EMBED Word.Picture.8The Business Case for ANXÒ ServiceHistoryFactors in Business Case AnalysisFee Structure and Value PropositionCompetitionEMBED Word.Picture.8 The Business Case for ANXÒ Service(For case discussion in 15.823 on April 25, 2001with Jim Michels, VP Marketing, ANXeBusiness) “The automotive industry is experiencing a fundamental change in business processes based on data communications. Internet technologies such as web applications are giving rise to a new economy and have already radically altered the retail industry. They are now being introduced into every aspect of the automotive business.”- Alex PrestonCEO, ANXHistoryANX, an information super highway infrastructure company, was funded and endorsed by big three automakers. The automakers in mid 1990’s wanted to collaborate with the specific goal of creating a platform to define uniform standards for applications, common to all the auto manufacturers such as Electronic Data Interchange (EDI) , Computer Aided design and manufacturing etc. A common infrastructure platform was expected to bring considerable savings by enhancing application speed, data integrity and also by fostering stronger relationships with other players in the value chain i.e., component suppliers and manufacturers. Potential savings by integrating EDI platforms alone was expected to bring savings of $1 billion a year (approximately $71 per vehicle). ANX currently receives revenues from two main sources, SAIC the parent company and usage fees from trading partners. In calendar year 2001, ANX revenues were $8.1 million. Revenues for calendar year 2001 and 2002 are expected to be $24 million and $56 million respectively. ANX currently has 200 employees and expects to break even by calendar year 2002.ANXÒ Project BackgroundThe Automotive Industry Action Group (AIAG)1 is a non-profit consortium whose goal is to improve business and technical processes and set standards for the automotive industry. In 1994, AIAG produced a paper recommending that the auto industry create unified network architecture based on TCP/IP2. Subsequently, a team of Trading Partners(TPs) began meeting at the Automotive Industry Action Group (AIAG) to develop a business-oriented network service based on Internet protocols. From this mission, the Automotive Network eXchange® (ANXÒ), a leading-edge extranet service for auto industry was born.1 Refer to Attachment 1 for glossary of terms2 Refers to Tel2 – a paper produced by BellCore (Telcordia Technologies) describing requirements for ANX service15.823 Marketing and the Internet 1 April 25, 2001MIT Sloan School of ManagementCase prepared by Srinath Narayanan, MBA’ 2001 under guidance of Prof. Glen Urban, Alex Preston, CEO ANX & David Bradley,ANXThe ANXÒ Project was launched in December 1995. The project stemmed from the AIAG’s endorsement earlier that year of the Internet protocol suite (TCP/IP) as a data communications standard for the auto industry. The ANXÒ network is a secure, business-quality data communications network that links automotive suppliers and OEMs electronically over a single connection. The goal of the project was to develop an implementation plan for data communications links between trading partners to facilitate the highest degree of security and privacy for mission-critical data. AIAG hired Bellcore (Telcordia Technologies) to be the overseer of ANX. Bellcore established a range of quality-of-service (QOS) metrics to meet AIAG’s goals, and certified the service providers that would provide the ANX service under a competitive service model. The ANX automotive industry service went into full operation in November 1998. The major original equipment manufacturers (OEMs), GM, Daimler-Chrysler, Ford, Toyota North America, Caterpillar, Navistar and Paccar are key participants. Of the top 150 parts supplier, 2/3rd are ANX registered. Of the TPs, 85% are American and 15% are Canadian. ZYTEK the first European TP, joined ANX network recently. In December 1999, Science Applications International (SAIC) – parent company of Telcordia Technologies -- purchased ANX from AIAG. SAIC established a separate subsidiary, ANXeBusiness, to manage the ANX service and market it to other industries. Alex Preston was hired as the CEO of the new entity. ANXÒ Service OverviewANX service is a high service quality, high security IP Virtual Private Network (VPN) designed and operated to meet the needs of TPs (See Exhibit 1 for ANX Service Network). It is the sole global IP based VPN service for the auto manufacturers. An ANX CSP provides the facilities to support the connection of TPs to the ANX network. The security of data transmitted on that connection is supported through the use of industry standard devices that support data integrity, encryption, and user authentication via use of digital certificates (See Exhibit 2 for ANX Service Security). The ANX CSPs are interconnected through the use of ANX CEPOs. ANX CEPOs support the exchange of traffic between different ANX CSPs and also control the routing of traffic through route server. An ANX Subscribed TP is a Trading Partner who has completed the ANX subscription process. The ANX CSP providing ANX service connectivity to the TP provides the IP address to the ANXO. ANX Service performs as though it is a single network, regardless of number of service providers. The use of a multi-provider IP Virtual Private Network (VPN) provides key benefits to the TPs in terms of encouraging price competition while ensuring Quality of Service (QOS) certification requirements. Telcordia Technologies certifies the CSPs and the security gateway vendors. Currently there are seven CSPs: Ameritech, AT&T, Bell Nexxia (in Canada), Equant, Ideal Technology Solutions, Ipulsys and MCI. Other CSPs are to be certified soon. Eight IPSec gateway vendors have been approved: Alcatel, Axent, Check Point, Cisco, Network Associates, Nortel, Radguard, and VPNet.15.823 Marketing and the Internet 2 April 25, 2001MIT Sloan School of ManagementCase prepared by Srinath Narayanan, MBA’ 2001 under guidance of Prof. Glen Urban, Alex Preston, CEO ANX & David Bradley,ANXANX requires each CSP to adhere to a demanding Service Level Agreement (SLA). The CSPs must provide reports to Telcordia Technologies on their adherence to QOS metrics and Telcordia also monitors the performance of CSP from its own network operations center (NOC). A CSP must comply with a total of 130 technical