Serving up the new connectivity

Cross-platform integration has been the dream of retailers ever since retailers adopted technology. But as legions of programmers will attest, the ability to link store sales data to customer data to replenishment systems is Nirvana that’s hard to attain. Programming in such a way that different systems can talk to each other, as well as the cost of hardware to house all the programs, have proven an insurmountable obstacle to many.

REI Inc., the multi-channel retailer of outdoor sporting goods, knows the problems first-hand. It long has harbored a vision of linking in-store kiosks to product manufacturers so a customer desiring an out-of-stock brand of cross-country skis, for instance, can use the kiosk to order them directly from the vendor for in-store pickup free of shipping charges then use the same kiosk to purchase an admission pass to a snowy national park.

REI already offers in-store kiosks for special orders, but the system has been difficult to build, because each vendor connection has required a separate in-store computer with its own network connections. For REI’s IT staff, that meant deploying more computer servers and spending many additional hours writing programming code to make REI’s ordering system communicate with each supplier’s fulfillment system. “It took a lot of work and caused a lot of consternation,” says Ernest Hughes, director of technical services for the Seattle-based retailer.

Getting flexible

And so REI is one of a number of retailers looking at web services technology, touted by many researchers, consultants and vendors as the antidote to cross-platform integration headaches. Such headaches can thwart many an integration project, because companies often figure it’s too costly and time-consuming to deploy enough hardware and write sufficient code to make disparate systems communicate. “Web services give us the flexibility to do that,” Hughes says.

Indeed, web services technology sharply changes the integration game. It’s based on several Internet protocol standards with acronyms like XML, SOAP, WSDL and UDDI (see sidebar) that enable disparate software applications not only to integrate, but actually tell each other in real time what data they need to share — such as when a retailer’s POS system tells an inventory system that a store needs more of a hot-selling product. Web services can also be used to exchange purchase orders, invoices and other documents in an automated exchange between computer systems. And because web services technology is automated, it saves on manual data entry, resulting in more accurate data transmissions. Finally, because they operate in an open-standards environment, web services can be made to integrate with legacy applications regardless of whether they’ve been modified with their own web services infrastructure.

Web services technology comes packaged in platforms and application suites such as Microsoft Corp.’s .Net, IBM Corp.’s WebSphere, Sun Microsystems Inc.’s Sun One, BEA Systems Inc.’s WebLogic and SAP AG’s NetWeaver. Using Internet protocol standards that support universal integration among disparate applications, regardless of whether they’re running on an operating platform from Microsoft, IBM, or another technology provider, web services provide for integration that is faster, easier and cheaper to build, Hughes and others say.

The bright future that web services promise has been enough to persuade some retailers to invest in web services infrastructure and development tools even though they don’t yet know what they would use them for. In fact, a recent study by IDC showed that 18% of retailers planned to invest in web services in the coming year, with some not even clear as to why. “Some respondents that said they were considering doing something with web services within the next 12 months still weren’t sure of its capabilities or what they would do with it, but they said they think it’s something that would make sense for their organization,” says IDC analyst Christopher Boone.

But the optimism may be warranted as REI and other retailers say they have deployed commerce projects, or are planning ones, that they would not have considered if not for the advantages of web services:

— In a cross-channel alliance project connecting online retailers with manufacturers such as Panasonic and Sharp Electronics Corp., more than 100 e-retailers have increased sales of products to customers who began their product search on suppliers’ web sites before being transferred to a retailer’s buy page for the particular product they wanted. Thanks to web services from Channel Intelligence Inc. running on Microsoft’s .Net technology, shoppers see near-real-time updates of each retailer’s inventory, helping to drive up consumer confidence in the manufacturer-retailer shopping route.

— For internal application integration, Vancouver, B.C.-based pharmacy chain London Drugs Ltd. is using web services to extend real-time visibility into inventory levels to six new stores without increasing IT staff.

— In a project that provides wireless access to back-end data, PerformanceProducts.com, a niche retailer of custom auto parts, is planning to use web services this year to link its IT staff’s handheld computers to web site performance data, enabling them to access real-time updates on visits, sales and other key metrics. IT Director Kirk Palmer says his company’s top executives are next in line for the web services-powered handhelds, which should keep them from calling on his IT staff so often for data.

All these projects could have taken place to at least some degree without web services—but at much higher cost and requiring far more development time because each integrated connection would require special coding and in many cases additional servers. “We could have built custom programming for a wireless connection to download web site performance data to our handhelds, but because of the time and resources we would have had to invest, we wouldn’t even have considered it,” Palmer says.

