How software firms want to make the Web deliver
Putnam Lovell Securities is an Internet-savvy investment bank. It relies on half a dozen Web firms to run its business. Putnam analysts write and manage their research reports through a Web site run by BlueMatrix. Putnam uses Salesforce.com to keep track of customers and leads. Such Web services cost 20% to 80% less than managing comparable software in-house.
Corporate America binged on technology in the 1990s, only to discover that most of the programs have squirreled away data in ways that make it hard for, say, the sales force to swap numbers with the product teams. The problem begins inside corporate walls and gets worse when companies spread their data among myriad Web hosts. At Putnam, analysts wrote morning reports, but it was too time-consuming to serve clients only the elements likely to interest them most--so Putnam would send composite reports. "We have lived with the limitations, doing manual imports and exports of data, but there were lots of business processes that were hampered by it," says Rodric R. O'Connor, Putnam's technology chief.
Technology created the problem-and now promises to fix it. That, at least, is the new pitch of just about every software company trying to find new growth in this sputtering economy. As corporate customers look to squeeze more out of the tech they already own, giants like Microsoft and IBM and a raft of startups have a new, if unsexy, mantra: "Web services."
They promise a new generation of software that will link it all together, a sort of e-conciliation. Vendors see a day when companies will swap data and applications as easily as a person snips a blurb from a Web site and pastes it into an e-mail. Done right, Web services could spawn business ecosystems, with each firm doing what it does best and leaving the rest to partners.
"This is the third wave of the Internet," says Halsey Minor, cofounder of 12 Entrepreneuring, which has raised $137 million from Goldman Sachs, Merrill Lynch and other blue-chip backers to spin out new Web-services shops. "It's a huge opportunity, bigger than the consumer phase."
Minor, who founded the still-breathing media company Cnet Networks, runs 12 Entrepreneuring in San Francisco with John Seely Brown, former head of Xerox's famed Palo Alto Research Center, and John Hagel, a well-known author and former McKinsey consultant. They want a pivotal role in erecting the intellectual framework for this next era and making it happen.
To clear its data hurdles, in June Putnam turned to one of 12 Entrepreneuring's first spinoffs--Grand Central. Putnam's analysts continue to use BlueMatrix, and the sales team still uses Salesforce.com. But when an analyst does a report on, say, the insurance business, BlueMatrix sends an automatic query to Grand Central to fetch a list of the clients most interested in that industry. Grand Central packages the data in a way that BlueMatrix can handle and automatically sends along the response.
Sending the entire client list bulky reports on every imaginable subject now costs Putnam $800,000 per quarter. If half of Putnam's customers agree to receive only electronic reports, O'Connor figures he could save $1 million a year. Even if only 5% do, he will cover the cost of using Grand Central. Its pricing scheme aims to get customers to sign up still other customers: Companies get one "relationship" free--say, if Putnam used Grand Central to connect only with BlueMatrix--then pay a monthly fee of $2,500 for the next five relationships.
It is still early in this crusade, and tech providers have made similar claims for years about lashing everything together. The prospects are better this time, however, thanks to the omnipresent Internet and the fact that businesses are more wired than ever before.
Microsoft, with its .Net strategy, IBM with WebSphere and Sun Microsystems with Sun ONE are building tools for home-brewing Web services. Other big players, such as Oracle, are refashioning existing applications to make them akin to web services.
A pack of newcomers--Bowstreet, Cape Clear, Kenamea, UDICO and Talaris to name a few--are mining narrower markets. For instance, Talaris in San Francisco offers a scheduling service said to cut by one-third the time mobile workers spend orchestrating their flight, hotel and restaurant reservations. Cisco and Sun are customers.
In this fray Minor's shop is pragmatic and evangelical. Minor, the hands-on guy, started Grand Central and is now running 12's other spinoff, Ibuilding. In the background graybeards Hagel and Brown paint scenarios of how executives can radically change how they run their companies by opening up to a network of partners.
To make Web services real, technologists have had to devise new standards that sound like a kindergartner's alphabet nightmare-XML, SOAP, UDDI. They are far from finished. Every industry must hammer out agreements about precisely what is meant by even its most commonly used terms. The investment banking industry is a step ahead because it is already working up its flavor of standards, RIXML.
"If I wanted to move business intelligence data before RIXML, I would have had to establish a data protocol with every partner--and you can bet that everyone wanted to do it differently," says Anthony D'Agostino, chief operating officer of equity capital markets at First Union Securities, another Grand Central customer.
Buoyed by the new standards, some companies are building their own Web services. Galileo International, a travel service in Rosemont, Ill., has used IBM's WebSphere tools to build software queries that search the Web to find the best airfare. Galileo is selling that software to small travel agencies as well. Similarly, Bekins, a nationwide moving company based in Hillside, Ill., has built a system for broadcasting extra assignments to a consortium of 75 other moving and storage companies. It lets them plug the data into their logistics programs to decide whether to bid on a job.
Ibuilding, 12 Entrepreneuring's second startup, helps corporate tenants order services from building managers. Tishman Speyer Properties, an investor in Ibuilding, has been using the service for six months in New York and San Francisco.
Eventually a company will be able to snap together federations of partners, redefining what it does best and letting partners do the rest. "The real business game is how to move from a world of transactions to one of managing collaborative processes," says Brown. Consensus, rare in high tech, is building behind the new buzz-phrase. "The Web has changed how businesses interact," says Rodney Smith, an IBM vice president. "It's not the old world where you choose a few strategic partners and get comfortable with them."
Elizabeth Corcoran, Forbes.
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