Gazing into DFM Industry Future(s)

Disclaimer: This article reflects the views of the author (Vic Uzumeri) and does not reflect the policy of DFM Data Corp. It is offered as a service to readers to stimulate thought about issues relevant to DFM Data Corp’s mission.

When the world faces massive uncertainty, it’s tough to map out believable strategies. That’s when I like to apply a technique that I learned from one of the iconic auto designers of the past few decades. The idea is to write short “stories” for each of the futures that you think might be plausible or important. These stories are not predictions. No one is putting odds on whether one story is more likely than another. However, the collection of plausible stories can give the reader a sense of what possibilities might occur. It is up to each reader to decide which ones they believe or discount, what they think the odds are for each one, and which futures most closely fit with the reader’s goals and priorities. If you disagree with a scenario, simply adjust it or write one to your liking. With that caveat, here are six possible futures for handling phantom data and data sharing in the dynamic freight matching (DFM) industry.

Baseline Assumptions

  • The DFM services industry evolution will mimic growth patterns of other Web information brokering services (search engines, marketplaces, online shopping, etc.).
  • Economies of scale for data sharing (as seen in similar industries) will apply to DFM services and providers.
  • This exercise focuses its examples around one aspect of data sharing, namely the elimination of “phantom data”(PD). This was chosen because it is simple, mathematically inevitable and similar to phenomenon in other web services evolutions. However, there are other (possibly many) data sharing opportunities that exhibit similar economy of scale effects. Some examples are cross-listing loads on multiple DFM boards, assembling “big data” to make operations more predictable, and co-brokering. Those considerations will likely amplify the effects that are predicted for PD.
  • DFM service providers will remain aggressive competitors and will resist external regulation and/or voluntary coordination. In other words, the cats will resist being herded.

With these factors in mind, we can identify at least four plausible ways that the DFM industry’s future might unfold.

Future #1 – Do Nothing

There are now roughly 250 “dynamic freight matching” (DFM) providers with various sizes and interests. Yet, together, they only have 5% of the total freight brokering market.

AS DFMs Grow and Overlap
When BigCos Have Driven out SmallCos

Given their relatively small market share, at first most DFMs don’t see phantom data or other data sharing issues as a problem. They’re taking loads from traditional brokers and their loads don’t yet overlap many other DFMs. However, they are all planning to grow and at least a few will recognize that PD-caused double-booking and orphaned postings are a form of “spam” that could (likely will) become a serious problem.

Soon, as DFMs proliferate and grow, the PD spam grows exponentially and begins to inflict real pain. A handful of companies recognize the threat and over a year or two, they push to accelerate their growth. They know it’s easy to eliminate phantom data within their systems, but it’s much harder to purge double bookings across other companies. The simple answer is to buy up or take market share from their competitors. As the fast-growers expand with internally clean data, they’re increasingly surrounded by DFMs that are beset by data quality problems. This pattern continues until most DFMs have been forced out of the industry.

Three years later, a few big players are left to duke it out for dominance in the industry. Whether that goes to last man standing (think Google in search engines), or stops with a half dozen giants (BigCos), is probably unknowable right now. The key outcomes in this future are:

  • 230+ DFMs are driven out of the industry.
  • A half dozen (at most) BigCos are the only choices left to shippers and carriers.
  • The big survivors control all of the data in the industry. Their proprietary controls and safeguards are whatever they feel like doing.
  • With few competitors, the BigCos have inordinate power to set prices and dictate services. “Any color you like as long as it’s black.”
  • With the loss of the smaller firms, a lot of industry tribal knowledge disappears. Somehow BigCo isn’t as good at organizing exceptions as the broker you used to have.

