A second chance for outsourcing

THE COMING TIDE of Web services carries with it a second chance for ASPs and systems integrators to trim their sails, add value on top of their services, and use the potentially life-preserving Web services standards as a de facto means for connecting to customers.

Although Web services — and the integration issues they will ease — pose a challenge to the ASP model, as well as to systems integrators’ common practices, experts say that tremendous opportunity lies with Web services for those ASPs and systems integrators that embrace the model.

“Web services fits into the original vision of the ASP model in that there are these functions out on the Internet and you can just go out there and rent them,” says John Meyer, an analyst at Cambridge, Mass.-based Giga Information Group.

Although first-generation ASPs failed to reach sufficient market momentum, enterprises see the emergence of Web services as an opportunity to procure outsourced services. According to a recent InfoWorld survey, with the rise of Web services technology, 40 percent of the companies polled plan to use outsourcers more in the future and, more specifically, 28 percent of respondents answered that they will use ASPs to a greater extent.

Claudia Arango, senior manager of communications, CRM, and wireless at Deloitte Consulting in San Francisco, confirmed these findings. “The problem with the original ASP vision was in trying to offer applications that need to be heavily customized in a one-to-many model,” she says.

Arango says the work required to customize these applications essentially destroyed the economics of the model, but, she explains, Web services are different. “With Web services the ASP would no longer be hosting a large customized application from SAP or Siebel, but rather a specific function such as credit verification. This would be uniform so the one-to-many business model starts to make sense,” Arango says.

Bernard Borges, a partner at consulting giant PricewaterhouseCoopers (PwC) in Phoenix, says Web services present some of his clients with a couple of options: “Clients can rent from Web service providers,” explained Borges, “or they can choose to monetize existing application logic by renting them as Web services. We are already having these discussions with some of our clients in financial services and in telecommunications.”

The key enhancement Web services brings is standardized methods around XML and SOAP (Simple Object Access Protocol) for integrating disparate systems. This paves the way for a growing stable of service providers to offer more targeted services that augment the functionality of existing applications or to aggregate services.

Traditional ASPs, which initially focused on hosting enterprise application suites, should gain more flexibility to offer parts of applications and to offer customers some degree of customization. “Web services will open up the portfolio of what ASPs can offer,” Giga’s Meyer says.

Custom integration

Some of the major ASPs already are eyeing Web services. Oracle, for example, sits in the position of being an ASP, a backer of Web services, and an applications provider. The Redwood Shores, Calif.-based company is working to Web services-enable its applications, and is looking to offer application functionality in more efficient ways than just monolithic applications, according to John Magee, senior director of 9i marketing at Oracle.

“With Web services, now all of the sudden it matters how you build your applications in the first place. We want to be able to get at the apps in a more modular way,” Magee says.

Modularity and easier integration makes customization of hosted enterprise applications feasible, Magee says. For example, if a user wants to stick with a particular tax-calculation service, Web services protocols can be used to integrate it with Oracle Financials, he explains.

Wrapping and exposing small pieces of business logic within applications does more than ease customization. Third parties, such as Fidesic, a new-generation ASP in Bellevue, Wash., can more easily graft their services onto the software assets of enterprises.

“The ASP model of a few years ago was fundamentally flawed,” says Naseem Tuffaha, CEO of Fidesic. “The fallacy was to assume that you can do the things you do locally more efficiently if you do them remotely. We think that existing applications like ERP are going to stay where they are.”

Fidesic’s business model is based on extending the functionality of those applications through Web services. “Invoicing is a great example,” Tuffaha says. “We can create an invoice and let the customer download the data into an existing back-office accounting system.”

Tuffaha says Fidesic’s services can be visualized as a box sitting on the Internet between different business applications, such as a Great Plains accounting system on one end and a customer’s payment system on the other.

Another ASP-like Web services vendor is ManagedOps in Bedford, N.H. ManagedOps is using XML to connect Great Plains financial software with professional services automation vendor Portera’s hosted application.

“An application can be easily enhanced and extended for the users, but with minimal effort by the service provider,” says Chris Clabaugh, vice president of managed services at Allegrix, an ASP based in Santa Clara, Calif., which offers services that help companies including ISVs, systems integrators, and VARs ASP-enable their assets.

