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Continued from Part One
Web services ROI, part two
What the NSC does
The NSC is a non-profit association that provides student verification information for employers, lending institutions and other organizations. For example, when someone applies for a job at a business and claims to have a degree from a particular college or university, the business can check with the NSC to find out whether that person in fact attended the college and received the degree. The NSC maintains a comprehensive database of student records from over 2,700 colleges, representing 91% of the nation's enrollment. The NSC claims that employers, student loan providers, the federal government and others access the NSC's database more than 100 million times annually to verify student records.
Mark Jones, NSC's Vice President of Marketing and Business Development, says that many of those verification requests are made by large screening firms that screen applicants for many different companies. Before the use of Web services, verification requests from these large firms were handled in two ways. A screening firm could call by phone, or they could do verification over the Web. But there were problems with both types of access, Jones says. Phone calls cost NSC money because they require an NSC service representative to handle the work. And even Web access was problematic, because there was no direct tie-in between the screening firm's internal database and the NSC database.
Typically, Jones said, a clerk from a screening firm would use the screening firm's internal database to get basic information about an applicant that needed to be screened. Because there was no direct tie-in to NSC, then the clerk would have to either call the NSC, or else log into the NSC database on the Web to get student record information.
The problem, Jones said, was that "forty percent of the time the clerk would forget to use the NSC — they'd instead call the school directly" to get the information. The schools were unhappy, because they didn't want to have to use resources to provide this information — that's why they contract with the NSC. And the NSC wasn't happy, because it meant that they were losing forty percent of potential revenue from screening firms.
So the NSC came up with a solution: use a Web service that would tie the NSC's verification process directly into the big screening firms' databases. The NSC built it using technology from Flamenco Networks, and Flamenco Networks provides infrastructure for it on an ongoing basis. Now, when a clerk from a screening firm opens a record from the screening firm's database in order to verify an applicant, there is no need to remember to call the NSC or log onto the NSC Web site — a Web service exposes the NSC database and the clerk automatically looks into the NSC database and get verification information. This means of verification is now built directly into the verification process at the screening firm. All verification now goes directly to the NSC.
Calculating the ROI
The cost of developing a Web service to expose the NSC database to partners was insignificant, Jones says — $10,000 for consultants and $15,000 for software and internal resources. Key is that the $25,000 was spent not for any one individual screening firm. Once the Web service was built to expose the NSC database, any screening firm that NSC wants to can tap into the database.
Jones estimates that NSC made back its $25,000 in the first month that the new Web service operated.
"It meant a 40 percent jump in calls from existing customers," he explains. "In the first month, we figured we'd get $25,000 in extra revenue from our 25 biggest customers, and everything after that is gravy."
Just as important, he says, is that the Web service "expands the market for us. With a Web service interface, we can tie customers directly into our database," and so they'll be more likely to use the NSC database rather than making verification phone calls to schools. Additionally, it will allow the NSC to more quickly provide verification services to its customers, since that process will happen automatically.
"It potentially doubles or triples the size of the market for us," Jones says.
Recommendations for calculating ROI
The $25,000 that the NSC spent for developing the Web service is not the only cost that the company has to bear. In addition to that money, the NSC also pays a one-time cost of connection and ongoing maintenance fees to Flamenco Networks for each screening firm that taps into the NSC Web service. Because of that, the NSC only allows its largest customers to tap into its database using a Web service.
"We factored in the connection cost and ongoing maintenance, and then using that, we calculated the ROI for individual customers," Jones explains. "For the smaller customers, we found it wouldn't be worth it, and so didn't offer them the Web service." But for larger customers, the ROI was clear.
Jones has several pieces of advice for other companies trying to calculate the ROI on Web services.
"As we got into the planning, we found that the cost of development was almost insignificant. The bigger cost was in the ramp-up and in managing ongoing fees and maintenance. That's where the potential for trouble lies. I recommend that companies include that as a major cost when figuring out the ROI."
Possibly even more important, he says, is having a solid business model, and in knowing ahead of time clearly how you'll calculate the ROI, whether it be increasing revenues or lowering costs. In the NSC's case, this was easy to do — the company was taking an existing business process and business model, and extending it via Web services. So the cost was only the cost of developing the Web service. But other companies calculating an ROI should take care to include the cost of developing new business processes, and make sure that the business model they're using is scalable.
About the Author
Preston Gralla, a well-known technology expert, is the author of more than 20 books, including "How the Internet Works," which has been translated into 14 languages and sold several hundred thousand copies worldwide. He is an expert on Web services and the author of a major research and white paper for the Software and Information Industry Association on the topic. Gralla was the founding managing editor of PC Week, a founding editor and then editor and editorial director of PC/Computing, and an executive editor for ZDNet and CNet. He has written about technology for more than 15 years for many major magazines and newspapers, including PC Magazine, Computerworld, CIO Magazine, eWeek and its forerunner PC Week, PC/Computing, the Los Angeles Times, USA Today, and the Dallas Morning News among others. As a well-known technology guru, he appears frequently on TV and radio shows and networks, including CNN, MSNBC, ABC World News Now, the CBS Early Show, PBS's All Things Considered and others. He has won a number of awards for his writing, including from the Computer Press Association for the Best Feature in a Computer Publication. He can be reached at preston@gralla.com.
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