Future #2 – Government Tries to Help

As Future #1 kicks off, brokers, DFMs, carriers and shippers see the writing on the wall. They’re going to be at the mercy of a few BigCos. With nowhere to turn, they lobby State and Federal governments to help rein in the worst excesses. Activist policy-makers establish a government-authorized clearinghouse for shipment and load data. It might be a government agency or it might be a private organization with government blessing. Either way, it collects booking data from DFMs and returns purging data. It assesses a fee for its services and DFM participation is not optional. The key outcomes in this future are:

  • Many of the original DFMs survive. With clean data, they can operate as niche businesses based on their specialized industry knowledge.
  • The BigCo DFMs still get bigger, but no single company can dominate the industry.
  • The government gets a real-time window into ALL of the booking data in the industry.
  • The government agency publishes some data to help DFMs, but it is slow to adapt and late to respond.

Many, if not most, DFM companies will dislike this future enough to actively or passive-aggressively resist. Even though it looks like it might help a bit around the edges, it never gets the buy-in or technical leadership to achieve much success. Eventually, the economy of scale forces from Future #1 will kick back in and the industry will consolidate anyway.

Future #3 – Third Party Data Cleaners Proliferate

Ever-vigilant tech startups notice the DFM industry’s PD plight. Some may be existing DFM providers. Others are “drop-in” techies from Silicon Valley and other industries. Each one has a super-cool cloud platform to collect booking data and purge phantom loads. Just sign here.

As they jockey for market leadership, they all hit the same wall. You can’t purge double counting unless you can collect ALL of the bookings from ALL of the DFMs. Or at least you need a critical mass of industry bookings to make the purging savings meaningful. None of these “data cleaner” startups are able to assemble the market coverage to make their technology effective. A few limp along with other services and partial benefits, but the majority just fade away. Eventually the industry ends up in back in Future #1 with a few BigCos that have absorbed everyone else. The key outcomes in this future are:

  • DFMs pin their hopes and fee payments on solutions that never fully deliver.
  • Frustrations with the balkanized services give the concept a bad name.
  • Eventually, we see the same outcomes as in Future #1, but they happen a little bit later.

Future #4 – The Industry Tries to Cooperate

Recognizing the looming problem, the industry builds an industry association to address the issue of data sharing. Maybe the association is blessed by State or Federal governments or maybe not. Regardless, the association is created to pursue industry members’ priorities. It takes a year or two to wrangle the members to start the association and another year or two to organize, hire a neutral technology provider and tackle the data sharing challenge. While all of this is happening, the consolidation described in Future #1 is still under way and the rapidly growing BigCos are solving the problems with their internal scaleup. SmallCos are disappearing or subservient to the big boys and the key outcomes in this future are:

  • The industry spends a few years trying to assemble a non-profit organization to solve what is a mostly technological problem.
  • When the association is up and running the BigCos are big funders and control its priorities and operations.
  • Constant suspicions and contrasting priorities slow the process.
  • By the time the association’s pedestrian data sharing solution is online, the BigCos have swallowed up the SmallCos and we are back at Future #1.
  • The BigCos duke it out for dominance, possibly allowing a few SmallCos to huddle in their shadows as constrained niche players.

Baseline Review

Despite everyone’s best efforts, all roads will eventually lead to industry consolidation. If you want to visualize the result, consider how the search engine industry used to contain names like AltaVista, Excite, Infoseek, Yahoo, Lycos, Inktomi, and AskJeeves. Now it has Google and (barely) Bing. The inherent economies of scale made this inevitable. Similar economies of scale (i.e., PD and its like) will probably do the same for DFMs.

The Patent Wild Card

US Patent 7755518 (see full text at Google Patents) is in effect until mid-2025 and describes many, if not most, of the day-to-day operations of a typical DFM. Depending on the Patent Holder’s decisions, the DFM industry futures described above may be narrowed to two major possibilities.

Future #5 – Constructively Earn and Extract Value

DFM Data Corp has secured the rights to operate and sublicense under US Patent 7755518. The founder of DFM Data Corp is the Patent Holder and one of the original Patent authors. This makes DFM Data Corp uniquely positioned to offer a data cleaning solution to the industry. DFM Data Corp has worked for several years to create a win-win solution. The objective is to protect the Patent Holder’s interests in a way that supports and strengthens the vitality and diversity of the DFM industry. The key design elements can be summarized in three parts:

First, DFM Data Corp is offering a blockchain-based system to provide neutral cross-checking of load-posting validity. In collaboration with respected technology leaders, it maintains a central clearinghouse and supplies each partner DFM with code to do the required data cleansing.

