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The X-(ML) effect - Views on News from Equitymaster
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  • Jun 21, 2001

    The X-(ML) effect

    Globally, B2B (Business to Business) e-commerce transactions are expected to touch U.S $ 8.5 trillion by 2005 according to Gartner group. From a figure of US$ 433 bn in 2000, this translates into a CAGR of 81% for the next five years. We have been hearing this for quite sometime and of course, the numbers keep changing as different people put estimates. Therefore, the demand for B2B related solutions is going to grow proportionately.

    The B2B e-commerce transactions are rarely carried over the public Internet domain. These are done over private intranets of which, all the transacting partners are members. The messages that are transferred are structured in a specified format. As the process of electronic data interchange (EDI) takes place over the private network the transactions are far more secure as the membership to the network is quite limited.

    However, there are two drawbacks. Firstly, the cost of subscribing to a virtual private network is high. Also, the messages of both the parties that are involved in a transaction have to be translated to a common structures, which will be used for EDI. Therefore, both these entities need to have translator software that will translate data from their business applications to the common messaging structure and back. This again adds to the cost of operations.

    Of course, with the solutions in the security domain increasing businesses are slowly using the Internet to transact business. Now, the need is for a standard using which these companies can understand the meaning of the transacting partners data. XML is the answer. XML stands for extensible markup language. It is an open and flexible way of formatting data for electronic interchange. XML uses user-defined tags or labels to identify and organise data.

    XML is quite similar to HTML (Hypertext mark up language), which contains tags or symbols to describe the contents of a page or file. HTML describes the content of web page (mainly text and graphic images) in terms of how it is to be displayed and interacted with. For example, the letter "p" placed within markup tags starts a new paragraph. However, XML describes the content in terms of description about the data. For example, the word "price" placed within markup tags could indicate that the following data was information regarding price. Therefore, XML makes it possible for business application software to locate the relevant information in a message and route it appropriately.

    Using XML, data with descriptions can be transacted over the public domain and the best thing is that all major enterprise software can read and understand these labels. Companies will still need business-to-business integration software that actually moves data securely and reliably from one companyís ordering system to anotherís order receiving systems. Together these technologies help cut costs and make the supply chain more efficient. Thus, improving the bottomline for the companies. According to AMR Research, automation of purchase order transactions can save chemical companies upto US$ 90 per transaction, a drop of 90%.

    EDI has been around for decades, but XMLís value proposition is that the data is in a format that is most easily understood, can be edited, transmitted, and integrated with other enterprise software. Therefore, it results in cheaper operations. This is the reason why it is gaining popularity in virtually every industry.



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