Used to be, when a salesperson at San Francisco investment bank Putnam Lovell Securities sent a research report to a client, he wasted time and paper. The salesperson would contact the company's publications department. The report would be tracked down, packaged, and mailed out. Every day, the same dreary process--times 10. Not anymore. Today, when a Putnam analyst completes a report, it's automatically routed via e-mail to every customer who might be interested. The company estimates it will save $500,000 a year on printing and mail costs. Plus, the new process prompts trades that might not have been made.
Seems simple enough. But below the surface, in the basement of the Internet, is an intricate layer of new technology that's making this possible. Putnam's analysts write their reports on a Web site operated by BlueMatrix Inc. When finished, the analyst presses a button and a message zips to a site operated by GrandCentral Communications Inc. That site matches the topic of the report with information about the interests of Putnam's clients that it draws from yet another Web site--salesforce.com. Clients' e-mail addresses are sent from salesforce.com to BlueMatrix, and it dispatches the reports to them. The whole kit and caboodle takes about as much time as licking a stamp and doesn't involve a single soul.
The modest little travels of Putnam's reports provide a glimpse into the next big phase of the Internet. Get set for Act II, when the Web's infrastructure becomes so advanced that people no longer have to find their way through a maze of software applications and Web sites to get things done. Instead, computers stuffed with different kinds of information, run by different companies, and hooked to different Web sites, can chatter between themselves behind the scenes to accomplish tasks.
It's the Web at your service. For consumers, this means handing off some of the pesky details of life to your computer. A Web site can keep your personal calendar and automatically arrange such things as doctors' appointments and meetings with the school guidance counselor. In early March, travel Web site Expedia.com (EXPE) is launching electronic alerts that find you wherever you are via your computer, cell phone, or pager when your flight is delayed--and tip off your family or friends when your plane is about to land. Corporations are tapping Web services to do everything from getting internal computer systems to share information to tightening links with business partners.
People in the computer industry have been talking up this technology for more than two years, but now it is finally arriving. Tech kingpins including Microsoft (MSFT), IBM (IBM), and Net software specialist BEA Systems (BEAS) are delivering products they expect to be the building blocks of Web services. To software makers, this looks like the most important thing to happen since the Web reared its head in 1994. One market alone--software that helps computer systems interoperate--is expected to amount to $15.1 billion worldwide next year, up from $9.3 billion last year, says market researcher Kinetic Information LLC. In anticipation of a bonanza, Microsoft Corp. is retooling its entire product line to foster Web services--what it calls its .Net strategy. "We are betting the company on Web services," vows Microsoft Chairman William H. Gates III.
Pioneering corporations are putting the new software through its paces. Nearly one-quarter of large corporations already have some Web services in place, according to Giga Information Group. Merrill Lynch & Co. (MER), for instance, has hundreds of Web-service projects under way--including electronic alerts when new research is published. "For Merrill Lynch, it's probably the most fundamental technology bet we'll make," says John A. McKinley Jr., the firm's chief technology officer.
The potential reward is untold savings in time and money and a major boost in productivity. Web services are based on industry standards so that all the services can speak to one another. That keeps companies from having to cope with pricey, proprietary software that can cost 10 times as much as Web-service software. At the same time, companies are able to automate mundane tasks. "This is about automation--replacing manual processes with machine processes," says analyst Ted Schadler of Forrester Research Inc. "It's poised to revolutionize the way people solve business problems."
For all the excitement, though, this is apt to be a slowpoke revolution. While Merrill Lynch and Microsoft are revving their engines, any wholesale transformation of computing is still years away. Even some industry leaders say Web services are more a fad than a fundamental shift. "The computer industry is like women's clothing--except it's more fashion-driven," quips Lawrence J. Ellison, chairman of database maker Oracle Corp. (ORCL) He believes Web services will be important but aren't likely to be world-changing. Some corporations are skeptical, too. A December survey of companies by Forrester Research showed one-third had no plans to adopt the technology.
Why the reluctance? For Web services to be trustworthy, the Net has to operate as reliably as the telephone system. That means it's always on--no breakdowns of server computers and networks. All those behind-the-scenes handoffs must work as advertised. And it has to be difficult for bad guys to break in. A survey of 400 corporate tech managers by Evans Data Corp. in December found that 45.5% of them consider security to be the biggest obstacle in Web-services projects.
Bottom line: Web services are immature. The root technology, called XML, is only the first step to ensuring that computers can communicate freely. XML is an alphabet for computers, and, as everyone who travels in Europe knows, knowing the alphabet doesn't mean you can speak Italian or French. Each industry--from retailing to construction--will have to create specialized XML-based vocabularies, and some are dragging their feet. "There's enormous potential here, but you don't change the construction industry overnight," says Ronald Beaver, chief information officer at Otis Elevator, where new elevators tap Web services to alert maintenance people at the first sign of trouble.
Still, as immature as they are, Web services promise a big step forward for businesses. In pre-Internet days, most computer systems were incompatible with one another. With the advent of the Web, everyone, on every type of computer, could view information as long as it was presented on Web pages. But it was still difficult to get computing systems that tracked a company's finances, ordering systems, or sales activities to share information. And connecting with other companies' computers? Forget about it.
By agreeing on XML as a common alphabet, tech companies gave up some of their ability to lock in customers with proprietary software. But, in trade, they opted for the potential of vast new uses for their products. Once a Web service has been created, the company that made it or other companies that get permission can "reuse" it as part of a new business application or consumer service--yet another savings.
Rather than forcing companies to throw out old technology, Web services allow them to grab data out of their old systems more easily. The state of New Mexico, for example, is creating a Web portal that allows employees to see and tailor their personal information on a single Web page--everything from paychecks to retirement plans. In the background, it's using Web-service technology to tie together old software systems, including mainframes, that hadn't been able to talk before.
