Tradia.com's Taking Barter To The Next Level
By Bob Meyer, Editor
The trade exchange industry traces its origins back to 1960 when "Mac" McConnell, president of a Los Angeles savings and loan, opened the first trade exchange by devising a system of debits and credits that allowed members to "trade."
Just prior to that, corporate barter came into existence when Allan Hackel and Jay Kaplan introduced the accounts receivable concept to Corporate America in the late '50s.
In those early years, the commercial barter industry labored with tedious ledger accounts--manually and arduously posting all trading activity. However, major advancement occurred in the late '70s with the advent of the personal computer.
Now, over two decades later, another new compelling technology will provide the barter industry with the ability to make further, dramatic strides forward.
The new technology, known as the application service provider (ASP), offers barter companies the technology to conduct multi-lateral barter transactions over the Internet.
Tradia.com, a Silicon Valley-based ASP company, has created this world-class software for the multibillion-dollar barter marketplace.
In layman's language, Tradia's technology enables a barter company's entire client base, regardless of size, to be trading in "real time" once listed. The "haves" and "wants" of every client will interact with Tradia's powerful algorithm (software programs).
After a lightening-fast search, the computer program disseminates the automatically-created matches.
Not only are the clients happier, but the resulting greater velocity of trading activity means more bottomline profit for the trade exchange or corporate barter company.
Furthermore, Tradia's technology has the ability to "mine the data" and predict future demand, which will enable the barter company to focus on securing various desired products and services, enabling faster growth for the barter company.
Most importantly, this super computer trading program isn't merely on the drawing board. It's available now. All the code is written and in use.
And the economics are extremely compelling, as a barter company gets all the benefits of this multimillion-dollar system on a pay-as-you-go basis.
Tradia is a neutral intermediary, their goal is to be the premier enabler, to the barter industry. As a technology company, they has no interest or desire to be in the barter business. Rather, they want to provide very powerful back-end services to the barter industry.
They are like what the Intel chip is to computer manufacturers, or a "neutral Switzerland" in the international business world, or what Windows 2000 software is to the business community. Their objective is providing cutting-edge technology to as many barter organizations as possible.
Founded in January, 1999, the company's "angel round" of funding was provided by Roger Sippl, of Sippl MacDonald Ventures and founder of Informix Software, and Ron Conway, of Angel Investors.
Six months later, two prominent venture capital firms, Sequoia Capital and Accel Partners, came forth with $13 million to further the advances of the break-through technology that founders Jens Christensen and Neguine Navab were building.
Millions of dollars, and over a year's worth of effort by scores of world-class engineers enabled the launching of a consumer, person-to-person site--Webswap.com--in February at the Demo 2000 conference.
The development of an ASP model for the barter marketplace followed in May. And now, Tradia's corporate identity is being unveiled with this cover story.
Tradia's decision to move toward the barter industry initially took form soon after David Berglass was hired in February, 2000, for the purpose of marketing the company's consumer site. He had previously worked at Henkel, a $12 billion-a-year German global behemoth.
But Berglass also brought experience that would open another vista for the company. For, at Henkel, he had handled excess inventory problems (of packaged goods, detergents, and chemicals) and interacted with corporate barter companies.
He immediately saw the practicality of Tradia's advanced technology being used by those barter companies. So Berglass approached founder and chairman Yens Christensen, asking, "Could we use our software to service the barter marketplace?"
In late spring Berglass and Randy Lowe began contacting some larger barter companies. "We wanted to see if our plan of providing them with our technology was feasible," Lowe disclosed.
Shortly thereafter the company brought in Jan Gullett--a seasoned but youthful CEO with Fortune 500 experience. He quickly formalized the path the organization would follow by splitting the company into two divisions: Webswap.com, the consumer-to-consumer division, and Tradia, the branded ASP (application service provider).
"One thing became very clear to us early on," Gullett remarked, "the marketmakers (barter companies) are the king pins of the industry, because they've built the customer relationships and they take all the business risks.
"So," he continued, "there's always going to be a need for their expertise, regarding the approval and selection process (which customer to work with, which deal to pursue, what should be the prices, etc.) These decisions will always need to be made--and you can't automate them."
However, Gullett emphasized, "while it was easy to recognize the importance of the industry structure as it is, we also believe that automation of the communication and data flow will improve a barter company's productivity. Measurably.
"We decided our best strategy," Gullett smilingly explained, "would be one that provides the technical back-end infrastructure to support these entrepreneurial marketmakers."
Tradia's executives are convinced they can magnify a barter company's productivity and make it much easier to do far more transactions faster, plus provide a sophisticated back-end processing operation that simplifies the logistics, accounting, and paperwork.
