Tradeshift appear to have a love/hate relationship with OB10 – although I think they may be in denial about the love part. And this is why I wanted to get to the bottom of it.

I spoke to Christian Lanng, CEO of Tradeshift about his views on OB10. I expected Christian to be forthright and he didn’t disappoint so I’m pleased to present the conversation as it happened. There’s a bit of journalistic license in what follows but in essence this is our conversation. I make no judgment on Christian’s views. Some of it I agree with some I don’t but I’ll leave my detailed comments to a separate article.

Purchasing Insight logoPete: “We’d all expect a bit of banter between competitors but you’ve made it quite clear that you don’t like OB10. Is this a personal matter?”

Christian: “A few bloggers and commentators, including you, have noted that I don’t really like OB10 that much and that it seems at times like a personal grudge. But things are rarely so simple.

“Most importantly, while it’s true I’m not their biggest fan, there’s nothing personal about this at all – my opinion here is 100% driven by a professional perspective.”

Pete: “So what are the key issues you have with OB10?”

Christian: “ First, it’s their business model. When we launched EasyTrade as a free open network for e-invoicing in Denmark, there was an old lobby of EDI and e-invoicing networks who violently fought back. They had comfortably held onto 15% of the market for the previous 30 years, connecting the largest companies with each other and basically charging whatever they felt like.

“We wanted to change that and to connect everyone, including the smallest companies. At first we tried to convince the operators to introduce low-cost options for small businesses and they just laughed at us. There was no market they claimed. So we did it ourselves, introducing the world’s first open and free model for e-invoicing. It quickly showed it merits, connecting more than 70,000 companies in less than 10 months. With EasyTrade I believe we proved that smaller companies want to use e-invoicing but the existing business models were in the way. Once the buyer (in this case the government) realized that they had all the advantages if they subsidized the suppliers, the dynamics changed.

“Globally, it’s even worse. Right now, less than 11.6% of companies globally use electronic invoicing – if the value is as great as everyone claims, the question is “why?”

“You can get one of the reasons for this low adoption rate by asking the customers. Over the last year we talked to a number of CFOs, who all said they would never touch e-invoicing again because of the anger and frustration it caused to their suppliers. When we drilled down, we found they had tried to use OB10, basically giving OB10 a monopoly on their supply chain who then proceeded to charge their suppliers thousands of euros without delivering any real value and hence, there was very little adoption. This is a scorched-earth tactic which destroyed the market for everyone. The result is frustrated suppliers, angry overcharged CFOs who never got the promised value and a closed system with no innovation.

“Until e-invoicing providers learn to provide value before they charge, I’m afraid this will continue to be the case.”

Pete: “I think OB10 might acknowledge a bit of this criticism but to be fair I think you need to put some of the historic behavior in the context of the time. EDI was imposed much more aggressively in the 1990s. Looking at it now, in a world of open standards, it looks worse than perhaps it was. Having said that, it remains to be seen whether the big players – because it’s not just OB10 here – will change and adopt more openness, cheaper access to small suppliers and perhaps even embrace interoperability.”

Christian: “Which brings me on to me next issue, interoperability. Without interoperability, suppliers and customers will be prevented from switching networks while still being able to communicate with each other. This is a bad situation for the e-invoicing industry in the long run, as networks will become isolated islands without real competition, which again will limit adoption and value for the users.

“OB10 claims to want interoperability, but the claims are quite hollow when you start to analyze their behavior. One often-used argument is there is no case for interoperability, since only 0.4% of their traffic comes from other networks. Without pointing out the obvious chicken-and-egg problem of this argument, you can see how hollow it is when other networks get more than 25% of their traffic from other networks. (Basware among others quoted this number.) Confronted with this, they typically respond with the argument that they only interoperate with those networks that follow the same high standards as OB10 on compliance and VAT. But here is the thing; they are not better than anyone else. In fact they cannot even explain how they generate a qualified digital signature, which is actively authenticated by the supplier, which might be legal in a very narrow definition of a qualified digital signature, but is very far away from best practice.

“So I have a hard time seeing how they can actually stay on that high horse, if it was not about keeping everyone else out. Compliance is an amazing tool for this – not only do you get to keep the competition out, you also make them look like a fool in the process.