Clabaugh added that Web services will bring a “grand illusion” in which tasks such as messaging and the execution of business processes will occur behind the scenes, without users having to worry about differences in architecture and infrastructure.

Microsoft is already offering its Passport user authentication system and .Net My Services, a suite of services and alerts built on personal productivity applications. Other companies taking a crack at hosted services using Web services standards include Talaris, Jamcracker, and MagnetPoint, each of which offers business services along the lines of Microsoft’s .Net My Services.

Outsourcing groundwork

InfoWorld research found that 73 percent of enterprise users were at least somewhat interested in buying aggregated services and applications from third-party outsourcers. And 38 percent said their company is more likely to try to integrate business logic functions from a third party into the enterprise.

But using Web services standards to link disparate systems requires companies to rearchitect internal systems, analysts say. The InfoWorld survey found that Web services will drive 34 percent of respondents to use systems integrators to a greater extent than they do currently. And systems integrators are busy developing practices around Web services and eyeing the application-outsourcing possibilities.

“Enterprises have huge technology investments locked inside their four walls. A lot of this value can be exposed and marketed with Web services,” says Jack Langowski, director of product solutions at KPMG Consulting in McLean, Va.

Deloitte’s Arango agrees. “There is so much business logic locked up in legacy applications today. If this can give us the power to extract it and make it available without having to do costly upgrades and heavy-duty integration, then we have a new way to engage with clients, expand the value chain, and do new business,” Arango says.

If companies plan to begin offering the applications piecemeal they need to think about breaking those apps into smaller pieces and design those pieces so they are attractive to users in and of themselves, consultants say.

“You can now start thinking about wrapping your applications in XML and exposing it to a SOAP client. Or you can even decompose your applications into more atomic processes,” PwC’s Borges says.

Nordstrom.com, for instance, is using Iona’s Web services platform to tie together a mainframe residing at its banking arm in Denver, an ERP system housed in the company’s Seattle headquarters, and its Web site, which is hosted by WorldCom.

“Web services solved the challenge we had of integrating gift-card information to our hosted Web site and our ERP system in-house at Nordstrom.com,” according to Paul Onnen, CTO of Nordstrom.com and a member of the InfoWorld CTO Advisory Council.

By integrating those three environments, Nordstrom.com is allowing customers to use a gift card either online or at physical locations, and enabling either location to verify the value of the card with the mainframe in Denver, Onnen says.

Fly in the ointment

Web services, however, will not prove to be the ultimate problem-solver. In fact, some experts say the immaturity of Web services is a mismatch for hosting enterprise applications, particularly for mission-critical and financially sensitive applications.

“Large corporations have a vested interest in keeping some things proprietary. Most companies will manage Web services internally,” Giga’s Meyer says.

Onnen echoed that sentiment. Although the company outsources its Web site, Onnen says that widespread adoption of Web services standards likely won’t incite Nordstrom to use ASPs for more functions. “We use outsourcing for capacity management and things we don’t consider our core competencies. Our Web services and core competencies will be developed and managed in-house,” Onnen says.

Onnen, in fact, considers the development of Web services within Nordstrom to be intellectual property of sorts, which is proprietary in nature — particularly in how the particular Web services apply to Nordstrom’s business.

Dow Chemical is currently using Web services to integrate back-end applications with data retrieved by its mobile sales force. The company plans to extend its use of Web services into other parts of the organization as well, particularly for the low cost of connectivity, according to Brian Bell, lead architect specialist for integration at Dow in Midland, Mich. Bell says that the Web services standards may prove cost-effective for hooking Dow’s back-end applications into hosted trading exchanges and partners. Bell added, however, that Dow wants certain applications to remain within its own walls.

“For our high-value applications and those that require high performance, Web services technologies are not robust enough for the job,” Bell says.

Analysts say that for applications with heavy workloads — those that typically conduct more than 3,000 to 5,000 transactions per second — the Web services architecture is not robust enough.

“Web services will be the default choice for ASPs to connect to customers,” says Roy Schulte, an analyst at Gartner, based in Stamford, Conn. “[But] for some types of apps, the Web services standards just aren’t there.”