Second, it will put this system under the policy governance of the DFM companies that use it. That includes giving the DFM industry controls over future add-on services and pricing.

Third, DFM Data Corp will supply each Member with a license that protects their operations from patent claims due to Patent 775518. Given the breadth of Patent 7755518, this license may effectively vaccinate them from other potentially Patent issues related to DFM.

In this future, DFM Data Corp will onboard DFM companies in 2021. As companies join, they are instantly insulated from Patent worries related to USPTO 7755518 and, if they wish, they can engage in the active governance of the data sharing and cleaning system. As more companies join, the system will clean a greater share of the industry’s bookings. The participants might adopt a “good housekeeping” symbol that members can display on their websites.

Ultimately, everyone will be a participating licensed member … except the companies that refuse to cooperate. That’s where Patent 7755518 comes into play. Those companies are infringing the Patent and face the associated uncertainty and aggravation. The goal is to use Patent 7755518 as a (hopefully gentle) prod to get their attention and bring them into the fold. Hopefully, when the Patent expires in 2025, the “good housekeeping” seal will have enough value that no DFM industry entrant will be able to prosper without it. They will join the data cleaning services and ensure that the DFM industry’s data is clean industry-wide. Ultimately, this will produce the following key outcomes:

  • Everyone in the industry can clean their loads through a neutral, non-competitive clearinghouse, secure in the knowledge that most or all of the loads in the industry are protected from double-counting.
  • Control over this process is distributed among DFM industry companies in a fair and democratic way.
  • The industry can collectively decide whether or how to expand the data clearinghouse services to help with other industry data sharing problems and opportunities.

Future #6 – Sell the Patent into the Wild

In this future, DFM Data Corp attempts to achieve Future #5, but DFM companies reject its overtures. The year 2021 passes without progress. Faced with a 2025 deadline to exercise his rights, the Patent Holder pursues other options. The Patent Holder could sue to collect damages, but that would be complex and expensive. It would be easier to partner with or sell it to some party that is positioned to use it more effectively.

One plausible approach would be to sell the Patent to an existing industry heavyweight. Imagine a DFM BigCo with the technology, financial clout, AND Patent 7755518. If anything, that would accelerate the drive to industry consolidation. A broad Patent might even give the BigCo Patent Holder some protection from anti-trust concerns. The following outcomes could be dire for the other DFMs:

  • Acrimony, distraction, disruption and uncertainty for everyone involved.
  • Small, innovative companies are scared out of the market by the turmoil.
  • The companies that survive are the ones with the biggest legal budgets … BigCos again.
  • All of the SmallCo DFMs are forced to sell at fire sale prices.
  • In two or three years, the BigCo that bought the Patent accumulates the DFM business for the entire trucking industry.
  • Shippers and carriers are forced to deal with one DFM, both because the competitors are gone and because that BigCo DFM has total control over the data.
  • Shippers and carriers are forced to settle for the DFM services offered by the dominant DFM provider.

The PATENT exists and it isn’t going away. It can only be used, sold or discarded. DFM Data Corp is trying to use it to protect and grow the diversity in the DFM industry. (Note: If the Patent is sold to a BigCo, the only DFMs that could operate freely would be the DFMs that signed with DFM Data Corp and received licenses before the Patent was sold. )

Bottom Line

None of these speculative futures are real – yet. They may not occur at all. However, it’s plausible that the future of DFM industry data cleansing will involve at least some elements of these possibilities and each is worth considering.

DFM Data Corp is committed to implementing Future #5 and building a win-win solution for the industry. How fully it succeeds will depend on how many friends and collaborators it can find among the companies in the DFM industry.

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