More adventurous sorts are using Web services to tackle projects that a few years ago would have been impossible. Boston-based Colliers International Commercial Real Estate Corp. is pulling together information from more than 250 Colliers offices around the world. The data, however, appear to its 8,000 salespeople as a single database. When the project is completed this summer, employees will be able to find prospective clients, put together national or regional contracts, and search out case studies by colleagues on how to negotiate complex deals. Down the road, Colliers plans on selling access to its customer list to other companies.
Consumer Web services have been slower to get off the ground. One hangup: The lack of a universal online identification system. For consumer Web services to take off, it would help to have a common way for people to establish their identity online. Without that, it's difficult for machines to know who they're dealing with and to protect people's privacy. Today, a handful of authentication systems are being used or developed--but they're incompatible with one another.
There's no quick fix, either. Microsoft was first out with its authentication service, called Passport, which has more than 100 million accounts. A new group, the Liberty Alliance, championed by rival Sun Microsystems Inc. (SUNW), aims to make sure different ID systems are compatible with one another. Sun hopes the alliance will keep Microsoft from turning Passport into a White Pages directory for the Internet--owned and controlled, of course, by the software giant. "In the next 20 years, whoever has the best directory wins," says Sun CEO Scott McNealy.
Just because Web services provide some level of compatibility between computers, that doesn't mean there's a lovefest between the tech giants. Unlike the early days of the Internet, when upstarts such as Netscape Communications Corp. were the industry leaders, this time it's the established companies who got off to a quick start. The main players: IBM, Microsoft, Sun, SAP (SAP), the king of corporate applications, and BEA Systems, a leading maker of foundation software for complex Web applications. Web services give these sumo wrestlers new handholds with which to throw each other off balance.
Microsoft has the early advantage. Three years ago, it was the first to recognize just how important Web services could be. It wants to harness the technology to leapfrog rival AOL Time Warner Inc. (AOL) in the online services battle and to gain ground in the upper reaches of corporate computing. Gradually, under its .Net strategy, it is remaking all its products--from its Office productivity suite to its operating systems--so they can handle Web services. Last month, it released its Web-service tools so that other software developers can create services based on .Net technology. If Microsoft can woo developers to its Web-services software the way it attracted 6 million to design programs for Windows, it will take a lion's share of the business.
The rest of the tech industry won't cede that ground. Each of the major players wants to create a platform that corporations and Web sites use to build their Web applications and services. The idea is to do for the Web world what Microsoft's Windows operating system has done for the desktop PC and to reap Microsoft-size profits. Now, the giants are trying to create spheres of influence--gathering their traditional customers and smaller tech partners--as they dig in for a long battle.
Each tech titan puts its own spin on Web services. Microsoft preaches there's no need for a middle layer of software between the operating system and the application. IBM provides so-called middleware software and promises corporations that its consultants can build any applications they order up. And SAP argues that the applications themselves are the important thing. This year, it plans to release 10 new applications built from the ground up as Web services. One of them: project resource management. It taps into a whole array of applications and information sources--both in and outside a company--to help a manager build and run a project team.
It's too early to tell who the winners will be. Most analysts pick IBM to dominate in the corporate realm because it has the greatest product breadth and is the strongest supporter of open standards that underlie Web services. Microsoft is expected to do well where it's already strong--with small and midsize businesses and e-commerce Web sites. But those who are tardy could find themselves becoming the latest dinosaurs of the Internet. Already, Sun is trying to fight off the impression that it's behind because it won't have technology for Web services in its Solaris operating system until later this year. "Microsoft has grabbed the lead perception-wise, but they haven't grabbed the technical lead," says McNealy.
All this jockeying for position by the biggies makes life tough for the small fry. Only a few pure Web-service companies have received venture funding. Amal Johnson, general partner at Light Speed Venture Capital in Menlo Park, Calif., says she has looked at more than 30 Web-service business plans but hasn't funded one for fear the upstart will get squashed by the likes of Microsoft. "We need to see how this whole space shapes up," says Johnson. "If I were to bet today, I'd be shooting in the dark."
There will, however, be niches for small companies to fill. Web-service managers, the traffic cops for the digital interactions between companies, already are popping up. One of them, Jamcracker Inc., of Cupertino, Calif., has raised $133 million from venture capitalists.
For startups and industry giants alike, much still has to be done. Security-software companies are trying to stamp out an explosion of hacking incidents. Net security specialist VeriSign Inc. (VRSN) could have a partial answer. Last month, it unveiled a tool kit that companies can use to embed its security system directly into their Web services--authenticating the parties on both ends and encrypting messages that pass between their computers. This encryption technology is used in the Web ID systems of Microsoft and the Liberty Alliance.
Once the security problems are fixed, there's still the challenge of creating dialects of XML for each industry. After three years, members of computer-industry standards group RosettaNet haven't agreed on specifications, so Dell Computer Corp. (DELL) just dropped out. Instead, it is moving ahead with its own system for linking suppliers. "I think it'll take years to get an adoption of RosettaNet standards. We're all for it, but I'm not waiting," says Richard L. Hunter Jr., Dell's vice-president for Americas manufacturing operations.
All these pieces must come together for Web services to fulfill their promise. That will require plenty of cooperation between the titans to harmonize technologies. Corporate tech chieftains, burned by ill-advised spending sprees on e-commerce and mobile computing, aren't eager to open their wallets without assurance they won't be torched yet again. So it's up to the tech companies to deliver the goodserr, services. By Jim Kerstetter
Contributors: Steve Hamm and Spencer Ante in New York, Jay Greene in Seattle, Peter Burrows in San Mateo, and Andrew Park in Dallas