When General Electric Co. last fall announced plans to sell its Global Exchange Services business to technology buyout fund Francisco Partners for $800 million in cash and notes, pundits said it marked the official collapse of the hype-inflated first phase of business-to-business e-commerce. Indeed, many exchanges have since folded. But GXS has retained most of its 100,000-plus customers—and even makes money, according to company officials. President and CEO Harvey Seegers, who guided GXS, of Gaithersburg, Md., through the ownership transition, talked to eWeek Executive Managing Editor Jeff Moad recently about why many other B2B exchanges failed and why GXS is alive and kicking.
eWeek: Is B2B e-commerce dead?
Seegers: Its a very popular misconception out there that B2B is dead. Its just not true. Even in this terrible market, we processed over a billion transactions last year. Companies out there are doing real B2B stuff, and the amount of transactions is growing. For a variety of reasons, we were all distracted over the last couple of years by some of the promises around the public exchanges. And because that stuff didnt pan out, there might be a perception that B2B is dead. But nothing could be further from the truth.
eWeek: Will any of the vertical, industry-focused exchanges survive and do well?
Seegers: I dont think so. I really dont. One of the things weve done since weve been private, weve been out trying to beef up the talent pool by interviewing people that would not have wanted to come to work for us when we were a small subsidiary of GE, but with a private company with perhaps one day an opportunity for an [initial public offering], theyre very interested. A number of the people that interviewed are people who are on the senior management staffs of these public exchanges, and you hear things like "there are no transactions taking place, and the cash burn rate is embarrassing. Theres no strategy to improve things. Board of directors meetings are acrimonious debates between competitors." And you hear this from multiple sources. And you come to the conclusion that this ship is halfway underwater right now. All my data points say that those business models are fundamentally flawed, and they will not be successful.
eWeek: GXS is pushing into business process integration services. How will the BPI focus change the nature of a B2B exchange?
Seegers: Were all aware of the fact that one of the unfortunate problems that has not been fixed yet is what is generically called "swivel chair commerce." Thats where you have implemented a good B2B program with your suppliers, but the data that youre getting from your suppliers comes to somebodys terminal, and then it has to be rekeyed into other systems. Business process integration is all about taking that information that youre getting digitally from your suppliers and having it automatically be routed to the right legacy systems. And thats where were starting to see customers beginning to spend money.
eWeek: What makes GXS a better provider of that kind of service than, say, a traditional integrator, an Electronic Data Systems Corp. or a Computer Sciences Corp.?
Seegers: We have been around and have been innovating [B2B] technologies long before [B2B] made it on the front pages of magazines. So we have more continuous experience than any of the traditional integrators. Thats Point 1. Point 2 is that the software that we implement in these solutions is our intellectual property. The messaging gateway that is the cornerstone in these implementations is 100 percent our stuff. And theres nobody who understands our stuff better than our guys. Third, we have a strong balance sheet. We make money. And we have an installed base of over 100,000 customers who have been with us for a long time.
eWeek: Long term, how will Web services affect B2B exchanges such as yours?
Seegers: I think Generation 1 of application services provisioning failed not because it was a bad business model, not because so much capacity was built so quickly. I think it failed largely because the performance and reliability promises the ASPs [application service providers] were making were never delivered. And the reason they werent delivered was because the technology that underlaid the ASPs was the traditional client/server architecture. And that simply wasnt robust enough to deliver software functionality on demand. If Web services get built out the way the pioneers are envisioning it, I believe were going to have a "Generation 2" of application services provisioning that will be successful, that will be able to deliver performance identical to, if not slightly better than, what you would get if you were hosting the software on your own premises.
eWeek: Whats been the markets response to GXS going outside the GE umbrella?
Seegers: The market receptivity has been great. We have continued to win big business as a stand-alone company. Also, our customer retention rates have held strong at 99.5 percent. And as a stand-alone private company with Silicon Valley money, we are going to be acquisitive. We are, as we speak, evaluating a number of acquisitions that, depending on which ones we actually do, will build the business in terms of more vertical industries that we serve, will expand the geographical reach of the business and, hopefully, add some new technologies, probably around Web services.