By Jonathan Lurie and Samuel Lurie

Plenty has been written regarding the technology behind Web services, but many people still have difficulty understanding how they might increase profitability using them. In this article, we avoid all technical discussion and focus on how companies may leverage Web services to improve the bottom line.

What are Web services?
If Microsoft’s .NET strategy could be articulated in a single phrase, it might be this: “Software as a Service.” Web services promise to allow applications to communicate across the Internet in a platform- and language-independent fashion. Using ubiquitous industry standards such as HTTP and XML, Web services will allow applications to integrate within and across organizational boundaries without the need for leased lines and proprietary hardware and software. In this way Web Services look to revolutionize the Enterprise Application Integration (EAI) marketplace. Companies can leverage Web services by building their own or licensing those developed by third parties.

Reduce costs, increase revenues
The idea of investing in the latest technology may have a certain trend appeal. However, unless it solves some problem in a way that either reduces costs or increases revenues, then the investment is not warranted.

To understand how Web services can reduce costs and increase revenues, you must have an understanding of the technology landscape existing within many large corporations. Corporate America has invested heavily in information technology. Many front-end and back-end operations have been automated, including accounting systems, Web sites, manufacturing, and so forth.

The next challenge lies in integration. The investments to date have created an IT landscape comprising variegated and often disparate systems. Many systems automate specific tasks, yet these systems fail to interact with one another to achieve one cohesive system. These disconnected systems are often referred to as “islands of automation.”

Companies have spent millions of dollars on products such as Tibco, Vitria, and Crossworlds in an effort to build bridges between the islands. However, this effort has been further complicated by the rise of business-to-business (B2B) operations. With B2B, bridges must be built not only between islands within the same company but also between islands existing outside the corporation. Supply chains are a classic example, since they typically have multiple market participants, from suppliers to manufacturers to distributors to resellers.

Notwithstanding the technical complexity of achieving integration, the cost of integrating systems across firewalls has been prohibitive because of the need for expensive dedicated leased lines and proprietary hardware and software. The result is that manual processes have served as the glue to link them all together. Manual processes may have served adequately as an interim solution; however, it is now more important than ever that the systems be fixed. Manual processes require manual labor, and manual labor is expensive. We all know of the pressure to reduce head counts, and even though businesses are downsizing their staffs, they do not want to reduce revenues. The result is that fewer people must do the same amount of work, and this can mean only one thing: They must find a way to improve operational efficiency. Investment in information technology is often the best way to improve operational efficiency,

What is needed is not more islands but rather bridges between the islands. This necessitates the integration of disparate systems. Traditionally, this would entail significant costs including proprietary hardware and software. Because Web services run through industry standard protocols, we are able to eliminate the need for proprietary hardware and software. This equates to significant savings, most visible in the reduction of the professional services costs that always accompany any integration effort. Using Web services, companies are finally able to cost-effectively achieve the integration of their islands of automation. This integration eliminates manual labor costs. It improves operational efficiency, which further decreases costs. Web services allow corporations to realize new market opportunities as resources are freed from manual processes. Companies are able to sell usage of newly created Web services. Microsoft has already realized the market potential in the process of developing services called .NET My Services, which allow businesses to incorporate additional features such as scheduling, notification, and contact management. Microsoft will charge for the use of these Web services.

EAI vendors have long promoted the benefits of integrating systems. By realizing a system that is truly integrated, we will be able to improve the efficiency of our organizations and realize cost savings through reduced manual processes. In turn, it allows people to take advantage of new opportunities to increase revenue. This is a valuable proposition, but it will take many years to realize this vision.