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Can EDI Survive XML Challenge?

In a hushed exhibit hall in the British Museum in London sits an unimposing slab of black rock. On its face, in three different ancient scripts, the ancient Egyptians carved a decree praising their king Ptolemy V. This famous piece of basalt, called the Rosetta Stone after the town in Egypt where it was discovered, enabled modern scholars to unlock the mysteries of Egyptian hieroglyphics.

Businesses today face a challenge similar to that solved by the Rosetta Stone: translating documents they receive electronically from their suppliers or customers. Though not written in hieroglyphs, purchase orders or invoices from one company may as well be written in ancient Egyptian when they are transmitted electronically to another firm.

For years, EDI -- Electronic Data Interchange -- has been the means by which companies overcame this hurdle, exchanging documents electronically in common formats. The process is widely used: over $2.5 trillion worth of transactions go through EDI today -- an amount roughly equivalent to one-third of the gross domestic product of the U.S.

Then XML came along. Frustrated with EDI's shortcomings, 40 technology companies teamed up in February 1998 to use XML-based technology to synch up their supply chains, exchanging documents such as purchase orders, invoices and shipment notices. The non-profit consortium they founded -- called, appropriately enough, RosettaNet -- today counts more than 400 technology companies as members.

While there are efforts underway to use XML as a common standard for communication in a number of industries, RosettaNet is by far the furthest along. In part, that may be because of the fast-paced nature of the high-tech industry.

"Once an EDI connection is established," says Mary Schoonmaker, RosettaNet's vice president of marketing, "it's pretty solid, which is great for established, long-term business relationships in places like the automotive industry. High-tech, however, is much more dynamic."

XML-based technologies like RosettaNet, says Schoonmaker, let companies make connections much more quickly than traditional EDI. Schoonmaker cites one RosettaNet member, who manufacturers laptops. Their build cycle is 14 weeks, she says, and they frequently use different suppliers for successive generations of laptops. "They want connections with suppliers that can be set up and connected really quickly," she says, "and then disconnected just as quickly when that particular project is over."

Another reason for RosettaNet's quick progress may be the heavy hitters in the technology world who are behind it. Intel, for one, is pushing both its suppliers and customers to begin using RosettaNet. The $26 billion a year chip powerhouse uses RosettaNet for processes such as order management, backlog reporting, invoicing and payments. The company expects to use RosettaNet for more than 50% of its transactions by next year, and to retire EDI completely three years after that. So far, Intel has RosettaNet connections with over 50 suppliers and customers, and has seen errors in transactions drop by two-thirds compared with EDI, according to the company.

RosettaNet is gradually expanding beyond its core base of technology companies into related industries such as telecommunications and consumer electronics, says Schoonmaker. Finnish cell-phone maker Nokia, for example, joined the group last year.

EDI Not Standing Still

But while RosettaNet has been forging ahead, EDI has been evolving as well. One of the limitations of EDI, for example, was that it was too expensive and complicated for smaller companies to use. That is no longer the case, says analyst Ken Vollmer, Research Director at Giga Information Group.

"Up until about three years ago," he says, "there were limited options for small to mid-size companies to do EDI. But now there are systems that use email, or forms on the Web, that provide pretty good solutions for enterprises of that size."

One such hosted service, called TradeWeb, is offered by Global eXchange Services, or GXS, which was recently purchased from General Electric by technology buyout fund Francisco Partners. TradeWeb, which requires nothing more than an Web browser to use, lets smaller companies use EDI over the Web. Users choose a form from a library created by GXS, and enter their data. GXS then routes the information electronically to the trading partner, in a standard EDI format, and notifies the sender via email when the document has been received.

Hosted solutions are growing increasingly popular as smaller companies discover they are no longer locked out of the EDI economy. DaimlerChrysler has approximately 6,000 of its suppliers in the U.S. and Mexico signed up to use TradeWeb, according to GXS. The volume of transactions conducted over TradeWeb roughly doubled in the past year, says John Radko, chief architect at GXS. IBM, Sterling Commerce, SPS Commerce and other firms offer similar hosted solutions.

Hosted EDI solutions are relatively inexpensive, according to Vollmer, ranging as low as $50 to $100 a month. "That is not a big expense, even for a small company, if it lets them do business with their larger trading partners," he says.

While a big step forward, hosted solutions are still not a perfect solution, at least for the smaller companies, says Vollmer. "It's great for the large trading partners, because they get standard EDI documents coming in," he says. "But the little guys normally have some kind of internal accounting package, and the data doesn't go into that if they're typing the information into a Web page."

Expanding the availability of EDI beyond a few large firms is helping it grow. GXS, which has more than 100,000 trading partners, saw its EDI transaction volume grow between 18% and 20% in the past year, says Radko.

And while XML may be getting more attention, says Vollmer, the growth in EDI is likely to continue.

"There are millions of transactions floating across EDI networks every day," he says. "It's a hidden huge pipeline between businesses that works very well -- but it's 20 years old, and it's not new and exotic, so nobody pays it much attention."