Hard Sell on Web Services for Software Makers

Get ready to be bombarded by buzzwords again. This time, the phrase is "Web services," and software investors are about to get an earful of it.

It isn't exactly new, but thanks to a concerted push by the software industry, it promises to be in your face soon. In the coming months, look for every software company you once knew as something else to highlight itself as a Web services company.

"It's the hottest buzzword around, so you have to have a strategy," says Jon Ekoniak, software analyst at U.S. Bancorp Piper Jaffray. While the phrase is hot, it's also being thrown around very loosely. "Today Web services is not something that's clearly defined."

Web What?

First, forget about the name. At its most basic, Web services enables different software programs to work together in very specific ways, and it's more about smooth integration than about actual services.

Say, for instance, you're using a customer billing program at your company to bill a customer in Germany, but your software can't convert U.S. dollars into German marks. In a world of Web services, you could simply tell your software to go out and look for another computer program -- either inside your own company or on the Web -- that has a currency conversion function.

Because of the different Internet standards that companies such as Microsoft, Sun, Oracle, SAP(SAP Quote - Cramer on SAP - Stock Picks), BEA Systems and others have been pushing over the last year, there's a growing depository of information on the Web that tells computers not only which programs have which capabilities, but also how to talk to those programs.

In fact, it's the alphabet soup of developing standards that you may have heard -- XML, UDDI and SOAP -- that's making that type of information depository possible. It includes phone directories, road maps and blueprints, if you will, of software and its functionality, available over the Internet. Because those different standards have been pushed by major software vendors, many analysts say that the rush to Web services isn't just the same old hype of the past. In other words, the technology is there, or at least it's getting there.

"The Web until now has been all about machines talking to eyeballs," says Robert Labatt, research director of Web services at Gartner G2. "Web services takes the Web to the next logical level, which is machines not only talking to other machines, but in time being able to automatically find and connect to those machines."

Sounds swell, right? Well, we're not quite there yet.

The Trust Factor

The most visible example of Web services so far has already run into trouble, and not from a technology standpoint. When people talk about real-world examples of Web services, they point to Microsoft's controversial Passport initiative, one of the more notable bells and whistles of the software giant's new Windows XP operating system. (Microsoft's broader .Net initiative encompasses its overall push into Web services.)

Passport is a "single sign-on" system that's designed to let computer users enter information, such as a credit card number, once, and have that information be accessible, without having to retype it, everywhere they go on the Internet.

But Microsoft's critics have assailed the company as one consumers shouldn't trust, and repeated hacks into Microsoft software have raised concerns over security. Meanwhile, a group of companies led by Microsoft archrival Sun has launched its own single sign-on initiative, dubbed the Liberty Alliance. Under that program, your credit card info would be stored at your individual bank, not at a centralized location.

The brouhaha over Passport illustrates one of the fundamental challenges facing the nascent trend of Web services: whether businesses will embrace it.

"It's not realistic today because there are a number of non-technology issues that must be resolved," says Gartner's Labatt. "How does the technology get around trust? How do I create an environment where one company can automatically connect with another company and trust that company? What about security?"

Then there's the issue of how open software companies want to be. Microsoft has been pushing Web services aggressively over the past year with its .Net initiative, but it has shown some resistance in accepting competitors' products in its vision of Web services.

And of course, there's always the question of how companies can make money with it. Currently, few if any companies are making money charging each other for access to their software's functionality. But analysts say Web services can help customers and suppliers integrate systems more smoothly, leading to greater efficiencies and cost savings.

A raft of smaller companies are trying to capitalize on helping other firms get Web services ready. But the phenomenon also raises questions for integrations software companies -- firms whose job is to make different computer systems talk to each other. Firms such as webMethods, SeeBeyond, Tibco(TIBX Quote - Cramer on TIBX - Stock Picks) and Vitria could capitalize greatly on Web services, because they've been focusing on the concepts behind them for years, or they could lose their entire franchises to the phenomenon.

And lastly, of course, there's the hype factor. That was one of the major issues that fouled up the so-called "b-to-b" revolution, where companies were going to be able to effortlessly connect and trade with one another. That idea has now been kicked to Wall Street's curb. The same could be true of Web services if the movement proves to be little more than a hyped-up fad.

"Everyone was a b-to-b company, and then everybody became a supply-chain company," says U.S. Bancorp's Ekoniak. "Now, everyone is going to become a Web services company, and unfortunately, it clouds the market. It's difficult for users to determine what's true and what's hype."