we are always prospecting. My last (+1/2 time to way past full-time) engagement has run longer than any previous client workload, and for that, I am very thankful.

But I keep feelers out, and make a few calls, and some people call me, actually…it’s true! And someone took an alias, and kinda made my day, because if you read the coward’s verbiage, you can tell who he works for. It’s that transparent.   And, Comments are always open on this blog. 

This guy or GXS gal, is very, very unhappy that I’m going to market with four years of GXS opposition, competitive, and client-polling  research and interviews because I never would have compiled this data if not for GXS’ Interconnection abuse campaign waged under the pen of Steve Scala, and also likely by one or two more vindictive GXS evil mini exec’s –

because after a half-year of  playing ECGridOS API Evangelist (last half of 2009 and the first half of 2010) – things were going pretty-pretty-pretty well (Thanks to Larry David) . Continue reading

EDI Communications – a Sector Stifled by an Arrested Architecture and …..

Will Open Routing save the EDI communications Sector?

Offered here is a brief observation of Connected Markets:

1) What’s good for the network is good for the subscribers,

2)  What’s good for subscribers, is good for the networked market.

The reciprocal traffic exchange agreements used by Value Added Network providers  (EDI communications for retail and manufacturing supply chains) are a good example of agreements  designed for the  good of the subscribers.  Being able to transact with any trading partner on any VAN makes perfect sense. The EDI Comms Market, as presently operated by most VANs and service providers will  not be a good place to innovate and capitalize  if  traffic reciprocity  is reduced to mere leverage to kill  off one’s competitors. 

The silent ascent to GXS traffic routing abuses is quite  troubling, to say the least, as a failure to act on behalf of the market’s best interests. The Parent Companies who recently acquired  a few well-used VANs: Opentext, IBM, and Liaison – To my Colleagues….I ask why?

by Alan D. Wilensky

Rising above the noise can be a challenge. The coverage of the B2B IT market can only be termed followers ink, with the GXS Inovis Merger a particularly toothsome example that deeply scarred my bright-eyed innocence. Witnessing the misplaced,  corrupt hosannas flowing from the analyst’s pens, was doubly disturbing, due to the complete absence of any countervailing  opinion recommending against the acquisition.

Fortunately, true quality cannot be hidden, nor can it hide. Innovation that begets the rare, defining methodology, or a new architecture, is unmistakably genuine and  instantly recognizable. Professionals with highly tuned discernment routinely detect the false notes of those crowing about innovation, which invariably is traced to a corporate leadership wafting their lack of credibility behind them.

Private or Sovereign Equity constructs an ersatz business entity that self declares its leadership, and purchases such a large subscriber pool, so that the Golem is briefly insulated  from the consequences of  misguided, anti-networked market policies. Inevitably, the truth leaks out. PE can’t acquire a founder’s heart, dominance of will, or the loyalty of a leader’s key line-management. Massive funding in order to  exploit the sharpest blade in the network effect toolkit…..is a strategy missed by our erstwhile regulators for a year, two, or even three, but even AT&T faced a massive divestiture and consent decree. But for those in the vanguard, time is in short supply, and such vanguard thinkers are by their nature, impatient.

There is an overwhelming sense of dissatisfaction in the EDI Comms market; I believe that new opportunities will be actualized when a forum for innovation (fixing B2B message routing and traffic reciprocity) is created. Such is lacking in the present B2B market. To compete in the open, by one’s wits, showcasing an unmistakable sense of  quality and fitness, this is the arena sought by revolutionary thinkers in the B2B sector. That  is what I fight for in each and every engagement.

This sector is somewhat moribund; and if not entirely devoid of ideas, it exists as if arrested in the course a puberty of sorts, an adolescence that has endured far too long.  With the heydays of the VAN era  well past the sell by date of its peak, circa 1990-2005.

We are left with a comms market reliant on IP transport, which is fine.  The present application layer addressing scheme using an embedded envelope segment network addresses,  has potential advantages,  but these efficiencies remain theoretical due to inefficiencies in the present InterVAN routing regime.  A stillborn, application layer messaging market is the result of this stasis.

Moaning  about the  sector’s malaise and inefficiencies does absolutely nothing. Here are the hot button issues from my non-attributed survey research:

  • Industry-wide adoption of Machine Accessible Directory Services (enable ID portability and efficient migrations).
  • Standards-based  InterVAN attachment –   adhering to the standard allows placement of data on the inter-network paths.
  • Elimination of 1:1 interconnects in favor of  hierarchical routing.
  • Permissive attachment. Acts as a hedge against  exploitation of routing borders, or worse.  Routing exploitation is damaging to the entire industry.  The health of the market suffers when inter-network message handling is perverted.
  • The Reorganization of a EDI Communications Industry Association, CTO board seats. No agendas allowed other than the perfection of layer seven addressing and routing.
  • Give thought leaders and architects their just due, let the self nominated leaders show some stewardship by facilitation and sponsorship.

