Harbinger Stretches Internet EC Curve

Believing that 1999 is the year IP-based e-commerce will achieve critical mass, Harbinger Corp. (Atlanta) has launched a three-point strategy to position itself at the forefront of the evolving Internet e-commerce market.

Announced in mid-February, Harbinger's strategy includes: an IP-based transaction portal for business-to-business e-commerce; migration of all customers from legacy to IP-based connectivity; and a new research and development (R&D) division.

The announcements are a culmination of events that have taken place at Harbinger over the past several years, according to Ron Rosenthal, VP of corporate marketing and communications for Harbinger. "We have invested quite a bit of money in Internet technology since 1994 and have done an awful lot of looking at the marketplace over the past 12-15 months," he says.

"Business-to-business e-commerce is experiencing tremendous growth, particularly over the Internet and extranets," says C. Tycho Howle, chairman and CEO of Harbinger. "Harbinger's new initiatives directly target this trend, and I am confident that we will be a major beneficiary and that our initiatives will cement our position as the market leader in mission-critical, IP-based e-commerce."

The first component of Harbinger's strategy is the establishment of an IP-based transaction portal for application-to-application e-commerce through harbinger.net. With application-to-application communication, an intermediary facilitates the relationship between different companies, bringing order to the trading community, according to Rosenthal.

"We really think that harbinger.net as a portal will offer kind of a quantum leap forward in terms of how Internet commerce has been done previously," Rosenthal says. "We thought perhaps harbinger.net would be a better way of providing IP-based connectivity to our user base."

Harbinger.net -- actually a service accessible via a standard Web browser -- has also been designed with the capability to intuitively understand the data formats and business rules on either end of a transaction, according to Rosenthal. This versatility is expected to make the Internet portal useful for both Harbinger and non-Harbinger customers.

The second component of Harbinger's strategy addresses the migration of its customers from more traditional forms of connectivity to IP, using the harbinger.net portal. As part of this initiative, Harbinger is offering a software upgrade that includes a newly developed communications module, harbinger.net Pipeline. The Pipeline is designed to provide for real-time communications to the harginger.net portal. The company expects that more than 50 percent of its network traffic will move to IP connectivity by the end of 1999.

"Harbinger is focusing on IP-based e-commerce, with the understanding that some customers may not have immediate plans to migrate to IP," Rosenthal explains. One alternative, for example, is to continue to use value-added networks (VANs).

With the help of harbinger.net Pipeline, "we will continue to offer our VAN customers the ability to migrate to IP," Rosenthal says. "It's important to note that once someone migrates, they are not cut off from the existing world of VANs because harbinger.net is interconnected to these VANs. It has the ability to communicate with the Harbinger VANs as well as outside VANs."

The third component of Harbinger's strategy is the establishment of Harbinger Labs, which are expected to help the company focus on the delivery of new standards and technologies for Internet e-commerce. Harbinger announced in mid-February that between 20 and 25 percent of its research and development (R&D) budget will be channeled into the labs, which will focus on new technologies rather than extensions and enhancements to existing products and services.

One industry analyst gives Harbinger "good marks" for its understanding of the changing e-commerce marketplace. "Of their direct competitors, Harbinger is the first to embrace the notion that the VAN business is being cannibalized, and if they don't eat their own children, someone else will," says Scott Lundstrom, VP of research with AMR Research Inc. (Boston). "This becomes a way for them to aggressively retain ownership of their own base and to potentially yank some of the base away from some of their less IP-centric competitors like GE Information Systems (Rockville, Md.) and Sterling Commerce (Columbus, Ohio)."

Lundstrom finds Harbinger's announcement "an encouraging change in vision and strategy," but admits, "It'll take some time to see if they're going to be successful with this."

One factor that could upset the scales against Harbinger is the move away from charging relatively expensive transaction fees. "IP reduces revenue per customer, introducing the risk that a company wouldn't make up the difference in the volume of transactions handled," Lundstrom says. "For every dollar that's victimized by declining cost, they have to find a new source of revenue. That's a relatively low probability outcome, but it is a risk."

Another risk here is that Harbinger's direct competitors will follow quickly, rather than remaining in a state of denial about IP-based mission-critical e-commerce. "In the case of Sterling Commerce and GEIS, you have businesses that are very committed to that VAN revenue stream," Lundstrom points out. "They have business relationships with the people that make up that VAN infrastructure and have established VAN contracts that they are going to be unwilling to convert into lower value relationships. Every time the business model changes in a way where the costs are reduced, there are vendors who are going to follow aggressively along that curve, and there are vendors that are going to hold back as long as they can."

The majority of the e-commerce market is already set up to allow for a limited number of transactions to run on IP. "When you really dig into it, you tend to find out these systems are hybrids -- where, for example, the orders run on IP but the electronic funds transfer still runs on the VAN," Lundstrom adds. "Harbinger is making an aggressive move to clean up hybrid e-commerce implementations, which make use of VANs as well as direct IP technology."

Harbinger also chose the mid-February timeframe to announce the integration of its ERP, customer asset management and global network systems as part of what the company refers to as "operational excellence." Essentially, Harbinger announced it will invest approximately $15 million, or about 10 percent of its annual revenue, on infrastructure improvements designed to lower costs and enable consistent "best practices and processes to better serve new and existing customers."