The e-invoicing mandate and the reality of “free”

The e-invoicing mandate and the reality of “free”

There’s a guy that wants to know how to learn how to negotiate. His friend, a professional buyer, explains to him that all he needs to do is to offer half of what he’s asked for when buying anything. Armed with this new skill, he goes off to buy himself a suit.

“That will be $200 sir” says the tailor. Our negotiator responds with an offer of $100.

“You drive a hard bargain” the tailor replies “but as I like you, you can take the suit for $100”

Our negotiator fixes the tailor with a stare. “$50” he snaps.

Realizing what’s going on and keen to serve other customers, the exasperated tailor gives the suit away. “Take it. It’s free. Just get out of here”

Negotiator: “I’ll have two”

Purchasing Insight logoI can relate to this. I have a Kitchenaid mixer. You know the sort. Every self-respecting celebrity chef has one. They look great and they’re not cheap.

Without going into the details, I have a contact who occasionally gets them for free. Nothing dodgy – they may be slightly shop soiled or have been used at an exhibition – that kind of thing. They’re as good as new with reliable provenance. And mine takes pride of place in the kitchen – collecting dust. I never seem to have an opportunity to use it. In any case, if I did, I’d only have to wash it up.

Recently my contact said she had another one available and did I want it? It would be nice to have a spare one I thought, in case the first one broke.

There’s an odd psychology to “free” – it makes us behave in irrational ways. What was I thinking? I already have too much of something and I want more of it. Why? Because it’s free?

There’s a growing number of players out there that have been seduced by the power of free. Inspired by successes like facebook, they see an opportunity to build a network by offering some sort of value add for free in the knowledge that the value of their network will grow, literally exponentially. Metcalfe’s law describes how the value of a network is proportional to the square of the number of connected users. It’s driven the success of social media and in the enterprise space, start-ups like Tradeshift. It was the driver behind the success of the supplier networks like Ariba.

There’s no such thing as free of course. Those that believe that facebook is free have failed identify what the product is. You, your likes, your favorites and your friends represent highly valuable data to marketers. Facebook isn’t the product – you are.

And Metcalfe’s law isn’t the only law in town. There’s another law – I call it Eflactem’s law? This law states that the value of a network is proportional to the square of the number of connected users – same as Metcalfe’s law – but it’s used to describe networks that fail to add a perceived value or those that are superseded by a more attractive competitor. Just as the network can grow exponentially, so can it disappear at a frighteningly fast rate – you could call it the Myspace effect.

I don’t wish to be misunderstood. Facebook, Linkedin, twitter – they are all good examples of how “free” and Metcalfe’s law can be exploited. Tradeshift exploited “free” and the network effect and they carved out a credible market share very rapidly. They are now, quite rightly, concentrating on the value add rather than the gimmick. But my concern with the fetish of free that the internet age encouraged is the level to which it is misunderstood and in particular, the interpretation of governments looking at encouraging the use of electronic invoicing.

One of the themes that has come out of the various government sponsored intiatives in Europe recently is the recognition that any mandate for e-invoicing, however gentle, should be couched in the language of “free” to suppliers. No-one would argue with the free portal option for micro businesses, but to extend the idea of free to medium sized and bigger businesses is bonkers.

Snail mail feels free, or at least very inexpensive, but it’s not. Scale a business that needs to send lots of invoices and the cost of franking machines and mail rooms starts to become important. They’re not free, but importantly, they’re less expensive than mailing invoices manually. And this is the point. The e-invoicing service providers – the OB10s, the Baswares, the Aribas and the Tradeshifts – they are the mail rooms of the electronic age. Delivering safely, legally compliant documents is what they do and if governments want to mandate that, they need to recognize that it can’t be done properly for free.

You get what you pay for. If you want free, you’ll get something that has no value. Free comes with all kinds of caveats, all of which represent a cost and if you buy a product for free, remember, you’re the product.

Pete Loughlin can be found on twitter @peteloughlin

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