2.4 Emerging Trends

2.4.1 New Business Trends

New Intermediaries

There are a few new business models that have emerged over the last few years , primarily related to brokers or intermediaries for large corporations and many service providers. Many of these corporations are highly successful. Still, some models are sound, but cannot survive the Internet bubble, as in the case of Digilogistics. This may be due to a combination of different factors, such as management and implementation issues. The following examples show a few business models, both successful and closed:

• eBay Model ” This model acts as an intermediary with an escrow-like function for reverse auction marketplace (for example, eBay and Amazon).

• Amazon Model ” Amazon extends its business line from an online bookstore to an online specialty store, providing Application Server Provider services for Target and Toys "R" Us.

• New Banking Intermediaries ” For example, UPS Capital, a UPS subsidiary, provides Letter of Credit and financing services; Standard Chartered Bank's eXonomy provides B2B banking services for a niche market.

• New Logistics Intermediaries ” Information brokers supply logistics services, (for example, Bolero or Digilogistics [already closed]).

Like the white label service discussed previously, Web Services technology is a good technology enabler to provide subscription services (white labeling), and aggregate services from different service providers.

Death of Dot-com

Many dot-com arms or spin-offs are reabsorbed into the traditional delivery channels (for example, CitiCommerce). Some weaker dot-coms or intermediaries cannot survive the economic landscape changes, and have filed Chapter Eleven for bankruptcy protection. Dot-com becomes a taboo to many firms.

Economy Slowdown

Since the Internet bubble burst, many business managers are interested in immediate cost savings, not long- term cost reduction. The implication for IT solution development is that business users have very different expectations for services, and they are very cost-sensitive. Web Services technology is considered as a cost-reduction technology favorable to the slow economic environment. Workforce layoffs have also led to skill readaptation for many engineers and developers. Many IT personnel turn to online training or e-learning for skill adaptation. Security, J2EE, and Web Services technology are examples of hot technologies that interest developers.

Multisourcing

More large corporations outsource operations and IT development to developing countries , such as India, to lower operating costs. This opens up opportunities for ASP models to reincarnate using Web Services technology; for example, i-Deal provides an online capital raising service using an ASP model.

Real-Time Information and More Automation

The acceleration of online securities trading and cross-border trade has helped push the securities industry to implement straight-through processing (or automated trade processing and next -day settlement ) by 2005. With the proliferation of such wireless capability as 3G phones and broadband service for homes , many people expect information to be pervasive ( anytime , anywhere ) and available in real-time.

Web Services technology can be used to create a virtual layer that can collect, aggregate, and disseminate business information in real-time and in an automated manner. An example is Blue Titan Network Director ( http://www.bluetitan.com/products/overview.htm ).

Less Cost for Research and Development

Customers are expecting technology that can help them reduce costs immediately, especially where cross-platform integration and customization can be done more economically. Web Services emerges as the right fit, because it can address costly cross-platform integration and customization using Open Standards technology, without rewriting the legacy systems.

2.4.2 New Technology Trends

New Generation 64-bit High-Speed Computing Platform

The arrival of 64-bit processors running at 4 GB MHz blurs the line between home computing and business computing. Developers are using low-end 64-bit machines for small office servers, Internet appliances (such as Sun Cobalt and Sun LX50 Server), and development platform. These appliances are attractive because of their high computing capability and entry-level server features. HP also has manufactured machines that have the flexibility to use 64-bit Intel-based or RISC chips to run Unix.

Grid computing is a new technology area that makes use of available, low-cost, and high-speed computing resources to process business application requests and transactions. Together with Web Services, developers can make use of a low-cost 64-bit computing platform to perform computing- intensive tasks such as risk management and data mining in a distributed network environment. Each host is installed with a grid computing agent that can discover other Web Services or invoke Web Services calls ( http://www.gridforum.org/ogsi-wg/drafts/draft-ggf-ogsi-gridservice-23_2003-02-17.pdf ). This will provide a cost-effective distributed computing environment without a dedicated high-end hardware platform. Recently, grid computing with Web Services has gained some momentum in the securities industry ( http://www.simc-inc.org/archive0203/Grid/index.htm ).

Proliferation of Open Standards

More companies are willing to exploit Linux for small office servers, small-scale Web servers, and peer-to-peer publishing services. NetCraft ( http://www.netcraft.com ), a Web site survey company that polls Internet-connected computers, reports on the growing market share (56.38 percent in April of 2002) of those using the Apache HTTP Web Server platform for Web sites on the Internet. There are more Open Source products, such as Netbeans (Sun ONE Studio codes donated by Sun), Eclipse (WebSphere source codes donated by IBM) and Apache SOAP, used for implementing solutions.

XML has become a de facto standard for many commercial off-the-shelf products, from application servers (such as Websphere Application Server ) and infrastructural products (such as Sun ONE Directory Server) to office desktop products (such as Microsoft Office ). Web Services technology is also one of the key Open Standards under OASIS ( http://www.oasis-open.org/ ) and W3C ( http://www.w3.org/2000/xp/ Group / ).

