But the trader, as it turned out, was megacustomer Enron, one of the largest energy-trading companies in the United States, as well as one of APB's biggest accounts. And the news just got worse from there. In the time it took APB to shut down the deal, the market continued to balloon, raising the loss to $750,000. "It was the blackest day of my life," says Crum. "People were crying on the trading floor. They didn't think we were going to be able to stay in business."
Crum agonized over whether he should press Enron to cover some of the losses. Finally, he went to his former boss, David Doctor, for advice. A similar event had occurred at EnTrade, according to Crum, who adds that, at the time, "David negotiated a settlement. But he said the whole thing ended up hurting the company's reputation so much that he always wished he had just sucked it up and taken the medicine. So that's what we did." (Crum himself had been in the EnTrade group that entered the earlier, costly out-trade.)
The loss left APB temporarily cash starved. Several managers were willing to forgo their paychecks. But then a funny thing happened: a lot of com- panies suddenly started shifting some of their trading away from rival brokers to APB.
"It was as if the industry felt bad about what happened and wanted to make sure we recovered," says Crum. The company ended up bringing in more than $1.5 million in commissions for the month -- its best month to that point. Ultimately, the year turned out to be a good one, with the bad trade representing 5% of revenues -- a tough hit, but far from fatal.
Feeling revitalized, in November 1999 Crum went to the Ernst & Young Entrepreneur of the Year International Conference in Palm Springs, Calif., to pick up an award. He says the hot topic was the Linux computer operating system and other "open architecture" software -- that is, software that could be had at little or no cost, that wasn't tightly controlled by any one company, and that could be freely modified. "It hit me like a ton of bricks," says Crum. "I'd been talking to the wrong partners. I saw I needed to make True Quote an open system, so that traders would feel like it was their system and other brokers would feel like it was their system."
Under the new vision, True Quote would embody what Crum calls an "open-access, broker-assisted model." Instead of requiring that traders do business through APB, True Quote would allow them to see information from and execute trades through any broker that chose to be part of the system. APB would have no explicit advantages or control.
Which raises a question: can True Quote make money? The system will be free to traders for a trial period, after which the company will begin charging a modest commission on transactions or a flat access fee, though Crum says that players who bring a lot of action to the system are likely to receive steep discounts. He believes he'll also be able to sell the vast trove of pricing and trading data that the system will accumulate if it's widely used.
Yet according to Crum, neither of those potential revenue streams figure significantly in the business plan. Instead, he says, the real money will come from two sources: first, from a partnership with a systems-integration company and taking a cut of the fees that that company earns from helping other players tie their computers into the True Quote system; and second, from licensing the software to companies in the energy-trading or other industries, so that they can build their own real-time electronic marketplaces.
"What we've really built here is a widget-trading system," says True Quote's chief operating officer Chris Edmonds. "It's good for any business that has to track anything in real time -- cargo, metals, bandwidth, airline tickets, auto inventory. It's a huge market." He estimates that license fees and integration for the energy industry alone will run as high as $300 million, and for all markets the figure goes "into the billions."
Meanwhile, competition is springing up fast. Enron, for instance, has put up a system open to all traders, although users can trade only with Enron. And electronic energy-trading marketplaces have emerged from start-up companies focused on the Internet, including such sites as HoustonStreet.com; Altrade.com; and TradeSpark.com, a consortium of energy companies and a B2B E-commerce engine named ESpeed. TradeSpark alone is said to represent 20% of all gas and power trades in the United States. But even if one or more of its competitors take off, True Quote will still thrive, insists Crum. "If other companies create good systems, I'm pretty confident we'll be able to connect to them," he says.
Crum concedes that other brokers are likely to offer some initial resistance to joining up with True Quote, but Edmonds predicts that "traders will drive brokers in our direction," in much the way that customer demand ultimately forced the airlines to cooperate with American Airlines' Sabre reservation system.
True Quote's license fees and integration for the energy industry alone could run as high as $300 million.