“I’m not naive and I understand they are a business just like everyone else, and that’s where I think you find the clearest explanation for why OB10 don’t like to interoperate: whenever they do, they lose money because of their business model of overcharging suppliers, money which they will not get if those suppliers are not in their network.

“So, in the end, I personally think this is not about compliance, but using compliance as a shield for anti-competitive behavior, but it doesn’t keep me awake at night because very rarely do companies succeed with this strategy in the long run. I believe that the true winners will always be those who try to provide value rather than locking people into their product.”

Pete: “I want to play devil’s advocate with this. I think there’s a stage in the maturity of networks when interoperability is both desirable and inevitable. It may well be that we are at that point now but I think it’s also true to say that before that point, interoperability provides a disincentive to invest in infrastructure.”

Christian: “I don’t agree but I do understand the point but let me move hastily on to my final point, and this is about OB10’s inconsistent position relating to interoperability.

“OB10 know that the attitudes towards customers and competition that I’ve described generate image problems for them and they are trying to rebrand themselves with a fresh coat of paint as a champion for interoperability and open standards. They are using the newly formed EESPA as a platform for this. This is probably the fifth interoperability initiative in the EU in the last three years, this time driven by the operators. Even then, we have chosen to participate because we don’t step back from debate, but we remain highly skeptical and believe EESPA should be judged by actual results, not talk.

“The bigger problem is that, at the same time OB10 that are doing this, they are taking out overly general software patents in the US on very simple methods that have been used in the industry for years. One patent (if valid) will make it very difficult for E-invoicing Service Providers to work on a standardized e-invoicing format without risking being in violation with the OB10 patent (See Patent No. US 8.010.452 B2 from Aug. 30, 2011). These types of patents amount to anti-competitive scams and anyone with any knowledge about EDI will be familiar with this. Incidentally, Mikkel Hippe Brun, my co-founder, already successfully challenged a patent in the EU when we still worked in the government and won. (read his blog about it here).

“I think it’s the utmost hypocrisy to talk about wanting interoperability at conferences, wasting people’s time in expert groups about interoperability and at the same time take out industry-crippling patents. Until they explain why they are trying to patent stuff that is common knowledge, any talk about open standards and interoperability by OB10 should be ignored.”

Pete: “I agree with the point that overly general patents can be a bad thing in that they stifle innovation, but you can hardly blame OB10 for that. It’s commercial suicide not to actively manage intellectual property. You only have to look at Apple and the tablet wars that are raging now to understand how critical IP protection is. Businesses have no option but to protect themselves – it a tough, kill or be killed world.”

Christian: “Don’t get me wrong, I agree that’s the way the world works, BUT my problem is how OB10 are trying to positioning themselves as a champion for interoperability in EU. You can’t have you cake and eat it too. Nobody sees Apple as a champion for openness, but if Google tried to pull s*** like Apple, they would be called out. I’m just saying the same, if you mean what you say about supporting interoperability in the EESPA, why are you then taking out patents, at least put a non-assertive covenant on them or it’s hypocrisy.”

Pete: “You said earlier that your concerns were purely professional but it’s sounding more and more personal.”

Christian: “No, it’s not personal, really. Not in the sense you mean anyway. But I make no apologies for my passion and yes, I guess passion is a personal thing. The fact is, this kind of anti-competitive behavior threatens to ruin our industry and I feel very, very passionate about that.”

Pete: “That’s fair enough and I think I know you well enough to know that you wouldn’t let personal emotion cloud your commercial behavior. So what is the commercial agenda?”

Christian: “ You’re right. There is a commercial agenda. Just being p****d off at the competition does not accomplish much, and that’s why in Tradeshift we are so dedicated on trying to change the dynamics of what we see as a broken market.

“And that’s why we want to challenge the industry to put its money where its mouth. We will and here are our promises for 2012 and beyond.

  • We promise to create real value for all our users and never charge suppliers.
  • We promise to support open ecosystems and will always keep Tradeshift open to anyone who wants to integrate, as long as they deliver value to our users – just go to http://developer.tradeshift.com and get started, no legal or other fake barriers.
  • We promise to let anyone use our patents without royalties (and yes we have quite a few on the way) if they promise to let us do the same. (Patent Non-assertion covenant).

“So how is that for interoperability OB10. Up for the challenge?”