Broadband Internet and Wireless Technology

3G mobile phones have been deployed in Asia and Europe, and some areas of the United States. Utilizing WAP over the CDMA protocol, the GSM technology enables digital phones ”even non-GSM phones ”to access WML services. iMode, a simplified version of WML, caught on with a huge critical mass very quickly in Japan. There are a few killer applications (such as Hello Kitty) running on iMode-enabled mobile phones in Japan.

Broadband Internet has heavily penetrated major cities in Asia Pacific, Europe, and many North American cities now. It has also created new business models for home office, Virtual Private Network (VPN), and consumer computing. Among other services, multimedia applications and e-learning, both of which require heavy bandwidth infrastructure, have become viable using broadband Internet, whereas just a few years ago these were merely challenging ideas. In terms of Web Services, a classic example would be a multimedia-based e-learning solution that can be best exploited as a Web Service on a pay-per-use basis.

Bluetooth , another wireless technology, has become pervasive with electronic appliances such as digital camcorders, notebook PCs, and refrigerators. A few years ago, Gartner Group Research identified Bluetooth as one of the key technologies of the future. However, it currently runs on a GSM network only.

With various wireless technologies ranging from WAP phone, SMS short messages, and email, the notion of Unified Messaging becomes inevitable. Information captured from one channel (or touch point) can be accessible via another channel. Customer and account information at different touch points can then be integrated and managed seamlessly, without the need of duplicate data entry.

Broadband and wireless technologies have made multichannel support a key service element and an early adopter for Web Services. Zefer and Sun collaborated to define the first Smart Web Services architecture for wireless clients accessing remote Web Services. (Refer to the technical notes at http://sunonedev.sun.com/building/tech_articles/webserv_refarch.html ).

Wireless Web Services

The proliferation of mobile devices such as Personal Digital Assistants (PDAs) and Pocket PCs has made pervasive computing with Wireless Web Services attractive. Nowadays, developers can deploy Web Service clients on those mobile devices (see Figure 2-1) that can support Mobile Information Device Profile or MIDP (that is, J2ME clients) with kSOAP jar files. kSOAP ( http://www.ksoap.org/ ) provides light-weight SOAP capability to these MIDP-compliant devices, just as a rich SOAP client. It runs on top of MIDP and Connected, Limited Device Configuration (CDLC) library with the Java virtual machine KVM. Java 2 Platform Micro Edition or J2ME with cryptographic provider (such as the Bouncy cryptography provider) will also provide good secure data transport to support WS-Security.

Figure 2-1. Wireless Web Services Client Stack

Core Banking

As a result of banking deregulation rules in many countries, many banks have begun to provide customized product pricing for different customer segments. For instance, retail banks price deposit account interest rates differently by location and customer segments. Thus, the capability to segment and profile customers based on consolidating customer transactions and behavior here is key. Web Services is one option to provide such dynamic customer data consolidation from heterogeneous sources.

Home banking has begun to pick up some momentum recently, probably because it provides lower cost of banking services and more timely account information. Interestingly, it has not been that popular in small cities where a variety of banking channels, such as ATM or IVRS-based phone banking, are convenient .

Peer-to-peer banking, such as Yahoo!-HSBC peer-to-peer banking service, is emerging where traditional retail banking does not provide such flexibility and low-cost (free!) interbank fund transfers. There is also increasing interest in such peer-to-peer computing technology as JXTA and a potential marriage of Web Services and peer-to-peer computing.

Many core banking solution vendors now support the J2EE platform, and some of them (such as Eontec) also provide Web Services support for remote interface and system interoperability. This enables banking services to be easily accessible by and integrated with different technology platforms.

Branch Consolidation

With increasing mergers and consolidations in many countries, such as at the Misuho Bank in Japan and the Bank of China in China, Web Services technology becomes more attractive for aggregating services from different units and system functionality without rewriting both back-end systems.

Credit Card

Credit cards still represent a high wallet-share business for banks. Bonus points and membership-reward marketing continue to be the key components for customer-loyalty programs. The capability for providing a self-service facility for redeeming member rewards is a good example of a Web Services real-life application.

Nevertheless, credit card payments and card issuance remain high-risk areas. Fraud protection and prevention with good security mechanisms is essential. Network Identity with digital signatures for online shopping using credit cards becomes critical. Web Services security standards play a significant role in realizing this.

Relationship Banking

Customer Relationship Banking, previously known as Database Marketing, involves sophisticated customer segmentation and behavioral scoring based on historic account activities. Web Services technology eases the capture and aggregation of customer information and account activities from multiple touch points. Traditional data warehouse technology can be supplemented by Web Services-based data capture and extraction for easier interoperability and lower cost integration.

In parallel with integrating different touch points, many banks are also interested in supporting multiple delivery channels. This means delivery of customer and account activities via multiple devices such as a Web browser, PDAs, mobile phones, and pagers . With XML technology, data can be presented differently to different client devices using XML style sheets without writing twice. This enables higher reusability of banking services.

