GE Seeks to Profit From App Services

General Electric is testing the waters of the application service provider market by charging companies using its marketplace subsidiary — GE Global eXchange Services — for access to a series of homegrown applications.

The ASP service, called Express Marketplace, is still relatively new, but Harvey Seegers, CEO at GE Global eXchange Services (GXS), believes it could eventually become more profitable than the actual running of the business-to-business exchange. Its a viewpoint shared by other public and private exchange operators.

“Its generating a tremendous amount of interest right now. Weve brought on some early customers, and we expect to see some big-name clients signing on in the third quarter,” Seegers said. Including GEs own suppliers, about 20,000 companies are using GE applications.

The ASP offering is described as a natural offshoot of the companys very successful public market- place initiative. GXS was created from the roots of GE Information Services (GEIS), which operated a proprietary electronic data interchange network primarily for Fortune 500 clients. GXS still offers EDI services, but is increasingly moving those clients over to less expensive Internet technologies, as well as signing up a host of new clients that previously couldnt afford EDI services.

Today, GXS boasts a trading community of 100,000 companies. GE would not release financial results for the subsidiary, but Seegers said trillions of dollars worth of goods and services are being transacted on the network, and that GXS revenue is in the range of “half-a-billion” dollars.

The ASP service is based on applications that GE developed to conduct business with its own suppliers over the Internet. They automate such functions as auctions, demand forecasting, invoice and payment settlements, logistics, requests for proposals and requests for quotes. Companies are charged based on the number of applications used, the number of trading partners accessing an application and the number of transactions performed per month.

A group of railroad companies, for example, is using the auction application to sell off older locomotives and other rolling stock.

“Its going to take a couple of years for it [the ASP offering] to break even, but this is the aspect of the business I get most excited about,” Seegers said.

Earning revenue from value-added services such as “software-as-a-service” is ultimately the way most electronic exchanges will earn their profits, said Bill Paulk, vice president of eMarkets at IBM. He said exchange operators have quickly learned that charging transaction fees on business conducted over their networks is a low- margin opportunity. Suppliers and buyers also have balked at having to pay fees to conduct the same sort of business theyve been doing with partners for years.

“What we see working are applications that facilitate those business relationships — things like communication, collaboration and logistics,” Paulk said.