Please note: This post originally appeared on Extol.com (EXTOL has been acquired by Cleo).
The Value Added Network (VAN) business began with a simple transaction that was manually transmitted within the grocery industry. The VAN was developed out of a necessity for companies to replace their traditional business communication methods. These methods included human interaction and the use of the postal service and the telephone. Communicating in this way caused severe “bottle necks” and held up the flow of data. This problem spawned the birth of the Electronic Data Interchange (EDI) standards. EDI was developed to help standardize the electronic flow of business documents. As this shift from manual to electronic business communications grew it opened up a market for how to exchange this data. Thus, VAN business emerged as a direct result of this shift in business communication.
The most common communications method at that time was “Bisync”, which required a telephone line and special hardware (modem). Using this protocol, a company would have to maintain a direct relationship and connection for each of their trading partners. Each of these relationships would require configuration, testing, and regular maintenance. The VAN allowed for one connection and to a central location. The company could then exchange data with all of its trading partners through a centralized “mailbox”. Even though the VAN required each subscriber to pay mailbox and kilo-character fees, this was more economical because the cost to maintain individual direct-connect relationships for each trading partner was much greater. Using a VAN was a more cost effective and efficient means of communicating than establishing and maintaining direct relationships with all of a companies trading partners.
Why then, you might ask, has the VAN industry significantly reduced its rates in the recent years? Essentially, business practices are constantly changing and evolving. Changes in these practices, which caused the development of EDI and VAN services almost three decades ago, are now responsible for the adoption and use of the Internet in business communications. The demand for data exchange is so great that with the advent of the Internet, innovators seized the opportunity and began developing new methods to communicate utilizing this new technology. The ease of use and cost reduction capabilities of the Internet help fuel this new shift in business communication. By using AS21 or FTP2via the Internet to communicate EDI data, a company can greatly reduce or even eliminate its mailbox and kilo character fees. Of course, this would require that they change their communications implementation. In order for a company to undertake such a change, the cost benefit would need to be substantial.
By implementing [AS2 or FTP] communications instead of a VAN, a company can directly reduce its operational expenditures on data exchange. Reducing operational expenses has a more immediate benefit to the bottom line than increasing revenues and as a result, these options become more viable. If expenses are reduced (for example) by $150,000 a year, that will go straight to the bottom line (revenues would need to be increased by close to $750,000 to have an equal impact).
1AS2 is a point-to-point method using a specific type of data encryption; one-time software costs generally exist
2FTP is a point-to-point method having both secured and unsecured options; one-time software costs may exist