Why Web services make business sense

Proponents say the services can connect the operations of many companies and partners simultaneously, allowing them to do business through any Net device, with real-time updates.

11 min read
Pitch: Why Web services make business sense

By Wylie Wong
Staff Writer, CNET News.com
November 8, 2001, 4:00 a.m. PT

Only a few years ago, the high-tech industry was afire with talk of "network computing" and "push technology." Then "PC-TV convergence" came into vogue, only to give way to "B2B" and "ASPs," which in turn were trumped by promises of "P2P" communities that would change the world.

After enduring a steady diet of next big things that have failed to live up to promises, technology companies can hardly blame businesses and consumers if they are skeptical. Yet software executives and industry analysts insist that the latest trend--dubbed "Web services"--has the staying power to fundamentally change the way software companies do business and how people use the Internet.

This particular architecture, everyone knows, is very fertile. But all of the business models have not been worked out yet. There is a lot of wishful thinking going on in this area, just like there was on the Web initially. -Dan Bricklin, founder, Trellix "It's already happening," said Dan Bricklin, founder of Web software maker Trellix, who has seen many generations of high technology come and go since he helped to create the first PC spreadsheet, VisiCalc, in 1979. "This particular architecture, everyone knows, is very fertile. But all of the business models have not been worked out yet. There is a lot of wishful thinking going on in this area, just like there was on the Web initially."

Regardless of its prospects, the Web services concept deserves examination if only because its most vocal evangelist is Microsoft, whose marketing prowess alone can turn an obscure idea into an entire industry. Although the notion of Web services has been bandied about for years, the software giant has given the idea new popularity with its grand .Net strategy, which is taking its first steps in the marketplace with the release of the Windows XP operating system. Microsoft is selling software that companies can use to build services while also offering a set of hosted services to businesses and consumers for a fee.

At first glance, Web services appears to be just the latest turn for an industry that has been historically dependent on aggressive marketing strategies to generate interest in products that are only at the drawing-board stage. But the burgeoning business has taken on particular urgency as the entire high-tech sector struggles for ways to survive the dot-com bust and a global economy that is on the verge of recession.

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Before the idea can succeed, however, the industry must explain what exactly that idea is--and how companies can make money on it.

"The problem with new technology is the people selling it don't know what people who use it want to do," said analyst Mike Gilpin of Giga Information Group. "After the people buy the stuff and use it, the people who sell it begin to learn what they actually want to do with it. And then they morph their marketing message to meet reality."

Details vary, but the most basic Web services link servers over the Internet to exchange data and combine information in new ways. These services run on Web-based servers instead of on individual PCs, allowing people to use them through any device that has Internet access, including cellular phones and handheld computing gadgets, as well as desktop and notebook computers.

Some services like this, of course, already exist in simple form: Yahoo, Lycos and all the other major portals have long offered features such as free e-mail accounts and personal calendars that use software maintained on Web servers. But others envision far more complex functions for use by large companies as well as consumers--services valuable enough to charge subscriptions for.

Doing real business online
Most technology executives and analysts describe Web services as a way for companies to communicate online and conduct e-business. For example, they could allow patients to go to a single Web site for their health care needs, such as viewing medical histories, paying doctor bills and ordering drugs from the pharmacy.

How Web services work CareTouch, a spinoff from health care provider Kaiser Permanente, plans to use software from IBM to build Web services to connect with its partners and suppliers so that patients can wirelessly order products or schedule appointments--such as a doctor's visit or a grocery delivery--through any type of computing device, Chief Technology Officer Prasuna Dornadula said. Through its Web site, CareTouch provides patients with low-cost health care products and services not covered by their insurance policies.

"Someone discharged from the hospital after hip surgery may have mobility issues, so they can use their PDAs to communicate with our server to do all their product buying and scheduling with a wireless connection," Dornadula said. "We can save money on call-center time and phone charges."

The most optimistic analysts say Web services will eventually become prevalent to the point that a mom-and-pop fish store might sense a potential customer walking down the street and send an alert about a 20 percent sale by pager or cell phone. But so far, most of the businesses interested in Web services have been large companies in the financial and travel industries, and technology departments looking for a cheaper way to connect disparate computing systems.

Dollar Rent A Car Systems built a Web service to connect its reservation system with Southwest Airlines, allowing passengers to reserve a car through the airline's Web site. The operation, which can be duplicated for other airline partners, took only two months--well short of the estimated eight months it would have taken before today's Web service technologies were available.