To be large, to have thousands of employees, to have the immense backing of PE – these attributes are all one-dimensional. They symbolize nothing that is intellectually substantial or emblematic of  a Company’s thought leadership.

However, size  and other headline-readable attributes , are not in any sense distinctive  to subscribers, to customers.

Professional B2B ventures adopting a platform after a stringent vetting are the true coin of the  realm. New B2B ventures bring a discerning yardstick to the sector, conducting nuanced platform research to attain  specific goals. Entrepreneurs, even in B2B IT,  balance innovation against risk.

If a platform delivers truly, the entrepreneurs  will adopt with calculated precision. In healthy connected markets, tools and entrepreneurial dynamism create all kinds of  synergy; the relationships created among platform builders and the application pioneers will create some of the most enduring partnerships to emerge from the B2B sector wars.

Is change possible in the VAN market, or are the recent consolidations and sell-outs simply the preface to the ultimate VAN exodus, and a step toward alternative systems and technologies?

Your collegial comments are welcome.

Standing Alone and standing fast, as the allies fled.

Standing Alone and standing fast, as the allies fled.

The boldest, bravest action I have ever witnessed in  business (where self-sacrifice is rare), is the antitrust lawsuit initiated by Todd Gould, Founder of Loren Data Corp, against the PE-funded B2B leviathan,  GXS Inc.

The EDI Communications market predated, then adopted Internet Protocol as the bearer of EDI data. All original Value Added Networks began life as circuit switched and leased line (PSTN) modem pools that were the original progenitors of A2A  routing.  In the 1970’s, as EDI became established in manufacturing supply chains, interconnection  physical via bisynch – but all of it taken together was a replacement for telex and twx (the original global message system for manufacturing) – these were tariffed teletype services, i.e., regulated by the FCC, as common carriage, and each message had bailment attached ….(each message was considered valuable and the carriers took responsibility for timely delivery of each message.) Telegraphy services could not refuse to relay traffic to competitive carriers  – thus one component of Common Carriage is Interconnection).

Computers and Data networking was a new concept to the regulators;  non-voice, packet store and forward using computers as switching and application host, was not only novel, but it gave rise to  new innovations and potential abuse.   FCC undertook “The Computer Inquiries”, a grand colloquy of testimony from experts and industry leaders, with the goal of determining if new regulations would be required to steer the FCC’s system of bureau-based enforcement, and the administrative law panels that heard testimony and adjudicated petitions for Common Carrier, Wireline Competition, Broadband, and several other communications markets.  The Telecommunications Reform Act of  1996, which deregulated a most of the content and pure data infrastructure  of  the IP universe, created and compounded confusion arising amongst EDI networks, or VANs, that were application layer 7 data messaging services. The FCC erred terribly in failing to tariff EDI Communications, and left a fallow field to wither under the 96 Act. Any company participating in the EDI driven supply chains, from the largest retailers to the tiniest suppliers, now has an AT&T style, most toxic monopoly to contend with – and this all courtesy of the FCC, and more recently, the USDOJ….now  in my estimation the most ineffective competition regulators in the entire Milky Way…along with Great Britain’s Office of Fair Trading. Exactly what does a true monopoly look like to these “govt chair sitters”.

“Non-Settlement” is the key Term-of-Art in Understanding VAN Interconnects

Interconnections between the legacy VANs, whether via hard-lines, modems, or IP virtual circuits in later days primarily refer to data carriage between two competing VANs, VAN interconnect agreements in the Internet era are “non-settlement, message traffic exchange agreements” –  a complex jumble of words for a the practical  accommodations made by the VANs to facilitate bidirectional messaging between any two subscribers on competing Networks.

Illumination:

Interconnections were deemed a market-driven necessity by the earliest VANs, as the first adopters would never have acceded to the requirement of corralling 100% of their suppliers on one VAN (these clients were powerful automotive manufacturing and shipping lines). EDI would thrive  only in a competitive market where subscriber choice came first. The  freedom to choose a VAN without the concern of routing dead-ends, kept the business healthy for years. Until the GXS fiasco, that is.

The freedom to choose or move to a competing VAN was ensured by liberal interconnection. This is the reason why networked markets deemed important by  the FCC always mandate  interconnection via tariff.

