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.
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Pitch: Why Web services make business sense
By Wylie Wong 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.
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.
"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
"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."
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 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."
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.
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
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see commentaryAnalysts 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." 
Players: Start-ups may get window to fill gaps
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
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