All are on the Internet, to be sure, but they have nothing to do with one of the rare hot trends in a forgettable year for technology.
Web services may be “the new new thing,” says Dushyant Shahrawat, senior analyst at Needham, Massachusetts-based technology research firm TowerGroup, but pinning down a precise definition is about as easy as picking a successful Internet business model.
Essentially, the area encompasses the latest breakthroughs in distributed computing -- in theory, at least, a vast improvement on Internet Protocol and hypertext markup language, the technical standards that sparked the Internet boom. With those technologies, major financial companies built intranets, which made it possible to obtain a consolidated report on a bank’s entire relationship with a given client across all products and departments, and extranets, which facilitated online brokerage transactions and other dealings with people beyond the corporate boundary.
But while the Internet and its technical building blocks were cheap and easy for corporations to adopt, linking them to older back-office computers and databases required purchases of expensive, customized software packages called middleware, which many companies are still struggling to fine-tune.
Web services, by contrast, are based on an alphabet soup of newer Internet protocols -- including XML (extensible markup language) and Soap (simple object access protocol) -- that essentially take the hassle and expense out of middleware.
That’s a threat to traditional technology suppliers like IBM Corp., Microsoft Corp. and Sun Microsystems, which historically made their money by locking customers into their proprietary systems. In contrast, Web services are open standards, owned by no single firm. But the vendors are working hard to adapt to the changing market reality; they are even considering making their competing systems interoperable. “If we don’t work in the XML environment, we won’t sell our products,” says Kenny McBride, Microsoft’s global industry manager for capital markets.
The timing couldn’t be better for cash-strapped Wall Streeters. Most major institutions, eyeing relatively quick returns on whatever they can squeeze out of their technology budgets, have at least modest Web services projects under way. “For all new initiatives, Web services should be a de facto assumption architecturally,” declares John McKinley, Merrill Lynch & Co.'s chief technology officer. “It is not a question of why you should use it, but why aren’t you using it.”
TowerGroup’s Shahrawat cautions that Web services technologies remain relatively immature, that most securities firms are only “tinkering” so far and that many won’t be making major investments until late 2003 or 2004. But Merrill believes that the economics justify forging ahead.
After introducing XML into a Web site operation in the late 1990s and reducing the cost of one software project, budgeted for $800,000, to $300,000, says McKinley, “we became passionate lunatics about the topic. Long term, this can improve developers’ productivity 20 to 40 percent.”
Others are focusing on Web services in external communications. Wachovia Securities, using a market data system assembled by Grand Central Communications in San Francisco, has reduced the cost of data feeds from Thomson Financial by 13 percent and related connectivity charges by 50 percent, says Wachovia equity capital markets chief operating officer Tony D’Agostino.
Ultimately, Web services could hold the key to the elusive goal of fully automated straight-through processing of securities trades, by easing integration of multiple companies’ systems. BEA Systems, IBM and Microsoft are just a few of the technology companies that have launched STP-Web services initiatives.
“Once you standardize on Web services for external connectivity, the cost reductions can be significant,” says Georges Bory, head of Summit, the Paris subsidiary of New Yorkbased trading technology company Summit Systems, which has built Soap into its software tool kit and is working with Microsoft’s .Net platform. “But we are still at an early stage.”
