It’s all about Networking. You read about it everywhere. Looking for a job? Network. Want to meet people? Network. Energy grid, Facebook, mobile phones, gaming—it’s all about the network. And then there’s the Supplier Network or more generally the Business Network, a nascent but promising form of collaborative connection of enterprises that may completely alter the way we do business in the coming years. Will you be ready for it? Or even more basically, what lies ahead for Business Networks? The answer to the future, as we will see, can come from looking into the past.
A Business Network is a group of interconnected companies with common interests, is mutually beneficial for the collaborating parties, and can achieve joint results that the companies might not be able to achieve individually. Participants may exchange ideas and information, find opportunities that they would not otherwise been aware of, discover more optimal suppliers for procuring, support mutual goals, and perform business and financial transactions. An electronic Business Network facilitates all this by providing a virtual network, and allowing companies from around the world to participate instantaneously, efficiently and securely.
But what is the future for Business Networks? In an Aberdeen Group study in March 2012, 43% of European companies surveyed and 66% of North American companies rate Business Networks as either Critical or Very Important. In the same study, companies indicated that the percent of suppliers identified on the network is 34% currently, and the percent planned for the next year is 40%. Similarly, Forrester Research data shows a 17% growth in Supplier Networks in 2010, and 22% growth in 2011. Furthermore, in their Market Overview of ePurchasing and Contract Lifecycle Management 2012, Forrester pinpoints four forces that are keeping supplier networks dynamic and competitive: cloud, vertical focus, “smart computing”, and increased value of networks driven by the exchange of business documents such as PO’s and Invoices.
An intriguing question is to ask whether there is tangible evidence that the Business Network concept will succeed as projected above. Is this hype, or the real thing? Undoubtedly, there are many factors will that affect the success or failure of Business Networks, but three that stands out are
- Critical mass of business partners
- Concrete benefits for the collaborating companies (primarily buyers and suppliers)
- Acceptable pricing structure
We are currently at a churning point, with different networks striving for critical mass, trying to ensure a mutually beneficial experience, and offering various pricing options. To look into the future of Business Networks, I offer you a look into the past. It is here where I will paraphrase a famous movie quote and let you know that I have just one word for you—plastic.
The credit card had a humble beginning. Rewind the clock some 60 years ago, and we find a businessman having dinner at a swanky restaurant when to his dismay he realizes that he forgot his wallet. He resourcefully pulls out his business card, signs it, and creates an IOU. Now what if—the famous “what if” question that entrepreneurs seem to always ask themselves—there were a way to create an IOU card for diners that would be accepted at different restaurants? Yes, a many-to-many mutually beneficial network. This was a novel idea, because there were already some merchant-specific cards available, primarily from gasoline companies to fuel America’s 1950’s passion for, well, fuel. From this kernel of an idea came the Diners Club card, the first independent credit card. Bank of America would later catapult this idea and expand from a network of restaurant industry specific merchants to create a card network that would be accepted by many different merchants worldwide. Underestimating the reach of a credit card network, Bank of America gave the card a rather geographically-limiting name “BankAmerica” card, which would later be changed to the more internationally acceptable term “Visa”.
Attaining critical mass became not only a goal for a successful network, but also an accelerator. The credit card started as merchant-specific, expanded to business specific, and now encompasses a world-wide, cross-industry network. As the network grows, so also does its value proposition and convenience. The history of Business Networks has many parallels to the credit card industry. As enterprise-level marketplace applications and networks began to form in the late 1990’s and early 2000’s, we saw a number of industry-specific networks. This was soon followed by consolidated networks, and now truly global, cross-industry networks are emerging.
Providing concrete benefits is also evident in the history of credit cards. No doubt a credit card is mutually beneficial to both the customer (buyer) and the merchants (seller). The customer has the convenience of not having to be limited by his cash on hand, and can transact virtually without exchanging hard currencies. The merchant is assured a secure financial transaction (if the customer defaults, the 3rd party financial institution still pays), and has reduced expenses of not having to process checks and cash. Both parties may end up doing more business, receive more desired goods and services for the customer, and generate more revenue for the merchant, than if there were no credit cards involved. In many ways, a Business Network can also provide these same benefits at the enterprise level.
But here’s the rub: who pays? Perhaps the most interesting and controversial parallel between Business Networks and credit cards is the pricing / value model. Different credit card models have been tried, and the test-of-time model is one where the merchant pays in the form of both a “commission” fee based on the value of each transaction, as well as an “interchange rate” which is a cost per transaction. If the customer pays in full and does not carry a credit, there is generally no fee for the customer. This is not unlike eBay, which charges the merchant /seller a listing fee plus a value-based transaction fee. An eBay customer/buyer pays no additional fees. Newspaper ads, Amazon, Craigslist (for certain job-related postings)—they all effectively charge the supplier-side only, just like credit cards. To look at just one Business Network example, the Ariba Network also utilizes a supplier-side pricing model. No doubt there will be some level of resistance to any type of margin-reducing fees, but in example after example, many supply-side merchants have accepted or at least acquiesced to this type of pricing model.
So when we gaze into the crystal ball for answers to our questions about the future path for Business Networks, it might help to examine the impact of the plastic card in your wallet. In many ways, the future of Business Networks is already written, and you might very well be sitting on it.