And down the road all of the companies could, if they chose to, (because of the common site platform) link together to create one huge barter universe--all the while maintaining their own individuality.
Individually, it's prohibitively expensive to duplicate what they've created. But when shared among multiple customers (barter companies) it's a different story.
"By deferring the costs among many," clarified Gullett, "we will always be better, faster, and less expensive than anybody trying to build this complex engineering themselves, and then running it off their own internal systems.
"Additionally," he pointed out, "the hosting and maintenance is very complex, and expensive as well, when done individually. But when shared, which is relatively easy to do, it's not such a difficult situation."
Rather than asking barter companies to pay for it upfront, Tradia will lease the software--thereby keeping the investment from becoming prohibitively expensive.
In short, a barter company of any size can use Tradia's high-end, object-oriented software in a most cost-effective manner.
As a 22-year old, armed with a Harvard MBA, Jan Gullett began his business career in 1977 at Procter & Gamble, the world's largest consumer goods company. Steve Ballmer, now president of Microsoft, was also a new P&G employee, as were Scott Cook, founder of Intuit, and Meg Whitman, now head of eBay.
And the next year, working just a couple of cubicles down from Gullett was another newcomer, Steve Case, of recent AOL fame. Gullett says his five years at P&G were invaluable, "they taught us how to commercialize technology."
A stint followed at Sara Lee Corp., a firm with $14 billion annual sales and a subsidiary of Consolidated Foods. At age 32 he was promoted to Senior VP of Mergers & Acquisitions and Strategic Planning at corporate headquarters--before a headhunter made him an offer he couldn't refuse.
Then, after heading up the national marketing efforts for the Kentucky Fried Chicken division of PepsiCo, he assessed his true passions and decided to move to San Francisco--entering the software industry.
Today Gullett's considerable sales experiences, coupled with his training as a scientist and technologist, sees him leading Tradia into new territory--providing services to an industry that he maintains has unlimited potential.
"The only thing inhibiting barter from being a dominant form of commerce is that it's now very cumbersome. Cash is, ultimately, much simpler to use. But that," he emphasized, "will be changed by using technology to make the bartering process easier, faster, and simpler."
He's bullish on barter for another reason. "There's been a tremendous expansion of credit in our nation. And there's not much of a difference between trade credits and other credits."
Gullett noted, for example, that Visa credits are just denominated in a different currency. More importantly, he ascertained, our thinking has changed. The notion of only doing business in cash, as was the case decades ago, is no longer true.
"Now everyone is perfectly comfortable in dealing with credits, and on credit." That's the reason, he contends, why the use of credit in the economy is growing so dramatically.
So Tradia's CEO believes the future will be credits, "and whether you call it trade credits or just credit, all of a sudden it makes barter more acceptable."
And once the necessary technological changes are implemented, it will be much easier to barter. Gullett stressed that barter "should be as easy to use and just as seamless as is the cash economy."
Moreover, he suggested, once the commercial barter industry moves forward, technologically speaking, there will be the opportunity for a gigantic amount of global trading activity, using barter (trade) credits.
"It's easy to see this form of barter commerce growing in the future, because credit is clearly replacing cash.
"Furthermore," he added, "you have a much bigger precedent historically for this kind of activity (barter) internationally than you do in the United States. In the more balkanized parts of the world, this is the way they've operated for years."
To see where we're headed with technology's assistance, and to learn more about Tradia, we began our questioning by asking about the power of technology. . .
BarterNews: You're very effusive in your comments about the future of barter, if and when technology is embraced. How will technology make such a dramatic difference?
Gullett: There's no question in my mind that it can. The barter business has involved, and revolved around, a lot of travel...many time-consuming face-to-face meetings, numerous phone calls, and multiple fax follow-ups.
Through technology we can substantially alter the way business is secured, increase transactional velocity, and lower operational costs.
BarterNews: By creating a more efficient operation?
Gullett: Basically, yes. But it's more than that. For the first time a barter company will have the ability, at the enterprise level, to develop and use knowledge about their barter clients that will enable them to create unique one-on-one relationships. For example, they could monetize a client's inventory returns.
Every manufacturer in America must take into account such returns, typically from 2% to 10% of sales. Tradia can set up an automatic system where a percentage of the returned merchandise will immediately be posted from their inventory books to a "have" listing and then moved, on barter. This would enable the CFO to take the information (evidence of bartered goods) to their auditors and have their accrual lowered.
