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  You are here: home Info Bank Articles » Intermediaries will thrive in the Web services world Saturday, 14 July 2007

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Cutting the Middleman Back in

Intermediaries will thrive in the Web services world

Article by: Primordial, Inc.

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 came to pass, ultimately, the IDR cycle (intermediation, disintermediation, reintermediation) proved true once again, touching off a new wave of innovative intermediated value.

Now as the gales of creative destruction be gin to stir, this time in the form of Web services, many are 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 appli cations 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 hubs. The concept of an insourced intermediary platform under the control of the benefactor is rapidly becoming a popular method for managing and enriching a service-oriented architecture. However, this paper will focus primarily on the role of the third-party intermediary in the context of Web services.

Threat or Opportunity?

Third party intermediaries have existed in the systems integration space for many years. Concerns over security, connectivity and access, performance and document format incompatibilities 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 organizations that provide intermediary services?” The answer is, both.

The threats are obvious. Web services are all about standards-based, platform independent communications, 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 these threats are real, in the past intermediaries have successfully demonstrated their ability to transform them into opportunities and emerge stronger than before. For example, in the mid-to-late nineties, these organizations were threatened by the internet—a no cost, ubiquitous public network—as well as a platform-independent file format called XML. Together, the internet and XML sounded the death knell for VANs and EDI. However, 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 longstanding customer relationships, scalable infrastructure, 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, VAN and EDI usage has 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 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 a 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 offering location services and content)

Here come vertical hubs

Although these kinds of horizontal services are critical in 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, 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 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 there will be plenty of need for intermediaries.

Note: This article is published with kind permission of Primordial.

About Primordial
Primordial is an ebusiness consultancy and leading provider of Web services demand management solutions to global 2000 companies. Our flagship product, WSBANG (pronounced "whizbang," for Web Services Broker and Network Gateway), is the only independent SOAP-native Web services management platform, offering a single point of visibility into and control over all Web services throughout the enterprise, making them secure, scalable and reliable.

 WSBANG: built for demand management


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