In October of 2000, Microsoft (MSFT) ramped up the buzz machine to sell its latest big initiative. Dubbed .Net (pronounced dot-Net), the project presented a sweeping vision of a new, interconnected world. The software king foresaw a day when consumers and businesses would connect to the Internet anywhere, anytime, via any number of devices -- PCs, cell phones, even refrigerators -- to make life easier. Say you were late for a meeting. If you were a .Netizen, the system could detect from your cell-phone location that you had been delayed, send an e-mail to the waiting parties -- and reschedule subsequent meetings that day.
Microsoft assumed businesses could also use .Net to let disparate software systems carry on dialogues without human interaction, cutting a cost layer and boosting efficiency. Need to find a maker of Widget X and get a bid? In a .Net world, computers could do it with no phone calls or e-mail exchanged, all on infrastructure provided, of course, by Microsoft -- which might ease the transition by providing all this via subscription service rather than by requiring customers to buy their own hardware and software.
Left unsaid was another reason for .Net: A technology with similar possibilities -- Sun Microsystems' (SUNW) Java platform -- was also being used to build the type of framework for distributed computing that Microsoft proposed. Sun and its allies rushed to stitch together a competing offering, and the battle was joined.
STILL UNREALIZED. Since all of these new services would be built on the same underlying technology that powers the Internet, the category was labeled "Web services." With dot-com mania still in full swing, the grand vision was easy to accept. Data would flow like water from one program to another. Bits and bytes would be wrapped in a format that would be both easy to understand and ridiculously simple to integrate across all manner of computer systems.
Fast-forward to the summer of 2003, and Web services remains a buzzword, but hardly of the stature Bill Gates implied when he called .Net possibly a "bet the company" initiative. According to a report issued in June by consultancy and full-time Colossus of Redmond watcher Directions on Microsoft: "Three years later, most of the hopes behind the .NET initiative have not been realized."
What's a Web Service?
Good question, and the answer isn't simple. Here's a definition from the online tech dictionary, Webopedia.com:
"The term describes a standardized way of integrating Web-based applications using the XML, SOAP, WSDL, and UDDI open standards over an Internet protocol backbone. XML is used to tag the data, SOAP is used to transfer the data, WSDL is used for describing the services available, and UDDI is used for listing what services are available.
Used primarily as a means for businesses to communicate with each other and with clients, Web services allow organizations to communicate data without intimate knowledge of each other's IT systems behind the firewall."
The intelligent software that was supposed to weave all types of devices into the fabric of human life hasn't taken hold. Fear of Microsoft has scuttled most of the giant's plans to host customers' critical data. True, businesses are starting to adopt the Web-services model for linking their internal systems and talking to customers. Yet even in that respect, this approach is proving to be more evolutionary than revolutionary. In fact, Web services has become mostly about making software integration easier, faster, and cheaper. That alleviates a pain point for many companies, but it's hardly the dawn of a new era.
NEW CONVERTS. And yet, the vision put forth by Gates and others has shifted the computing landscape in crucial ways. Tech consultancy International Data Corp. estimates that North American companies implemented 3,300 Web-services projects in 2002. Spending on related professional services should break the $1 billion level in 2003, increasing 146% next year to $2.7 billion. ZapThink, a Waltham (Mass.) consultancy that tracks the Web-services market, estimates that spending on the technology was $1.8 billion in 2002 and should exceed $5 billion next year. Those estimates are imprecise, given the blurry definition of Web services (see right).
Still, tech consultancy Accenture (ACN) estimates that 25% of the customers of its financial-services unit want some type of Web-services component built into what they're buying. IBM (IBM) now employs more than 1,000 people to work on technologies associated with Web services. And BEA Systems (BEAS), a server software company that's perhaps more closely tied to Web services than any other outfit, posted revenues of $934 million in 2002.
The newly converted include Yellow Corp. (YELL) subsidiary Yellow Transportation, the Overland Park (Kan.) trucking company that booked $2.5 billion in 2002 revenues. Yellow has 400,000 customers that often want shipping-rate quotes on the fly. "We know our customers like to have access to their data via our systems, says Rich Hardt, vice-president for technology services at Yellow. "Our objective was to get ahead of them."
THE XML LINK. To accomplish that in fourth-quarter 2001, Hardt built a Web-services function that would let his customers reach into Yellow's internal systems and pull out rates on schedules the two parties had already negotiated. Yellow uses a so-called Web application server -- available from IBM, Oracle (ORCL), BEA, Microsoft, and others -- to translate information from its internal systems into an XML (extensible markup language) format.