Hands across the network

Because PerformanceProducts doesn’t have a policy of buying similar handhelds for its employees, Palmer’s project will have to build an interface with multiple handheld operating systems. That’s relatively easy with web services technology, he says, because it’s designed to integrate with disparate systems. “Without web services, everyone would have to be on the same kind of handheld device,” Palmer says.

Moreover, building links without web services could cause problems in downloading information due to less robust integration, Palmer adds. “The old way would take more time to code and provide less reliability and performance,” he says. “But my main job is solving problems, and I can see a need for web services-based PDAs.”

At London Drugs, a chain of 56 retail pharmacies, web services are expected to ease an expansion that will nearly double its number of stores over the next few years. The company is using web services development technology from Microsoft, including the BizTalk Server as part of the .Net platform. “Our goal is to grow to 100 stores over the next nine years, and the web services environment we’ve set up will allow us to do that without adding significantly to our infrastructure,” says Nick Curalli, general manager of information technology for London Drugs.

In addition to extending real-time visibility into its supply chain processes, London Drugs is using web services technology to tie several in-store business applications from multiple vendors, such as payroll and human resources programs, to a central server in each store, and from the store server to headquarters. Without web services standards, this kind of in-store and corporatewide integration would require additional coding and network connections as well as a larger IT staff to maintain a more complicated system, Curalli says.

In one of the more effective applications of web services already showing results in higher web sales conversion rates, dozens of manufacturers, including Panasonic, Sharp Electronics Corp. and Hewlett-Packard Co., are using a web services-based system to let shoppers on their web sites see near-real-time updates of linked retailers’ store inventories. In this way, shoppers can be assured of a product being in stock before they choose to buy from a particular retailer.

The system is provided by Celebration, Fla.-based Channel Intelligence, whose co-founder and CEO Rob Wight is a former Microsoft executive who helped develop the .Net platform and its support for web services.

Sales boost

The Channel Intelligence system is also designed to enable shoppers to transfer from the product image on a manufacturer’s site to a retailer’s buy page in two mouse clicks. The combination of the quick links and the inventory updates, Wight says, provides for an improved shopping experience that has resulted in 4 to 10 times more leads from manufacturers’ sites converted into sales on the retailers’ sites. That’s in comparison to the number of sales conversions from earlier versions of linked manufacturers’ and retailers’ sites before Channel Intelligence implemented its web services platform.

Before the current system was put into place, shoppers on manufacturers’ sites who were ready to buy would link to a retailer’s site, then have to search again for the desired product. Often the retailer’s site did not indicate whether it was in stock. “We’ve heard from some manufacturers that these increased rates of conversions have resulted in up to 30% increases in corresponding online sales of particular products,” Wight adds. Channel Intelligence, which launched its service with Panasonic in December 2001, is working with 50 manufacturers and 150 retailers. Many of the retailers connect with multiple manufacturers.

Thanks to web services, Wight says, Channel Intelligence is able to integrate a manufacturer’s web site with the sites of 10 or more retailers within an average of three days. Building that integration without web services, he says, would be far more complicated. “If we had to do this on the other model, I can imagine all the layers for two-way communication that would have to go on. There’d be more client/server applications,” he says. “But by having this web services model, we don’t have to add any middle communication weight to it.”

Wight says many of the participating retailers have no web services in their own infrastructure. But that’s not a problem, he adds, because Channel Intelligence can use its own web services to quickly capture the information it needs from the retailers’ web sites to provide the shopping link with manufacturers. But after the participating retailers begin to experience an increase in sales, Wight will offer to build web services directly into their own infrastructure. Because that would make them integrate even faster with manufacturers’ web sites, Wight figures he can then get these retailers connected with additional manufacturers.

Depending on the amount of products and retailers involved in a manufacturer’s web-selling strategy, Channel Intelligence charges manufacturers as much as $25,000 per month to host the integrated transactions with retailers, though small manufacturers with limited products and fewer retailers may pay as little as $1,000 per month. It charges nothing to connect the retailers. Other than a JavaScript connection it builds into the manufacturers’ web sites, its clients are not required to build anything onto their own infrastructure.

Reuse

Web services can be useful in the retail industry, experts say, because web services applications developed for a particular purpose can be reused for another purpose. That’s particularly helpful in retail, says Kimberly Knickle, research director for AMR Research Inc., because of the changes retailers constantly face in high employee turnover, a changing supplier base, and changing product lines. She says the turmoil is greater in retail than in other industries.

