Surrounded by a climate of skepticism, due to a lack of robust security and reliability, Web services has been slow to take off in financial services.
For the past two years, Web services has been touted as a new way to build distributed applications based upon open standards that are supposed to revolutionize computing and usher in a new era of cheaper, faster software development. But despite this grandiose vision of ubiquitous interconnectivity and interoperability - where smaller components will exchange messages across the Internet and connect businesses to one another - very few examples of Web services in financial markets or other industries have materialized. Instead of buying into the utopian vision evangelized by Microsoft Chairman Bill Gates, there seems to be a lot of skepticism surrounding Web services because of the hype from vendors and slow user adoption.
Moreover, firms are having difficulty defining Web services, leading to some of the confusion. "There's a breakdown in communication because of the guys that are promoting Web services as something that is radically new and that's where some of the skepticism and confusion comes in," says Joel Scotkin, president of Random Walk Computing, a N.Y.-based financial-technology developer. "The bulk of the work that Random Walk does is exposing our customers internal systems out to their customers and a lot of that can be viewed as a Web-services model," contends Scotkin, noting that his firm can accomplish this by using a combination of traditional technologies such as FIX, Corba and other tools.
In short, the grandiose vision of Web services hasn't lived up to the excessive hype from vendors like Microsoft, Sun Microsystems and BEA that are selling development platforms for building Web services.
Bill Gates' surprise admission in July that adoption of Microsoft's .NET - the vendor's integrated-development environment (IDE) for building Web services - has been slower than projected two years ago, has fueled some of the skepticism.
Moreover, the XML-based standards - which form the technical foundation underpinning Web services - are not set in stone. "It's not so much missing because we forgot something. It's just that things are being rolled out over a period of time," explains Bob Sutor, IBM's director of e-business standards strategy. Described as middleware for the Internet, "It's very similar to the rock-solid, scalable architecture people expect to have inside their own companies," he says, adding: "So the big challenge around Web services is how do we extend this flexible, scalable, enterprise-middleware architecture out across the Internet."
The most basic or first layer of standards has been created - Simple Object Access Protocol (SOAP), Web Services Description Language (WSDL) and the Universal Description Discovery and Integration (UDDI) registry, says Sutor. In reality, more standards need to be created for security and reliability, as well as service-management guarantees in order for Web services to take off in the securities industry, which is highly conscious of risk.
"The appetite for adoption among Web services on the part of end users is quite slow," admits Dushyant Shahrawat, senior analyst at TowerGroup, a Mass.-based consultancy focused on monitoring the use of technology in financial services. Yet, at the same time, brokerage firms have the most to gain from implementing Web services, contends Shahrawat. In a report titled, "Web Services: Checking Out the New, New Thing," he points to faster, cheaper software development, easier application integration and the creation of shared infrastructure or utilities, such as commission calculators, as advantages.
"The first stage of any new technology is a lot of hype, aggressive marketing campaigns and buzz around the topic and as (firms) begin tinkering around with the stuff, they realize it's not as robust for them to utilize." If the users are not acting, then vendors tend to pull back on aggressively pushing out products that support Web services, he warns.
"It's pretty typical for some people to get disillusioned when any new technology comes out," says Shahrawat, whose report predicted that most securities firms would remain suspicious of Web services until mid-2003 when the technology will begin to mature and prove itself in certain areas. But, in August, Shahrawat revised his forecast: "I wouldn't be surprised if in the next seven to 10 months, people actually dismiss Web services and you see much less attention on Web services as a whole, and then pick up again in 2004 and 2005 as technology eventually matures," says the analyst.
According to TowerGroup, Web services will emerge in three major ways: simpler software integration using eXtensible Markup Language (XML)-based standards, such as SOAP and WDSL; easier software development by allowing firms to combine homegrown and commercially purchased components; and the provision of software as a service, though Shahrawat doesn't expect this to appear until 2005.
Another factor crimping adoption by firms is the tough economic climate. "The economy is struggling, money is tight," comments Kenny McBride, Microsoft's global industry manager for capital markets. User adoption has been quite weak over the past 20 months because of the stock market, he says.
In financial markets, "There are pockets of development work going on," says McBride. However, "There's not really a full Web services capability as yet," he adds. There's also an overhang of technology from the late 1990s, where firms that invested in e-commerce hardware and applications found they are being underutilized and are currently "decommissioning" them, says Shahrawat.
Merrill Lynch has proclaimed itself a big supporter of Web services, as has Citigroup. Merrill is said to be building a number of projects, one of which is an internal registry listing all its infrastructure services to manage them better. "It's nothing earth shattering or revolutionary," says Shahrawat, "but it's important because of the scale of effort and the commitment they're showing in understanding this technology," he says. Morgan Stanley is heavily involved with SOAP, says another industry source.
Though current adoption among securities firms remains slow and is highly secretive, there is a belief that firms are experimenting with Web services standards like SOAP to simplify internal integration and to connect with external parties. "Companies are definitely looking at Web services as a standard and a tool inside the corporate firewalls," comments Jim Adamczyk, an associate partner within Accenture's Financial Services Group.
"What Web services actually does (is) provide you with a capability to link up disparate systems internally and externally. It's a connectivity play," says McBride. But the problem with that definition is that capital-markets firms have been using message-oriented middleware and enterprise-application-integration (EAI) software from Tibco, IBM, SeeBeyond or Mercator - along with standards such as the Financial Information Exchange (FIX) - for years to integrate applications. So why is Web services providing anything different? Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio