German vendor goes live

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Can a European maker of sophisticated software successfully market itself in the U.S. and elsewhere?

That's the challenge facing German-based b-to-b e-commerce vendor Living Systems AG, which this fall has set off on a make-or-break venture to set up shop in the U.S. while simultaneously establishing new sales and marketing beachheads around the globe.

The four-year-old, privately held company, whose first high-profile job was building the initial technology infrastructure for eBay Inc.'s German operations, has topped Germany's "e25 List" of the leading pure-play Internet companies for the second year running. Now it has turned its attention to e-marketplaces, with a unique agent-based technology it believes solves some of the major obstacles to b-to-b e-commerce.

So, if b-to-b is truly a global phenomenon, this globally minded vendor should be able to compete with U.S. companies like Ariba Inc. and Commerce One Inc.-corporations that dominate the b-to-b infrastructure business stateside but are still setting up shop overseas.

"Germany is known for its products, but also known for doing a terrible job on sales and marketing," said Klaus Schottenhamel, CEO-president of Living Systems Inc., Newton, Mass., the company's new U.S. subsidiary. "We hope we can change that perception."

Indeed, Living Systems hopes to generate more than 25% of its revenue from the U.S. by next year, up from practically zero at the beginning of this year.

"They're going to face a challenge similar to that other famous Germany technology company [SAP]," said Laurie Orlov, analyst at Forrester Research Inc. "That means engineers who don't listen to marketers. That's their challenge."

Aggressive investments

To meet this challenge head-on, the Donaueschingen, Germany-based company is moving aggressively into the U.S. It formally opened its U.S. subsidiary last February, making the important decision to build an entire sales and marketing operation in the states.

Last month, it announced $10 million in funding and the addition of Internet gadfly Esther Dyson to its board of directors. The well-known Dyson, chairman of EDventure Holdings Inc., has made it her specialty to help innovative but unknown European vendors take their technologies to the world stage.

And just last week, the company hired a sales manager well versed in the U.S. market, naming Michael Cavanaugh, formerly national sales manager at Lockheed Martin Corp., as its new VP-North American sales.

Living Systems plans to take a chunk of its latest funding and invest it in marketing programs. Its focus, however, is not on broad brand-building or flashy print or online advertising. Instead, it is step-by-step forging a worldwide partner program, briefing influential analysts on the company and sponsoring a handful of b-to-b trade shows.

To date, the company's biggest marketing investment is with Boston-based direct marketing company Direct Results Group, which has crafted a lead-generation direct mailer program to help Living Systems make some initial customer contacts. A brand-building print and online campaign is in the works for next year.

Living Systems' parent unit has placed all marketing responsibilities for the U.S. market with the new U.S. subsidiary, Schottenhamel said.

"In the past, European companies have struggled in the U.S. because they've done sales and marketing here like they've done in Europe," he said. "There's a whole different selling and buying mentality here."

While Living Systems tries to make its mark in the U.S., the company is building a global network of subsidiaries in São Paulo, Singapore, London and Timisoara, Romania. With this effort it aims to ride its head-start in Europe into an advantage elsewhere around the globe, company executives said.

"It's very clear to us that this business must be won on a global scale," said Living Systems CEO and co-founder Kurt Kammerer, who spoke with BtoB from an airport in Barcelona, between stops in France, Spain and back home to Germany. "We must succeed globally or go bust."

 "We're best known as a b-to-b enabler in Europe," Schottenhamel added. "But that's not good enough. We have to go out into North America, and then throughout the world."

Unique technology

On top of dealing with cultural issues, Living Systems faces the challenge of marketing a unique, at times hard-to-describe technology. It has developed so-called "agent-based" technology that it says is more flexible and adaptable than traditional software platforms. That's important for companies that need to quickly change course in their b-to-b strategies, Kammerer said.

While its software can be used to build an e-marketplace-complete with auction, logistics and payment functionality-it is also flexible enough to play a role as "the glue" in a marketplace built on other vendor's technology, Kammerer said. "You can use our agents to connect with different vendors and different marketplaces," he said, noting that the software's platform is particularly suited for private marketplaces.

"Our direction is we're not competing directly with Commerce One and Ariba," Schottenhamel said. "That would be deadly."

In October, Living Systems rolled out what it calls its first "b-to-b ecosystem," which demonstrates the potential of the company's software. Steel e-marketplace MetalTradeNet AG, financial clearinghouse CapClear Ltd. and logistics marketplace AG teamed with Living Systems to create the ecosystem.

MetalTradeNet was impressed with Living Systems' reputation and client list in Europe, said MetalTradeNet co-founder André Radebach.

With the help of its unique software, "we developed MetalTradeNet within a short period of time into the first working metals b-to-b ecosystem," Radebach said. Living Systems' software agents, acting as electronic helpers, organize transactions across the various MetalTradeNet systems.

It's an elegant technology approach. But Living Systems must be careful not to get too far ahead of its customers, Schottenhamel said. "Most private marketplaces are just starting to learn what e-business is, and we're already on the next wave," he said. "From a marketing standpoint, we need to have a clear message. If it gets too complicated, you lose people."

Like other upstart e-marketplace vendors, Living Systems' goal is to land a major, industry-coalition marketplace as a customer. A deal like that can help a vendor make its name.

The company believes its global flavor is its biggest advantage. "That's our real strength. We have 250 employees in 20 different countries," Schottenhamel said. "We are truly international."

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