Wholesale Banking

Electronic Banking is entering the second generation. The dot-com wave has pushed many traditional banks to Web-enable their legacy Electronic Banking systems. Compared to rich clients, thin-client browser deployment is cheaper and faster to market. Some banks also take this chance to revamp their legacy architecture and migrate to Open Systems.

Online trade finance is a good example. Multinational banks such as HSBC and Standard Chartered Bank have deployed Web-based international trade services (Letter of Credit) using SureComp's NetIMEX. On the other hand, JPM Chase has chosen to private label Tradecard for their B2B trade services.

Many cash management solutions now support the J2EE platform. Some of these vendors (such as Bottomline Technologies) also support Web Services technology as a means to integrate with legacy systems and external corporate customers.

B2B Financial Exchanges

Many large banks spin off a separate business unit to become an e-marketplace or financial exchange (with a marketplace partner usually), Citi-Commerce (Citibank) for example. These exchanges act as an intermediary for buyers and sellers, who may come from the existing customer base of the financial institution. This will not only grow the customer base, but also increase the banking services. However, after the death of dot-coms, the financial exchange or e-marketplace is often reabsorbed into the banking group. (Standard Chartered Bank's eXonomy may be an exception ”it launched production in November of 2002. The URL is http://www.scb2bex.com .)

Escrow is another new intermediary that provides escrow-based payment services for marketplaces ; escrow.com is a good example.

New business models such as new intermediaries, require an appropriate IT technology model, especially integration between trading partners in the value chain. Web Services technology has a lot to offer in this space.

Capital Markets

Straight-through Processing (STP) or T+1(next day) settlement is the goal in the capital markets. Having a flexible integration framework and messaging infrastructure can help extract and reuse trade order information to achieve the next-day settlement goal.

In the last few years, more and more investment banks have merged or consolidated. We saw large conglomerates develop, such as JPM Chase (JP Morgan and Chase), CSFB (Credit Swiss First Boston and DLJ), Morgan Stanley Dean Witter, and Citi-group (Citibank and Salomon Smith Barney). This presents the challenge of consolidating silos architecture within a short period.

With the fast growth of equities trading business and mergers, many silo processes in the middle office can be consolidated to improve efficiency, and to reduce cost. This may require refactoring business services, application and server consolidation, as well as aggregating contents from different applications.

Wealth management, a variant theme of Customer Relationship Management, is another fast-growing area in Capital Markets. It can generate new revenue sources from consolidating investment profiles and banking services from private banking customers and cross-sell for other related short-term or long-term banking services.

We have seen many areas in capital markets share similar infrastructure and integration needs. Web Services can play a key role as an enabling technology for application consolidation, contents aggregation, and STP. Wall Street and Technology ( http://www.wallstreetandtech.com/story/WST20021007S0006 ) has identified some pilots and early implementations of Web Services solutions in the capital market area, for instance, data distribution (Accenture), financial reporting (Nasdaq Stock Market, Microsoft, and IBM PricewaterhouseCoopers), stock charting (Streetline), and corporate applications (Aspelle).

B2B Commerce

Many small and medium-size buyers and suppliers want to automate their supply chain management, but cannot afford to buy expensive ERP systems. Hosted (ASP-based) supply chain management service has become more attractive to them, as they do not need to build an infrastructure. Such automation is also driven by the demand for low-cost international trade. Suppliers can collaborate and share manufacturing and order information with buyers without purchasing expensive ERP systems.

B2B marketplaces, or e-marketplaces, are good vehicles to create critical mass for buyers and suppliers. The B2B market has orientated toward a private marketplace model. In the last few years, Ariba and Commerce One are two major competing B2B marketplace models while many small and medium-size marketplaces have shut down since the global economy slowed down. Nevertheless, e-marketplaces continue to be a key driver for B2B integration.

Just-In-Time delivery requires all suppliers to be linked online to the commerce sites. Trade orders taken from the commerce sites can be piped to ERP systems to process order fulfillment and logistics tracking. Shipment information tracking is an important element in Just-In-Time delivery. There are emerging information broker intermediaries for multiple shipping and logistics service providers. Digilogistics (though out of business now) is an example.

B2B commerce requires sophisticated many-to-many partner integration. Smaller suppliers either turn to a low-cost ASP-based supply chain management service (for which Web Services technology is the key enabler) or an ERP-based product implementation (for which XML connector and Web Services are likely to be used for integration).

Private UDDI service registry will be seen as necessary to manage private trading communities. It is intended to be a service registry for vendors and suppliers, much like the Yellow or White Pages. For instance, Sun has implemented a private UDDI service registry for Business-to-Business processes under an internal project called "XWS." In a B2B commerce scenario, suppliers can be preregistered in a private UDDI within a private community. The e-marketplace can use this private UDDI as a control mechanism for service providers and business services.