Don't worry about the man in the middle: Cutting the middleman back in
by Primordial, Inc.
Intermediaries will thrive in the Web services world
Remember when the Internet was going to be the great disintermediator? Traditional distribution channels for both information and product would cease to exist, and one-to-one marketing and direct delivery would become the way of the world. Well, while some of this has come to pass, ultimately, the IDR cycle (intermediation, disintermediation, reintermediation) proved true once again, touching off a new wave of innovative intermediated value.
But now as the gales of creative destruction begin to stir, this time in the form of Web services, many are again questioning the role of intermediaries and the value they'll provide in a world predicated on direct application-to-application integration.
What is a Web services intermediary?
Technically speaking, a Web services intermediary is an entity positioned anywhere within a Web services message path that performs a value-added function on behalf of the initial message sender, the ultimate message receiver, or both. This broad definition includes entities ranging from software applications and network appliances that function as part of an organization's physical messaging infrastructure through third party Web services networks, traditional VANs, carriers and vertical
Threat or opportunity?
Third party intermediary organizations have existed in the systems integration space for many years. Concerns over security, connectivity and access, performance and document format incompatibilities have spawned a multi-billion dollar industry for both vertical and horizontal players bold enough to take on the responsibility of helping organizations interoperate at the data level. But now as the IT world is all aflutter about integrating at the application and business process level via Web services, the question is; "Are Web services a threat to or an opportunity for these kinds of organizations that provide intermediary services?" As usual, the answer is, both.
The threats that Web services pose to traditional intermediary organizations are obvious. Since Web services are all about standards-based, platform independent communications, and incorporate incorporating the use of industry schema for semantics, it would appear therefore that companies such as VANs (value added networks) are in for a rough ride. Who needs a transaction intermediated when everything interoperates both at the system and process layer? Further, as these new technologies emerge, so will a bumper crop of innovative start-ups nimble enough to leverage the technology to do things better, faster and cheaper.
Although the aforementioned threats are real, in the past traditional intermediaries have successfully demonstrated their ability to transform such threats into opportunities and emerge stronger than ever before. For example, in the mid-to-late nineties, these organizations were threatened by the Internet—emergence of a no cost, ubiquitous public network—called the Internet as well as a platform-independent file format called XML. Together, the Internet and XML sounded the death knell for VANs and EDI. Needless to say, the bells were prematurely tolled. Although these technical innovations were harbingers for change, the VANs were able to fend off extinction by:
- Articulating the continued need for trust services in this new and promising but free-wheeling operating environment.
- Leveraging brand and long standing customer relationships, scalable infrastructure, and credible operational expertise, and brand.
- Embracing new technology where applicable to create new product offerings and reducing cost structures for existing offerings.
- Positioning new technology as a way to extend EDI to the SMB market.
Although some start-ups made inroads into the market, ironically VAN and EDI usage have actually increased since the advent of the business Internet, with the biggest players gaining market share.
Web services opportunity
No doubt, Web services will rekindle the desire to remove the middleman. But those tempted to do so will quickly realize that trust services and performance are even bigger issues when it comes to deploying Web services. The evolution of security and transactional integrity standards will not keep pace with the market's desire to migrate more sophisticated and mission critical functions to Web services. This is especially the case as the large software vendor alliances, whose unprecedented cooperation got Web services standards to where they are today, begin to fragment as standards discussions touch on issues more near and dear to their hearts (and deeper within their product lines). The last mile of system interoperability will be left to the middlemen for some time to come -- and therein lies the opportunity. While start-ups will bring some innovation to the field, it is the credible, more well-established players that will bring home the bacon.
Most of the Web services network start-ups have focused their efforts on providing horizontally focused networking and switching solutions. While there's been some positive buzz, very few of their efforts have taken root as production systems. That's because:
- These solutions are not solving an easily identifiable business problem (remember, it's still very early in Web services and folks are not quite sure why they need a special network to handle standards-based traffic).
- Most require dual-sided adoption, meaning that both the sender and the receiver need to be aware (via a software agent, an API, etc.) of the network -- dual-sided adoption requires a network effect to occur in order for these entities to yield value.
- Organizations are wary of turning control of their transactions over to unproven entities -- they're waiting for the vendors they know to offer these services as part of a broader inter-enterprise integration and messaging strategy.
What value-added services?
VANs, CDNs (content distribution networks), TDNs (transaction delivery networks), telecom carriers and vertical hubs are tweaking their business models and infrastructures to pursue this potentially lucrative adjacency strategy. The goal is to leverage existing assets to provide value-added horizontal and vertically-oriented services and applications to both Web services requestors and publishers. Horizontal solutions include:
- Secured messaging (encryption, authorizations and access control).
- Infrastructure support (monitoring, metering, logging, auditing).
- Account services (provisioning, billing, non-repudiation).
- Application creation and deployment stacks.
- Intermediary applications (e.g. wireless providers providing offering location services and content).
Here come vertical hubs
Although these kinds of horizontal services are critical in ensuring triggering broad adoption of Web services, long-term they will become commoditized. Ultimately, such commoditization will drive down prices and trim profit margins. Organizations will be hard pressed to remain financially viable if their offerings are limited only to horizontal services. Inevitably, firms will need to diversify and provide vertically-oriented services where the margins are more interesting and the barriers to entry are greater. As Web services adoption increases so will the importance of vertical hubs. Vertical hubs are third- party intermediaries that provide value-added services on behalf of an industry specific community. Vertical hubs come in two forms: independent brokers and consortiums. Determining which type of vertical hub will be more successful for a given scenario is highly dependent upon the following factors:
- The level of cooperation amongst supply chain partners, customers and competitors.
- The nature of the transactions being processed (cost, duration, significance).
- Participant metrics (size, number, degree of technical sophistication, etc.)
The kinds of services performed by these vertical hubs include:
- All of horizontal functions described above, tailored to industry specific requirements (certain types of encryption, auditing certifications, etc.)
Process orchestration and composite services brokering -- the ability to serve as a transaction bus for an industry process that requires the integrations of known participants.
- Translation services (schema, protocols, document formats).
- Rapid integration support services for new participants.
- Directory and rating services.
- Integration with vertically-oriented systems such as case management in healthcare.
Increasingly, traditional horizontal players such as telcos are developing vertically focused practices that will provide industry specific solutions. Complicated government mandates such as HIPAA are presenting highly attractive vertical hubbing opportunities for companies looking to leverage billions of dollars of infrastructure to create new revenue streams.
Finally, because Web services are highly dependent upon schema for semantics, these hubs are increasingly becoming great sources of business intelligence both in terms of business activities and service quality. With the permission of their customers, vertical hubs are placing "transaction sniffers" all along their transaction buses and reporting this information in aggregate back to their customers. Thus business intelligence allows each vertical hub participant to gain a better understanding of processing bottle necks, competitive vulnerabilities and new business development opportunities.
The bottom line is that Web services are going to allow more organizations to engage in increasingly complex electronic interactions. Further, if the standards bodies remain true to form and emphasize simple standards that are easy to understand and implement but can be combined in ways to accomplish some pretty amazing things, rest assured they'll there will be plenty of need for intermediaries.
Copyright 2002. Reprinted with permission. Primordial, Inc. is an ebusiness consultancy and leading provider of Web services demand management solutions to global 2000 companies. Their flagship product is WSBANG (pronounced "whizbang," for Web Services Broker and Network Gateway).
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This was first published in July 2002