FRAMINGHAM (03/02/2000) - In their big rush to be first to market, digital exchanges have paid little attention to helping their users integrate online transactions with legacy computing systems.
Instead, most exchanges and digital marketplaces have been laser-focused on building liquidity by increasing the number of transactions that flow through the site - even though the buyers and sellers they connect might be entering and tracking data by hand.
"Right now, all of the entries are manual and labor-intensive," said Adam Braunstein, an analyst at Robert Francis Group in Boston.
Put another way, "The marketplaces are vaporware right now [because] none of the suppliers are connected," said Bruce Bond, an analyst at Gartner Group Inc. in Cambridge, Mass.
But there are signs that the focus is beginning to change.
Streamlined Steel Production
New York-based e-Steel Corp. is a prime example. The company recently announced technology that significantly streamlines the work required for steel producers to post inventory to the site.
Using a homegrown XML translation technology called DataJet, which e-Steel built with the help of vendors, steel producers can upload flat files describing thousands of inventory items to e-Steel. The tool converts the data automatically, posting the seller's inventory on the digital exchange quickly and in a format that's immediately searchable by buyers.
Until now, steel producers - each of which have unique data formats, protocols and product descriptions - had to manually convert that information to e-Steel's inventory format.
"The real value from an exchange comes from taking a transaction full circle, from the exchange back to an [enterprise resource planning] system" at the seller's sites, said Tom Costello, chief technology officer at e-Steel.
"Right now, we're in building block mode. We've put the technology in place to mass upload to the exchange. Now we need to communicate with back-end ERP systems."
E-Steel is working with Computer Sciences Corp. in El Segundo, Calif., and webMethods Inc., which makes XML-application integration software, to develop ways to plug into ERP systems. The three plan to create a standard industry protocol for electronically sharing data called the Steel Markup Language.
Other exchanges also are using outsiders to develop integration functions.
RightFreight.com, an online marketplace for transportation companies, and Need2Buy.com in the electronic components industry are using Extricity Software Inc.'s XML-based technology to eliminate manual re-entry of data on a trader's end.
"Integration is the new sticky aspect of a company's offering. By integrating systems, you become partners," said Lane Butler, vice president of marketing at RightFreight.com. "The first generation of digital exchanges were transaction-based. But going forward, they'll be relationship-based."
"We're definitely starting to see Net markets make headway on [back-end] integration," but that's just a baby step, said Bond. Manufacturers and suppliers will use the online marketplaces to exchange not only orders, inventory and transaction data, but also product design and other data on which they collaborate, he predicted.
"Today, it's all about business transactions. But in the future, it will be about sharing information and collaboration," Bond said. "Manufacturers and suppliers won't just have contracts for buying [on the exchanges]. They'll use them to design products together."