A BRIEF RECAP: THE PAST 10 YEARS

During the dot-com bust of the past two years, something amazing occurred. While the business world watched dot-com after dot-com fold, and the luster of e-Business and the Internet steadily dulled, the technology visionaries were hard at work. The business world was under attack on a number of fronts, including the economic slump, the technology hangover from e-Business spending, and rapidly changing business conditions. Add the economic recession and the financial scrutiny caused by Enron’s stunning collapse, as well as the failures of venerable organizations such as K-Mart and Global Crossing, and you have the makings of trouble.

The business issues facing organizations over the past few years have been considerable. Between year 2000 preparations, then the tremendous investment in e-Business followed by the economic slump of the past two years, organizations have faced travail upon travail. Of course, the world of IT has also been pressed. Organizations have invested millions in ERP platforms, CRM solutions, and e-Business initiatives. They have implemented the supporting applications and infrastructure to drive their businesses via the Web, such as content management, enterprise portals, data warehousing, and analytics solutions. Organizations have spent hundreds of millions of dollars on complex IT solutions—solutions that often resulted in application silos that are massively inflexible and extremely difficult and costly to implement. Many organizations spent tens of millions of dollars and several years installing ERP solutions, only to find that by the time they were through, their business had changed—both internally as well as externally. The monolithic application footprint and rigid architectures of ERP solutions have created a host of copycat organizations that have implemented the same solutions in the same industries. This resulted in lost competitive advantage and uniqueness of business models. It resulted in an inability to change business processes as well as information systems to meet emerging needs. ERP implementations resulted in a business architecture based on internal operations versus interactions with customers and suppliers. The difficulty of integrating ERP-centric backbones with other organizations’ ERP backbones persists and has created a substantial market for Business to Business (B2B) integration tools such as Enterprise Application Integration (EAI), messaging software, and other middleware solutions.

The Internet exposed this problem even more as organizations attempted to link their businesses and systems in support of new initiatives such as collaboration, partner relationship management, product life cycle management, and other emerging business needs. Business strategies such as M&As drove a need to rapidly integrate an acquired organization’s business processes and IT systems. Issues such as master data management, managing customer and product information, and eliminating redundant systems have plagued businesses in M&A mode. Productivity gains were sought through initiatives such as employee self-service and enterprise portals, which made it easier to access relevant information by role and needs. B2B collaboration has to date been inhibited by expensive integration efforts, inflexible enterprise business applications, and the inability to extend and/or augment existing business applications to accomplish new business functions as business needs change.

The Enterprise Application Phenomenon

The enterprise application phenomenon is the culmination of the clientserver era of computing. Client-server computing based on the three-tier, then the n-tier architecture, completely revolutionized computing as it was known in the early 1990s. Client-server computing models broke the paradigm of large centralized mainframes serving masses of dumb terminals based on the dramatic rise of the Personal Computer (PC) in corporate and home computing. Client-server computing hailed the introduction of the distributed computing model, where applications could be built and deployed more efficiently and targeted to distinct business audiences, departments, and end users, as opposed to being driven by internal IT organizations that were the traditional buyers of computer applications. The client-server architecture created new “markets” for software vendors to sell to by virtue of the increasing development of departmental and functional applications that solved targeted business problems, yet interacted with other functional applications or modules from the same vendors. SAP R/3 arguably represents the pinnacle of client-server success. This ERP solution is the industry’s leading business computing platform, followed by offerings from Oracle, PeopleSoft, and a host of others. SAP’s dominance in the ERP arena can be explained by a number of factors, but one surely is that it was among the first business application suites to be built on a client-server architecture. When SAP R/2, the mainframe version, was replaced by its R/3 client-server release, SAP took off and never looked back. SAP rolled over all the competitors in the ERP space and established itself as a major force. The Big 5 consulting firms were profiting handsomely from SAP implementation services, and analyst organizations were raking in fees for research, vendor selection, and analysis. The SAP ecosystem was rich with revenue opportunities that supported or complemented the SAP ERP solution. PeopleSoft, which was also known for its clientserver architecture in the human resources arena, attempted to challenge SAP by acquiring other vendors and rapidly expanding its application footprint to additional functions and departments of the business enterprise. SAP had an advantage in functional breadth, however, and the battle was won before it began.