"It's simple to build. I find complex systems are prone to failure, and I tend toward simple solutions. It's not that complex to code," said Peter Osbourne, manager for Dollar's advanced technology group. "The downside is that for some developers, this is a leap of understanding. Not everyone is onboard with the idea. Many are now sitting on the fence and figuring out how to use it."

It's not that complex to code. The downside is that for some developers, this is a leap of understanding. Not everyone is onboard with the idea. Many are now sitting on the fence and figuring out how to use it. -Peter Osbourne, group manager for advanced technology, Dollar Rent A Car Systems Customers like Osbourne are the reason so many companies see a potential gold rush in Web services.

Software makers big and small are competing to sell businesses their Internet products, which those business can use to build the underlying plumbing necessary to run and manage complicated operations. Key products include development tools used by programmers to write and test their applications, and integration software that allows companies to link computing systems to exchange data and conduct business over the Web.

The idea for Internet-based software is not a new one. For years, Sun Microsystems and Oracle have advocated this technology model, in which individual terminals have limited computing power and central servers store and deliver the software over a network.

Hewlett-Packard was the first to champion Web services with its E-speak technology in mid-1999, but it went nowhere. Today, even though most personal computers are connected to a network of some sort, they are still largely self-contained, with most of the data and software they need stored on local hard drives.

A technical reality, at least
In recent months, the necessary standards have been put in place--leading to some general agreement among technology makers on how Web services will function and thereby making the concept at least a technical reality. Standards like Extensible Markup Language (XML), Simple Object Access Protocol (SOAP), Web Services Description Language (WSDL) and Universal Description, Discovery and Integration (UDDI) are beginning to win large-scale acceptance as Web services underpinnings.

Yet much remains undefined, such as proper security, privacy and, above all, commercial potential. "We need clarity," Illuminata analyst James Governor said. "Less huff and puff, and more meat and potatoes."

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That is easier said than done. As Bricklin notes, the next step will be even more complicated: "We don't know where we will commonly put the interfaces. Do you put the screen door on the front of the house or the side? We know it goes on the outside of the house, but we don't know what the rooms look like yet."

Also uncertain is the commercial potential for Web services. Technology makers like Microsoft, IBM and Sun plan to make money selling tools and server software for building services. But as profit-starved technology companies increasingly see Web services as their savior, buyers are warming up to the Web services concept as a way to cut technology spending. Nearly half of roughly 300 IT managers surveyed by research firm Jupiter Media Metrix earlier this year said they see Web services technology mainly as a way to cut software integration costs.

Further complicating the quest for profits is the debate over how and when Web services providers will collect payment for services. "The complicated thing is going to be where I use a service and I have to pay, or if I use a service and I want my customer to pay for it; then it gets complicated because you have all of these separate relationships," Bricklin said.

Even if the .Net My Services example doesn't work--if it never catches on--there is enough meat here. Companies realize that by exposing some functionality this way they make their products more useful. -Dan Bricklin It also is unclear how responsibility will be divided for fixing Web services when they break. Since Web services by definition are not locally hosted, it's not immediately clear who controls the source code, how the service works, or even where the service is hosted. With those questions in mind, analysts see opportunities for hosting companies and application service providers in a future Web services market.

In an indication of their commitment to the nascent business--and in acknowledgement of the industrywide cooperation needed to make it work--archrivals Microsoft and IBM have taken extraordinary measures to cooperate on industry standards for development of Web services. Followed recently by Sun, the two computing powerhouses have announced detailed product plans and are already spending millions of dollars to hype them.

The importance of Microsoft
Of all the leaders in this field, Microsoft may be most important to the future of Web services. Facing saturation of the PC market with its Windows operating systems, the software giant is looking to services as a necessary avenue for growth in its software sales. As a showcase for the concept, Microsoft is building and hosting its own services and will charge consumers and the businesses that want to reach them.

Meta Group says businesses need to start readying their systems to take advantage of Web services.

see commentary

"Microsoft is nine to 12 months ahead of most vendors," Gartner analyst Mark Driver said. "IBM is close, about three to four months behind Microsoft, and the other Java vendors like Oracle will catch up by next year."

Analysts say other competitors, such as HP and BEA Systems, have potential but have yet to come out with products to turn their marketing rhetoric into reality. Nevertheless, analysts believe that these companies may still find opportunities, because many more technologies are needed for Web services to take off, especially in the areas of security and quality assurance.