A barter company will be able to customize their trading activities and the paths a deal will take by operating, when they choose, in a closed environment (such as when the client doesn't want the world to know they're bartering their inventory).
Or, they can choose to operate in an "eBay like" wide-open posting environment on the Internet for all to see.
They'll be building a powerful database of information, encompassing what their clients have and what they want. And then using the information to obtain future business based on past activity.
New possibilities will open, as well. A shifting of the paradigm, moving from a reactive situation which now exists in most corporate barter, to a more proactive one is possible. It's a matter of automating and legitimizing the process.
By using an expanded database, and instead of focusing on just getting rid of a truckload of washing liquid, for example, an expanded and searchable database could find a sale for numerous truckloads.
Then the situation becomes a recurring inventory stream, working with repeat customers who are constantly refilling the pipeline.
The pro-active use of barter, rather than today's reactive usage, can become commonplace when technology is harnessed. By aggregating inventories and finding larger buyers, profits would be enhanced and business relationships expanded.
And that's where the opportunities are unlimited, which is why we're really excited abut the future of the industry. We've looked all across the potential space of exchanges (vertical markets), and have concluded the place to "play" is in the barter industry.
We're convinced that sophisticated MIS internet and communications technology can drive dramatic growth to the barter marketplace.
Not only have we done our homework in this research, but we've met with some of the industry's leaders. And one thing has stood out in every instance.
BarterNews: What's that?
Gullett: In our opinion they all appear to be doing a fine job, however they're not equipped with the tools that could make their business life more efficient and profitable...as well as comfortable.
Barter can be a fairly complex transaction with synchronous and asynchronous trades, using both trade credits and the accounting effort.
Ideally, to consummate these kinds of transactions you'd want detailed, data-base structured communications with sophisticated accounting and back-end processing. We didn't see any evidence of this in the firms we talked with.
BarterNews: So your research convinced you to move in this direction.
Gullett: That was a big part of it, but there's much more. We also looked at the basic financial benefits barter offers, from tax deferrals in some cases (like 1031 exchanges) to the cash flow advantages and capacity utilization.
It was a case of thinking aloud, "Geeze, you know, if one applies sophisticated techniques to these types of barter transactions there could be tremendous growth in this industry."
To top it off, we observed the barter activity on our consumer site, webswap.com. We saw people from countries around the world shipping goods to the U.S., and getting various things in return.
In many cases they didn't have access to American currency to buy the goods, so they bartered for them. We recognized a message here.
It's very similar to what I saw on a higher level when I worked at PepsiCo. We would sell our Pepsi in Russia and take back Vodka as payment, which in turn we'd bring to the states and resell.
BarterNews: Could you tell us a little about the concept behind the application service provider (ASP) model?
Gullett: It all began a few years ago in the late nineties when some forward-thinking visionaries at computer networking, hardware, and software companies realized that more people than ever before had access to data networks--thanks to the Internet and related internet protocol (IP) networks.
Furthermore, in companies and countries around the world, the populace were using the same interface--a browser--to get these networks.
By combining these two factors--the nearly ubiquitous network access and a common interface--these creative thinkers realized that individuals, small businesses, and corporations could all use data and applications stored in a central location.
BarterNews: So Tradia's model will ease any information-technology burden on the barter companies?
Gullett: Right. They won't have to wonder if their PC will support a new application. Nor will they have to deal with time-consuming application upgrades every few months.
BarterNews: What will be required?
Gullett: Only a browser and an internet connection to access our software program.
BarterNews: So what you're saying, from the barter company's perspective, is that your applications appear to be installed and running on their own computer, or their in-house data-center. But in reality the applications are stored and executed remotely from your servers--via the Internet.
Gullett: Exactly. But there's another very important consideration here.
BarterNews: What's that?
Gullett: The barter company will have access to our skilled personnel. And our engineers will always be on the cutting edge--out in front of the crowd--technologically speaking.
They will be deploying solutions and developing skills to serve their clients, the barter companies. And that's the ultimate benefit of working with us.
Not to mention the fact that they will avoid the enormous initial financial investment that's required to go it alone, when attempting to create a similar technology infrastructure.
Why worry about funding, building, and maintaining a powerful network infrastructure when you can leverage what has already been created and made available to you.
BarterNews: I get the message. Outsource your needs in this area, and put your focus where you have the expertise--on your core barter business.
Tradia is located at 2585 East Bayshore Rd., Palo Alto, CA 94303. Web site: www.tradia.com; phone: (650) 320-1700; fax: (650) 320-1975. For more information contact David Berglass, Executive Vice President Marketing & Business Development or Randy Lowe, Vice President Sales.
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