The point of this story is that client-server computing brought with it a number of changes in the way that applications were developed, sold, and implemented by software vendors and consumed by corporate users. The client-server architecture created a wave of change across the entire information technology value chain, threatening the incumbents and embracing new entrants who had a new way, a better way, for computing to be performed. The PC was clearly one of the drivers of the client-server wave, as well as the desire to break the traditional highly centralized mainframe computing model. The client-server computing paradigm for the first time invited end users into the corporate computing dialog, and extended the reach of business software from the IT department to all business departments. Client-server computing, based on the widespread penetration of PCs into homes around the world, enabled users to do more with technology.

Today, Web services are about to create a new wave of change. This new engine of change is relatively simple: The catalyst for Web services is agreement. At its foundation is agreement on the adoption of three fundamental standards for communicating between computer systems: TCP/IP, HTTP, and XML. TCP/IP, or Transmission Control Protocol/Internet Protocol, Hypertext Transport Protocol, and Extensible Markup Language are the pervasive standards for computing that emerged from the Internet revolution. The Internet capped the client-server era of computing by making computing pervasive to all users, in organizations, and in homes. The Internet extended the reach of computing into virtually all aspects of the human experience, from CEOs of multinational conglomerates to home users e-mailing vacation pictures to relatives. Much as the Internet broke the communication and information bottleneck for information consumers of the client-server computing model, Web services will break the communication and information bottleneck for business enterprises.

Web services will take B2B communication to new levels. The Internet enabled personal collaboration via e-mail and instant messaging tools; Web services will enable corporate collaboration via loosely coupled applications across organizational boundaries. Web services will enable much more than information exchange between organizations based on dedicated interfaces at the system level. Web services will enable businesses to interoperate at the business process level in dynamic and emergent ways as new processes arise in response to changing business conditions and changing corporate priorities.

Rise of the Wintel Duopoly

While client-server computing rode the PC-driven Wintel (Microsoft Windows operating system and Intel microprocessor) wave, the Internet began exposing this architectural paradigm’s weaknesses. Web browsers removed application-specific user interfaces as the method of choice for navigating applications and content, and the rapid adoption of the Web meant that desktop computing wasn’t really what users wanted. PCs were not used as computing devices; they were used as communication devices. As mobile computing has increased in popularity, and as the inherent difficulties in business-to-business integration have been realized, a new paradigm of computing is being hailed as the solution. Web services are here.

The inevitable saturation of homes with PCs, combined with the rapid rise of wireless devices, has huge implications for Microsoft and for Intel. First, slowing license revenue from Windows and related desktop software is forcing Microsoft into new ways of revenue and profit creation, such as set top boxes and gaming devices. Microsoft’s core business of desktop operating systems and desktop software will be increasingly threatened as computing devices move away from the desk and become increasingly mobile. Slowing sales of perpetual software licenses has Microsoft concocting new ways to drive revenue growth, and one of those ways spells the end to these licensing arrangements. Some see a future in which software is sold as services through subscription fees. Microsoft is already considering a rent-for-use model for Microsoft Office, much like subscribing to cellular service and cable television. ERP vendors might consider licensing modules on a metered, per-click basis as opposed to licensing on a per seat basis. Some speculate that Web services will help to revive the flagging Application Service Provider (ASP) market and perhaps make business applications more affordable for all organizations, especially those in the mid-market that can not expend the millions of dollars required for a typical ERP implementation.

Web services are perceived by some skeptics as an attempt by Microsoftand other large enterprise software platform vendors to halt eroding license revenues by providing software as services. This action will help stave off declining revenue from slowing PC sales and the shift from desktop computing toward mobile computing. Others see IBM’s Web services thrust as a way for it to maintain hardware and services revenue by positioning itself as the software and platform vendor of choice, much as Sun Microsystems was perceived as the Internet platform of choice.

While there might be some truth in these ulterior motives by some platform vendors, Web services are farther reaching than that—and the benefits are far too compelling to ignore. The fact that all major software vendors have embraced the standards of Web services, and are racing to develop tools and solutions to facilitate the adoption of Web services, shows how the move toward Web services is beyond the span of control of any single software vendor.