Open vs Closed Networks – What is the difference?

I have been asked to explain the difference between open and closed networks a couple times over the last month so I thought I would try to frame up a definition and add some color to the debate.  There are several definitions that get tossed around in the marketplace depending on who is authoring their opinion and their motive in positioning their solutions.  I will not declare what the ‘right’ model is, but rather try to outline some of the aspects of openness and interoperability so that organizations and individuals can make their own conclusions based on their closed

In order to define the different dimensions of openness and interoperability, let’s first make some assumptions for the network environment:

  • The network or network(s) are providing a service to help facilitate communication from one type of organization to another.  For example, a network can help buyers connect with suppliers.
  • The participating organizations have backend systems that vary depending on their IT environment.  For example, participating organizations may have different ERP’s, plant maintenance systems, billing systems, sourcing applications, account payable systems, etc.
  • There are multiple protocols and standards for communicating.  For example, XML, EDI, Fax, cXML, PIDX, etc.
  • There are multiple communication types or ‘documents’ that are shared between the participating organizations.  For example, Request for Quotations, Purchase Orders, Invoices, Inventory Inquiries, New Vendor Enrollment Forms, Payment Statuses, etc.

When declaring whether a network is open or closed and whether they support interoperability, I think it is best to analyze three main areas:

1)  Network-to-Backend Systems

The first area of openness is the network’s ability and willingness to connect to the varying backend systems that are used by the participating organizations.  There are two different scenarios that should be considered:

Scenario #1 – A network would be considered open if it supports the ability for any backend systems to integrate and leverage the network.  Although some networks may be better tooled to help configure and support the different backend systems through their adaptor or translation services, so long as the network does not restrict or deny access to the different backend systems, they should be considered open.

Scenario #2 – With companies that provide both a network and backend applications, openness can also refer to the ability of the network provider’s backend solution to connect to 3rd party or competitive networks.   Although I would suggest this has nothing to do with the actual network’s openness, I raise it here as it does create some confusion in the marketplace.  In some cases, business networks have been pointed to as closed due to how the solution provider has designed their backend solution and not the interoperability of the network.

Let me use a smart phone example to help illustrate these two scenarios.  I can use the Apple iTunes network on non-Apple devices such as a Windows laptop (scenario #1 above).  Therefore, I would suggest that the Apple iTunes network for music, books, movies and other content is open.  Yet, when I use my iPhone, I am restricted to which networks I’m able to leverage for content.  For example, I have trouble buying books directly from the Amazon Kindle store as Apple has started to restrict (close) the interoperability with some 3rd party content providers.  You will find the same strategy with software companies who provide both backend solutions and a business network for inter-company collaboration.  These companies will often be very open to allowing their network to integrate to any 3rd party backend systems but may restrict the ability of their own backend solution to connect to competitive networks.

2)  Network-to-Network

This openness area refers to a network’s ability and willingness to directly connect to other 3rd party networks in order to pass documents or information back and forth.  A network would be considered open if it supports the ability to integrate and share information and documents with other 3rd party or competitive networks.   It would be considered closed if it refuses to interoperate with other networks and only allows direct connections to participating organizations that generate or receive the documents.

Network-to-Network interoperability is the use case that is usually referred to when individuals are declaring whether a network solution is open or closed.  However, it is not uncommon to have solution providers outline this definition only to point to examples of Network-to-Backend openness when they claim their solution is ‘open‘.  This of course only serves to create additional confusion but probably is effective in establishing the FUD they seek.

What is not confusing is how difficult it is to truly achieve Network-to-Network interoperability beyond some marketing messaging.  In theory, it is reasonable to expect networks to be able to interoperate and pass documents back and forth when the business processes are well established and there are accepted standards for the documents types.   However, it is completely unrealistic that interoperability is achieved when the document set widens to 8-12 commercial transaction types, participating organizations are able to customize the document templates and the business network includes collaboration through a portal user interface.  In addition, there are other barriers like content validation and network commercial pricing that make Network-to-Network interoperability incredibly difficult to achieve.

Over the last couple years there has been a lot of discussion about eInvoicing network interoperability in Europe.  Although this is a completely noble idea if you only focus on the Invoice transaction, it is a holy grail when you start to map out the full source-to-settle business process that spans 10+ document types, portal interaction by participants and the various collaboration that may be required.

3)  Network-to-3rd Party Partners

The third definition is related to the openness in allowing 3rd party partners and service providers to integrate their solutions to the business network and presumably add value to the information flowing over the network.  Example service providers might be financial institutions, logistics companies or credit rating services.   One can study the social networks like Facebook or the various app stores to get an indication as to what is going to be the range of openness with business networks.  It will no doubt be the case that each network provider will always govern who and how 3rd party services can interoperate with their network and its core transactions.  No network platform will be 100% open and all will take advantage of adding API’s that allow 3rd party services to integrate with the network if it helps the network grow its core business.

Here are some summary thoughts with regards to network openness and interoperability:

  • Some business networks claim that long-term success will require interoperability between networks.  They have at times pointed to the phone industry as an example where different networks interoperate with each other.  However, what was once a good example is now heading in the opposite direction.  There are many signs of closed models in the phone sector and in fact, if anything, the market is becoming increasingly less interoperable with the introduction of smart phones, apps, content stores, etc.
  • We will see the market consolidate into a handful of very large global networks before we see functional interoperability between the networks
  • We will see some forms of interoperability between non-competitive networks well before any competitive networks decide they will work together
  • Smaller niche networks who focus on 1-2 key documents will continue to lobby for interoperability while the larger networks will restrict interoperability to competitive networks that only address a portion of the source-to-settle document set.
  • The key focus for interoperability will be from the backend systems to the different network offerings.  As this integration becomes easier with less effort involved, participating organizations will gain negotiation leverage over the network providers by being able to more easily switch services between network providers.
  • We will continue to see different marketing definitions being leveraged as networks try to make openness and interoperability a differentiator for their network offering.

One thought on “Open vs Closed Networks – What is the difference?

  1. Great, clear summary of a topic that gets completely confused largely by self-serving comments from all the players in the space with competing agendas. I particularly find the folks who talk about interoperability, but fail to explain that it is for one document only, to be misleading.

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