Predictions for the Next Ten Years

Cloud Computing’s Impact on B2B Integration over the Next 10 Years

By Rowland Archer
Senior Vice President, Product Engineering and Chief Technology Officer

Our industry always seems to have a “buzzword of the year.” This year, the honor goes to Cloud Computing.  Is it a passing fancy, or a game changer?

I believe Cloud Computing is an unstoppable trend because at its heart, it is about lowering cost while increasing flexibility and reliability. Like anything new, it will have its ups and downs, but the economics are too compelling to ignore. As with all concepts that are hot and trendy, anything that can remotely be considered to fit the definition of a cloud is being rebranded to capitalise on the buzz. As a result, you have to understand the fundamentals to distinguish the real players from the pretenders.

At the core, Cloud Computing has three flavors of “as a Service.” First, the familiar Software as a Service (SaaS), which earned “buzzword of the year” honors a few years ago. SaaS is clearly here to stay. Over 10 years ago I heard the CIO of a major power utility say, “I will never buy another software license or do another implementation or upgrade if I have an alternative that is pay–as–you–go and get–what–you–need.”  That sentiment continues to fuel the growth of SaaS.

The second category of things you can “rent” from a Cloud Computing provider is Platform as a Service (PaaS). PaaS provides a running software stack, usually containing proprietary programming interfaces or APIs which allow you to develop and then run applications. Microsoft Azure, for example, is a PaaS. Azure lets you build and operate applications in the Microsoft cloud—a remarkable and telling move for a company that has made its fortune selling software, for use behind the firewall.

The third category is Infrastructure as a Service, which offers lower–level capabilities like storage and processing power. The promise of inexpensive, reliable, managed storage is not completely new. However, with Cloud Computing the overall costs of connecting to and using the storage has been reduced to a range that makes it extremely attractive. Hosted computing power has also been available for decades, but the key innovation with cloud is the ease of provisioning and adding power on demand.  Thanks to major investments in virtualisation management tools, you can provision a server in the cloud within minutes and add processing capacity just as easily.

Another dimension to the Cloud Computing model is that there are “public” and “private” clouds. The public clouds such as Microsoft’s and Amazon’s cloud services have received the most publicity. These public clouds represent some truly phenomenal investments in data centers and technology. But there are also vendors selling their own versions of the provisioning and management tools, sometimes bundled with hardware, which enables an individual company to set up private cloud in–house. Of course, the private cloud does not offer the same economies of scale as the public clouds.

B2B and Cloud Computing
What does the introduction of Cloud Computing and the associated changes mean for B2B? Most B2B transactions support the financial or physical supply chains— the movement of money or goods. The companies with the most efficient supply chains win. It’s that simple. Walmart is the world’s dominant retailer because they figured out how to use their supply chain as a strategic weapon. Once any company gains an advantage in supply chain efficiencies, competitors must match it or watch their market share shrink.

Cloud Computing will drive down the costs of B2B integration, and B2B integration is one of the fundamental ways supply chains get more efficient. The sheer volume–based buying power of Cloud Computing providers will drive better deals for infrastructure components than most companies can obtain on their own. In some respects, cloud is similar to a computing cooperative. 

In addition to lower costs, Cloud Computing is enticing because of its “pay for just what you use, when you use it” model. In the traditional IT model, a single company has to provision for peak usage, and then struggle to increase utilisation without sacrificing reliability. In some cases, companies have to provision five to ten times their average volume to handle cyclic usage spikes in demand. IT organisations are experiencing challenges similar to those often experienced by hotels and airlines:  un–utilised or under-utilised capacity is “dead cost.” As a result, travel companies that figure out how to boost utilisation have better margins—often spelling the difference between running at a loss or a profit.

Another major factor that contributes to supply chain efficiency is an active (instead of passive) approach to gathering intelligence. “Information can substitute for inventory” is one well–known example of an intelligence-based approach to supply chain management. Where does the information come from that makes your supply chain more active and adaptive? Much of it comes from your vendors, customers and third-party supply chain partners. You could try to build and maintain point–to–point interfaces to all of them, but it is unlikely you could do that as economically as someone who is already connected to most of their trading partners and is transmitting supply chain data today. 

At GXS, we are in an unusual position of both leveraging clouds and being a cloud. We are working on ways to leverage private and public clouds to drive costs lower, while continuing to build out GXS Trading Grid®, an integration PaaS. We also have SaaS offerings in the form of supply chain applications such as Active Logistics and Active Orders.   

GXS Trading Grid is an example of a specialised cloud. The base platform supports hundreds of open standards ranging from connectivity protocols to messaging standards and business processes. On top of that standard foundation, we built value-added business service APIs that make it easier to build and operate supply chain applications. For example, Trading Grid offers services to access and manage identity and transformation. Most B2B integration today is done with these tools and services–moving and transforming documents between trading partners and responding with status-based acknowledgements.

Supply Chain Benefits from Cloud Computing
By itself, Trading Grid has become compelling enough to convince companies to move 40% of the world’s B2B traffic over it. The future of our integration cloud will revolve around visibility and events. These are the core services of the Trading Grid cloud that will provide a strategic advantage for the companies who use it.

How does that work? Efficiency derives from time and cost. We’ve talked about cost already, but what about time? Computing has evolved over the decades from batch to interactive batch to event-driven and real–time. Each step in that evolution has enabled faster decision making and shorter response times. The bulk of B2B integration today is batch or interactive batch. There are hundreds of interesting events occurring in the supply chain at any time. Examples include a customer purchase, a freight delay or an order that represents a financing opportunity, to name just a few. GXS is building capabilities in our B2B Integration Cloud that allow us to capture event feeds from trading and supply chain partners. The events can be used to trigger notifications about exceptions in supply chain processes. This makes the Trading Grid B2B Integration Cloud active, not passive. The Grid can increase efficiency, not just move data at a lower cost. 

Each of these evolutionary steps in computing takes more compute power. Real–time event processing is much more compute-intensive than batch or interactive batch. The cloud computing model is a natural fit for making that capacity available cost–effectively and on demand.

And that is the core reason I believe B2B Integration Cloud Computing is here to stay. The unique combination of technology and process innovation offered by the cloud is going to drive adoption because it delivers sustainable business advantage. Darwinian principles will rule, and companies that leverage this approach will grow. As the use of the B2B Integration Cloud increases, the value of the cloud increases apace, resulting in a self-reinforcing, virtuous cycle.