Will the Internet Engulf EDI?(electronic data interchange)(value-added networks)

Internet EDI, with its efficiency and relatively low cost, is changing the course of value-added networks.

As internet-based electronic data interchange continues to gain in popularity, shoving aside the traditional value-added network, some industry experts say the venerable VAN's days are numbered. Traditional "EDI is history," says Warren Wilson, an analyst with Boston-based Summit Strategies.

But don't write off the venerable VAN-at least not yet.

There's no question that the Internet is forcing traditional EDI-the exchange of documents such as purchase orders and shipping notices between trading partners-to evolve toward a level that is more complex yet also more affordable and usable, a tool for virtually any business with a PC and Internet access. In contrast, traditional VAN-supplied EDI has typically been expensive to set up and maintain, with an adoption rate of fewer than 3% of companies. Industry experts put installation costs at between $5,000 for a PC-based system to $250,000 for a mainframe system, plus ongoing maintenance and transaction fees. Some experts also estimate that transaction times are reduced by a factor of ten.

But the Internet opens up EDI trading capabilities to firms of all sizes. "We have commitments for more than 100 thousand tons of steel to be sold, online, through MetalSite per month," says Patrick Stewart, CEO of MetalSite, an Internet marketplace handling product sales for Bethelehem Steel and other companies. "We have the capacity to handle as many buyers and sellers who want to participate on our Web site." (See sidebar, page 48.)

Web applications now on the market support the delivery of online purchase orders, shipping notices and invoices to virtually any company. Previously, this capability was only available to companies with EDI translation software and connections to particular VANs. "The Internet's promise as a low-cost transport mechanism with standardized formats and protocols offers many companies an alternative," says Shiwa Fu, a researcher with the IBM Institute of Advanced Commerce in Yorktown Heights, N.Y In addition to the cost of Internet access, he notes, the Net offers broad connectivity that links networks around the world, supports ease of use infrastructure, and offers a platform-independent means to exchange information.

Internet-based EDI transport also is beginning to take up a greater share of the overall EDI market.

Forrester Research reports that 57% of Fortune 500 companies have already implemented Internet EDI capabilities. Another research firm, International Data Corp., projects that revenues for EDI network services will increase from $1:1 billion in 1999 to almost $2.3 billion by 2003. Internet EDI's share of EDI transaction revenues will jump from 12% to 41% during this same time frame. Similarly, GartnerGroup estimates that by 2003, 80% of EDI transactions will be delivered over the Internet, making EDI accessible to more than a million companies.

Faulkner & Gray EC Research, which bases its projections on its own surveys of EDI users, offers more conservative figures. It estimates that Internet EDI transaction volume will increase to 24.4% of all EDI transactions in 2003, up from 16% in 1999. while total volume rises to 16.9 billion documents from 9.5 billion. Faulkner & Gray is also the publisher of EC World. (See graphs on page 48 and page 50.)

Saturated EDI Markets

"The classic electronic data interchange platform has nearly saturated the markets and applications for which it has been best suited," says Stephen Murray, research manager with IDC. However, he notes that the market is rapidly changing, with Internet technologies becoming the primary driver of growth over the next three years.

"People don't talk about EDI that much anymore, because it's been subsumed into a broader set of issues-managing supply chains and relationships between a collection of companies," says Andrew Whinston, …