EDI messages between two transacting parties (a supplier Invoices a Retailer, in response to a purchase order) are bidirectional and balanced in terms of the messages sent and received, Therefore, VANs do not settle billing for interconnect traffic. it nets out to zero.

VAN subscribers pay for the messages sent and received  by volume measured in KC (kilo characters). VANs have historically granted interconnects under fairly permissive guidelines, especially in the industry’s earliest days until the dawn of the 2000’s, The mostly accepted formula for granting semi durable, interVAN connections is as thus:

“if a competing VAN requests a “trading partnership’ be setup with a subscriber on the home VAN, an interconnection will be established upon confirmation of the mutual trading parties”. Viola.

The most public and infamous refusal to interconnect was PE Funded GXS Inc,. against Loren Data Corp. The background of the dispute is covered by the author in several articles on this site. The important point is that the Founder of Loren Data Corp, Todd Gould, initiated the antitrust case against GXS, using his personal resources.

In our numerous public appeals to an industry which would anticipate future  deleterious actions of such pan-market sabotage, not one other company stepped forth to join the fight, or  came to the aid of Loren Data  Corp’s legal initiative –  though GXS’ damaging InterVAN traffic routing was  actually a preemptive strike against the Service Provider Sector.

GXS, having become all but unstoppable  due to its  purchase of  three major VANs,   had  leveraged a Network Effect routing  coup,  the likes of which the VAN sector had never imagined nor experienced before. The service providers as a collective group with no unity whatsoever, had no idea how to deal with these burnt earth. GXS tactics. So, with almost no  opposition, except what Todd Gould could muster. The result  a sector that has, by inaction, procured a malevolent dictatorship; a private enterprise controlling an increasing number of “magnet destination   network addresses”.

Could a new market entrant as a VAn or Service Provider operate without routes to GXS bound subscribers, all  Fortune 2000 hubs, retailers,manufacturers, etc. ? Would any capital source risk such an investment….without knowing beforehand that any new venture would be “Routing Viable” – no way.

Only massive capital of a PE fund, and the coordinated acquisition of a sufficient number of VAN properties, carefully executed to exploit the weaknesses of the “unfinished” VAN routing ‘non-architecture, could accomplish such a feat. The analysis could not be clearer – Routing Arbitrage and exploitation of the layer 7 EDI addresses was the original organizing principle behind Francisco Partners Funding of GXS, Inc. These are tactics the FCC and DOJ are supposed to be on-guard against…..but our regulators have failed us in a double agency failure –

Our competition watchdog laid down and waved through a HSR for many such acquisitions, but the coup de grace was Inovis. Why was so special about Inovis?  An incisive quote from Todd Gould illuminates the obscure:

“Inovis was the last competent VAN operator to stand briefly against GXS (speaking of the tiny, inner cadre of technical management holding a slim slice of Inovis equity), who first of all could operate and offer a transit route to GXS, at a price envelope we could potentially operate within – although that differential was a disadvantage compared to other EDI networks (who paid zero $ under standard non-settlement terms)”,

“Inovis was technically capable of operating the beast, which was  only required by  Loren Data Corp – the last VAN to be publicly denied a GXS interconnect to TGMS” – (Author’s historical note: Loren Data Corp’s ECGrid VAN had established  interconnection with IBM IE, and Inovis, pre GXS buyout – such that  astute readers truly understand  GXS’ latest  “daisy chaining” defamatory claptrap, is completely bankrupt on its face).

The FCC chose not to look even briefly at the distortion of the EDI messaging sector, although, there were ample arguments to apply the reasoning arising from the “Computer Inquiry Remands I, II, III”,-  the EDI market is  a “services market in which bailment attached, meeting all requirements for common carriage regulation”. Hit the buzzer on the FCC for the largest failure of intentional, regulatory blindness since….you name it.

The EDI VAN and Service Provider Sector now inherits the fruits of  collective inaction –  the grand prize for undistinguished market non-activism in the face of a toxic consolidation Presently, the sector finds itself bereft  of an effective means  to oppose GXS, a giant now franchised by a TransAtlantic, intragovernmental “star Chamber’ of competition regulators. These regulators played into the hands of a PE Fund that, to all appearances, wrote their script …and handed each agency their very own gilt embossed set of rubber agency stamps, in felt-lined cases with certificate of authenticity….

Each boxed set of rubber stamps given to the UK OFT and USDOJ has a hand-written note enclosed, that says “the check is under the felt liner, guy$”.

While we are at it, the e-commerce service provider sector leadership? What have they been doing for the last two years? Well, that will be my next post, but suffice to say that it’s has been a very, very Black several years for EDI businesses wishing to access that fragile, under provisioned and under architected routing mesh.  More to come.