In fact, the key piece of Web services is XML, a format for transmitting data that any Internet-connected device can read. Thus, a customer using XML can build a tailored template to display rate quotes on its own Web site using data supplied by Yellow. Or it can build an engine that lets it compare quotes from Yellow and other carriers. A customer that wants to get really radical can let its employees receive Yellow shipment-tracking information on their Nextel (NXTL) cell phones, which can also understand and display XML in a stripped-down interface.
"It's almost treating our customers no differently than we would treat an employee," says Hardt. As Yellow's system illustrates, a browser isn't needed to talk via the Web. "All of a sudden, when I have a common language, it's easy to build applications that can communicate," says Steve van Roekel, Microsoft's director of platform computing.
IT'S WHAT THEY WANT. Of course, this sounds pretty familiar to anyone who has watched software companies promise superior integration -- and then fail to deliver. An entire subindustry of companies, called enterprise application integrators, has grown up around this concept, and they've failed time and again to establish common standards. Critics have hammered Microsoft in particular in the past for refusing to help establish standards. Thus, Web services "is really one of the few times where you're seeing the same story from Microsoft, BEA, Sun, and IBM in terms of interoperability," says Jim Adamczyk, chief technology officer of the financial services group at Accenture.
That's because customers are demanding it, says Bob Sutor, IBM's director of WebSphere infrastructure software. And in a weak tech market their suppliers listen. "They want to conduct a transaction," says Sutor. "They don't want to spend two weeks figuring out how you built your system and I built mine." Customers also are tired of getting stuck with a software company or consultant they no longer trust. For that reason, they love Web services because it means they can keep whatever programs they're using and just worry about translating info into XML to talk to other systems.
That, in turn, could mean less need to buy new software or even to upgrade old software that works fine but isn't as compatible with newer versions. "It will ultimately move software to more of a commodity business," says Steve Baloff, general partner at venture-capital firm Advanced Technology Ventures.
UNAPPROVED ACCESS. The new world of Web services has its dark sides, of course. It leaves company networks more porous. As larger numbers of outsiders log into key systems, sifting out friends and foes becomes a more difficult task. For example, a hospital may want to let doctors view a patient's records while at the same time letting admitting staff view insurance information and financial staff view the account's status. With Web services, all that information often exists in the same XML feed. But it's important to program in limitations so that only the right people can see the right things.
At the moment, "this doesn't work very well," says Donald Flinn, a Web services security expert and managing partner at security consultancy Flint Security. "You might have a number of intermediates in the way who you don't want to see what's going on," he adds.
Yet even in a sensitive field such as health care, the lure of Web services seems strong. Health insurance giant Cigna (CI) has created novel ways to mix and match data that it believes helps patients and doctors. Its Web-services effort, called MyCigna.com, offers nifty tools such as financial-planning modeling. Visitors can track claims, order medications, or change doctors on the site. The portal also offers side-by-side comparisons of drugs by cost and side effects, as well as comparisons of hospitals by cost and success rates of certain surgeries.
NO SCHOOL, NO A/C. A patient can also get a list of questions to ask a doctor about a drug or can enter symptoms into the system to get lists and descriptions of the ailment he or she might have -- along with a hot-line phone number to ask more about it. To create all this, Cigna pulls together, on the fly, information from its various computer systems using Web services. "We built MyCigna.com so the participants can get the most out of their benefits," says Chief Information Officer Andrea Anania. "This tool allows them to manage their benefits any time, any place, in a very personalized way."
That's just the beginning. Milwaukee-based Johnson Controls (JCI) has just announced a new Web-services initiative that uses Microsoft's .Net to integrate systems that haven't been tied together before. Johnson, which makes climate-control systems, can now link a school's calendar to its climate-control system so that school holidays can be programmed from any Web-enabled device.
Another key use: In isolation rooms in the critical-care wings of hospitals, the system can integrate humidity, temperature, and other climate data on the same screen with patient admission and status data -- and a video feed. This gives doctors all they need to know about the physical conditions inside any number of rooms without having to physical walk into each one. It saves time and enhances efficiency. Patient status and climate data now reside in systems that often aren't even programmed in the same software language. But a Web-services front end lets them speak fluently. "That's something they never could have done before," says Microsoft's Van Roekel.
It could be a decade or more before such capabilities become the norm. But Van Roekel and others believe that's inevitable -- and that from inauspicious beginnings, Web services will emerge as one of the Net's most meaningful contributions. By Alex Salkever, Technology editor for BusinessWeek Online, with reporting by Olga Kharif in Portland, Ore.