Gartner expects 75 percent of all corporations with more than $100 million in yearly revenue to use Web services by mid-2002. But perhaps because of its dubious experience with other industry trends, the research group is tempering expectations for the market's maturation.

"We don't expect it to have mainstream impact until 2004," Driver said. "It's a fact of nature that it takes a couple of years for technology to thrive."

Bricklin sees the potential for Web services to catch on with the mainstream much sooner, regardless of what happens to early high-profile examples such as Microsoft's .Net initiative.

"Even if the .Net My Services example doesn't work--if it never catches on--there is enough meat here," he said. "Companies realize that by exposing some functionality this way they make their products more useful." 

  Historical hype
Many technologies have been touted as the next big thing, only to fall well short of expectations—or fade away altogether. Here are some of the more memorable trends in recent years, with dates that roughly correspond with their heydays.

Portals (circa 1996): Originally search engines, "portals" sought to exploit their enormous traffic numbers and become one-stop uber sites that would provide everything from personal services such as e-mail to information such as news and map directions. Yahoo and other portals are still among the most-used sites on the Web. But all have scaled back their ambitions as their basic revenue strategy—selling ads on their many directory pages but providing little original or exclusive content—has proven difficult to sustain.

Push (circa 1996): This technology was the Internet's equivalent of broadcasting. Banking on the idea that people would grow weary of seeking information on their own, companies such as PointCast Network devised ways to "push" content automatically to people who designated certain interests and Web sites. The idea never took hold among consumers.

Network computing (circa 1997): Championed by Oracle founder Larry Ellison, this concept revived an old idea of "dumb terminals"—sold at a price much lower than fully loaded PCs—that would perform basic functions such as Web surfing and word processing. Interest in the network computing devices, also known as "thin clients," waned as the price of personal computers dropped dramatically.

Convergence (circa 1998): The basis for this concept—the merging of the PC and the TV—had begun several years earlier with proposals for "interactive television." The "convergence" trend gained momentum as the Internet became a mainstream medium that many companies thought would finally provide the incentive for combined PC-TV boxes. The idea is still alive but has not taken off for many reasons, including limited bandwidth and resistance from the TV industry.

ASPs (circa 1998): "Application service providers," which promised to take over the daily grind of running business software, saw a meteoric rise in the late 1990s and then quickly plummeted to Earth amid the dot-com carnage. Many ASPs, such as Red Gorilla, Agillion and Intel-SAP venture Pandesic, ceased operations as revenue dried up; others, such as FutureLink, have been relegated to Chapter 11 bankruptcy. But economic changes, new technology and a desire by big companies to safeguard data since the Sept. 11 terrorist attacks may bring new business to the remaining players in the market.

B2B (circa 1999): "Business-to-business" exchanges promised to revolutionize commerce by moving the bulk of transactions between companies online. Proponents claimed that B2B exchanges would be cheaper, faster and more efficient than old-fashioned commerce done through a hodgepodge of interconnected but proprietary computer systems. But unclear advantages, high initial costs, mistrust among partners, and a reluctance to abandon phone calls and face-to-face meetings have derailed much of the trend. Although smaller-scale B2B systems abound, the mega-exchanges and full-fledged revolution once predicted have never materialized.

Broadband (circa 1999): As its name suggests, "broadband" refers to high-capacity and therefore high-speed Internet connections that can provide television-quality graphical transmissions and drastically reduce the time it takes to download all kinds of data. Although the demand for such technology is still high, the infrastructure required to provide it on a large scale has been difficult to build—thwarting companies that were created to deliver services at high speeds, such as Excite@Home.

P2P (circa 2000): Fueled largely by the popularity of Napster, "peer-to-peer" technologies promised to revolutionize the computing industry by reducing the need for central servers and networks. Cyberlibertarians touted the model as a way to empower individuals on the Web by allowing them to trade files directly among themselves with no oversight—an idea that in practice translated into widespread music and movie piracy. Napster's legal troubles have driven millions of people to other file-swapping networks, but the free-content communities are under siege by Hollywood and record labels. The idea is now being adopted for lower-profile business uses, as Intel, Sun, Microsoft, Yahoo and others add peer-to-peer capabilities to their software or invest in peer-to-peer start-ups. But there have been few tangible commercial results from this experimentation.

—Mike Yamamoto