TradePower’s businesses form a three-legged stool. Right now, that third leg, the digital marketplace, is the weakest. But if the company’s venture capital backers (at Boston Ventures) are correct, someday the third leg might dwarf the others. Details of the digital marketplace are available at www.tradepower.com.
TradePower’s other two businesses are:
• Estimating software for electrical (and mechanical) contractors. Estimation, formerly the name of a company, is now a software product.
• Business software for electrical distributors. This arm grew up as Trade Service Systems (TSS).
Tom McVeigh, who hailed from TSS, was the first chairman of TradePower; he’s still on the board. Mike Llewellyn, who came from Estimation, then took over; he was relieved in January, and also is still on the board. The company consolidated operations in late 2001, moving almost everyone from Estimation’s former headquarters near Baltimore to Blue Bell, Pa., TSS’s original home.
More importantly, TradePower evolved its digital marketplace sales pitch. Earlier, distributors had to pay a “transaction fee” for every dollar sold via the marketplace. As of November 2001, contractors have had to pay $120 per month for the service, and distributors have paid $2,000 per month.
This change was made to overcome a major hurdle. Many distributors do not make much profit on sales—some in the range of 1 to 2 percent. When TradePower’s “deal” was expressed as a percentage of sales, it brought objections.
At any price, where’s the value?
The key, according to company sources, is not cutting distributor prices via e-commerce, but producing savings for contractors and suppliers in the buying and selling process.
Here’s how Llewellyn explained it: “Let’s assume the contractor and distributor have a TradePower relationship. When the call comes in, the distributor’s person and the contractor’s person go through a quick definition process—a conversation. The seller finds out what the buyer wants. A lot of times, contractor people use slang for specific products.
“With our system, the distributor’s person then enters the order into the computer. That order is routed electronically to the contractor, and it’s never re-keyed. Estimation spent the past five years working with Timberline, Geac, Dexter+Chaney, and other accounting systems. We know how to route that order to the contractor’s business system so it can be used.”
Savings in process
TradePower, then, converts that telephone order into an electronic document. Contrast this with the nonelectronic alternative:
• The order is telephoned (or faxed) in.
• The distributor creates a purchase order (PO) on paper, which is mailed or faxed to the contractor.
• The contractor’s people have to key in that purchase order. They might try to match it with a handwritten document from the field.
• Later, the distributor invoices (on paper).
• When the invoice arrives, the contractor’s people have to match it with the PO manually and then rekey the information.
With all of this rekeying and paper-shuffling, errors can occur. Nonelectronic contractor-distributor “commerce” typically involves resolving disputes over what was ordered when, by whom, and whether or not it was paid when due. TradePower’s service is aimed at eliminating that.
“You can go to a TradePower contractor working with one of our distributors, and watch the electronic order acknowledgement pop up, quickly,” said Llewellyn. “And, the same day, you can see the ones come in the mail from days earlier. “For the POs that come in on paper, the accounts payable [AP] person has to type. There are a lot of chances for error. In some companies, the AP person talks to the field people and says, ‘Could you please buy from Distributor X (the TradePower distributor)—so we don’t have do the rest of this stuff?’”
The digital marketplace is very young; it came out full-bore in June. The current period is the “trailblazing” stage for TradePower because:
• as many as 350 distributors use TSS software;
• of those, 60-odd use TradePower “storefronts” to run a Web-based version of their businesses; and
• of those, some 20 percent are using the digital marketplace.
“The key is the process savings for the contractor,” Llewellyn said. “I hear this all of the time—from contractors who realize what our system can do—that if a given distributor prices a product at a nickel, and a TradePower distributor will sell it for seven cents, the contractor is more likely to buy from the guy at seven cents!” EC