A few days ago, I posted about Ariba and Tradeshift’s unlikely “tete a tete” at Tradeshift’s event in Davos.  An alert reader kindly shared with me the approximately 1o minute video of the Skype conversation between Christian Lanng CEO of Tradeshift and Alex Atzberger, President of SAP Ariba, moderated by a CNBC journalist.

The video is amusing for several reasons:

• About two minutes of audio for one of Christian’s responses is mysteriously missing. (This immediately reminded me of the 18.5 minute gap in Nixon’s White House tapes!  Who does not love a good conspiracy theory!)
• There are only two logos on the screen–Tradeshift and CNBC (no SAP Ariba logo). (Perhaps the new SAP Ariba logo was not shared in time?)
• A key word “interoperability” may, or may not, have been uttered-twice.

The Substance

The video is news-free (and not especially scintillating), but there is an interesting exchange towards the very end.  Forgive my poor transcription skills, but Christian said something resembling:

“As networks, we have to think about:  How we create better “interability”  (I put this word in quotes because I’m not sure what the word was). How can we bring these solutions together for our users and essentially for all the suppliers who are struggling with trying to deal with many solutions?”

This is a really important topic.  Alex responded with an example of connecting the SAP Ariba Network with another organization’s database to help end slavery in supply chains.  Alex added:

“I hope Christian and I will come up with good ideas in the future about how our companies can work together to come up with an open environment to actually move information forward and provide data to make the world run better.”

I’m not exactly sure how to interpret that noble sentiment.  Neither was Christian.  A clearly surprised Christian Lanng replied:

“Yeah, maybe we are kind of announcing, I don’t know breaking news here Alex, if we are going to talk “interability” (there’s that sort of word again) between Ariba and Tradeshift.  That would certainly be news within the industry.  But I agree with you, so let’s see if we can make that happen.”

It is a noble sentiment and very much-needed.  Big suppliers right now have to connect to a bunch of networks most of which do not interoperate.  The current situation is better than connecting 1:1 to each and every buyer, but it’s still a mess.  (Take a look at the chart in this post from lab supplier VWR.  Most of those procurement tools have their own “closed” networks.)

Interoperability Won’t Come Easy

But interoperability between networks will not come easily.  Not just for technical reasons, but for commercial reasons as well.

Let’s take the case of Ariba and Tradeshift.  The two companies could undoubtedly figure out how to make POs and Invoices flow from one network to another by setting and adopting a few technical standards along with some mapping.  But suppose they did.  Tradeshift’s buyers could now have access to Ariba’s suppliers on the Ariba network to send POs and receive invoices without these suppliers having to register on, and interact directly, with the Tradeshift network.

• If Ariba does not charge suppliers for those Tradeshift Buyer-originated transactions, Ariba’s supplier fee model degrads and Ariba’s suppliers would encourage their buyers to go to Tradeshift.  Ariba is unlikely to welcome that dynamic!
• If Ariba charges suppliers of Tradeshift buyers, Tradeshift starts to undermine its “no supplier fee” model and new suppliers would probably have to register on the Ariba network to get billed, thus negating the benefits of interoperability for suppliers.
• Tradeshift and Ariba could, of course, avoid this problem by having an interconnection fee agreement as telecom networks do.  In this arrangement, Ariba would likely charge Tradeshift (not suppliers) for its “lost” supplier revenue and Tradeshift would presumably add this extra cost into its buyer fees.  That approach is not likely to go well with Tradeshift I suspect.
• Finally, the two networks could simply agree to completing each others’ transactions with no fees changing hands (in telecom this is called Net Zero Payment or “Bill and Keep”.  But with the difference in size between Tradeshift and SAP Ariba’s networks, a Net Zero Payment approach would benefit Tradeshift (the small network) much more than SAP Ariba (the large network).

Basware Interoperability

It’s not an easy problem to solve.  However, one of mutual competitors to Tradeshift and Ariba, Basware claims to have partially solved the issue of interoperability.  Basware claims to have a network of over 200 networks who interoperate for e-invoicing.  (See here.)  This is quite an accomplishment, but the interoperability is limited in several ways from what I can tell:

• Most of the participants are in the Nordics (though there are a few North American networks)
• Interoperability seems to extend only to invoices, which is a small part of the procure-to-pay process.
• It’s not clear what the financial model on interconnection fees is between networks.  (Perhaps a reader will know.)  I suspect no fees change hands, which small networks with limited interaction will readily agree to, while larger networks will have more to lose.

Summary

If you are interested in the subject of interoperability between networks:

a)  You are really a nerd (like me) and you need to get a life.

b) You might be interested in a presentation I put together on the issue or a post on the same subject.  (See here and here).  Interoperability is a recurring conundrum throughout the history of networks ranging from railroads, to pallets, to mobile phone network operators all the way to B2B POs and Invoices.  Here are just a few examples of networks that had to work through interoperability issues:

The bottom line is that interoperability gets talked about a lot and for a lot longer than suppliers want before it is achieved–if ever!