A human resources application built for a particular retail department during peak employment, for instance, could be reused by a different department as employment needs evolve. An inventory replenishment application developed for suppliers can be reused as the ranks of suppliers change. And a merchandising management application could be redeployed as fashion demand hits a different style.

Moreover, retailers often are pressed for time to get new systems in place in time for particular selling seasons. “Most retailers have a short window to do their technology projects,” says Hughes of REI. When starting out a year with plans to implement new technology systems to support the fourth-quarter’s holiday shopping season, he notes, retailers have barely nine months to get a new system up and running. Because web services don’t require the heavy code-writing or extra hardware installations of conventional technology launches, they make it easier to introduce new systems in a shorter time span. “And web services also provide the flexibility to change that system year to year,” Hughes says.

Among other applications for which retailers might use web services are: integrating loyalty programs among alliance partners; electronic billing, presentment and payment systems shared with trading partners; automated order placement or confirmation with b2b exchanges, such as the WorldWide Retail Exchange; and self-service human resource applications, under which an employee could access an online application for customized data pulls from back-end databases, such as to check health care benefits or 401(k) plans.

Supporting alliances

Web services will also support marketing alliances between different retailers, because the flexibility they provide in integrating web sites makes it easier to maintain a branded presence when linking to another company’s site. “If you’re just using HTML to link between two web sites, you’d have to create a special page to keep the same brand,” says Daniel Sholler, vice president of application development strategies at research and consulting firm Meta Group Inc. But web services make it easier for a company to display on its own branded site information it has integrated or pulled from a partner’s site, he says.

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Web services will broadly impact all types of businesses, and another way that will bring their benefits to companies is through enterprise portals that provide access to integrated applications. “Web services make it easy to bring together multiple business objects, using the same business logic in multiple ways, so you can have automated data among different applications and even extend them to handheld devices,” says Don LeClaire, vice president of the Office of the CTO at Computer Associates International, a provider of enterprise software.

“Web services allow companies to take content, or portions of corporate information, and integrate it into a portal environment with other applications into their own custom web page application,” says Christopher Ovens, web services marketing manager for Ottawa-based Cognos Inc., which specializes in business intelligence applications. “The point of web services is to allow application developers in an organization to do whatever makes sense for their companies.”

Ovens offers an example: Web services could enable automated reports of inventory levels to appear on a portal page, where managers could use integrated business intelligence tools to analyze sales data and projections with current inventory levels, production schedules and expected deliveries of goods. “So you can have a complete 360-degree view of inventory and sales all going on in an organization,” he says.

That marks a drastic contrast to the traditional challenges retailers have faced in handling data, which typically lies within three broad areas: headquarters, the supply chain, and in-store. On an annual basis, retailers may be processing billions of transactions, including sales, supplier invoices and employee records, that have to be gathered and compiled from multiple systems—a task that relies on a complex arrangement of computer servers as well as extensive data entry work. “It’s been traditionally hard to get that all to work together,” says Bob DeLaney, director of retail systems technology at Sun Microsystems. “Now with web services, integrating all that is easier.”

For example, H-E-B Grocery Co., a Texas-based chain with 55,000 employees and 300 stores in Texas, Louisiana and Mexico, is developing a web services infrastructure to better integrate applications that contain information related to employees, customers and suppliers. Don Beaver, CIO of H-E-B, says he’s deploying web services technology in Sun’s Open Net Environment platform to provide application integration with the flexibility to accommodate growth. Without the flexibility of web services, integrating those applications could require additional program code-writing and hardware, he says.

Fundamental shift

Web services also hold out promise for a fundamental shift in the way managers and executives have used technology. Instead of fitting their business processes to the technology system built by an IT department, management will have more control over making technology systems suit their preferred business processes. It will also free them from having to rely on IT staffs to access and analyze back-end data.

Oracle Corp. is promoting this route with its recently released portal environment for its Oracle 9i application server. The new package is designed to make it easier for non-technical users to customize portal content and integrate data from multiple applications with self-service interfaces.

As retailers learn to compete in different ways, particularly as they minimize operating costs, web services integration may help them develop new ways of operating that don’t fit today’s conventional definitions of retailing. “With the web services approach, it’s making things considerably more blurry between b2c and b2b,” says Peter Baskin, vice president of store strategy for Retek Inc., a provider of retail store management systems. For example, he says, web services integration will make it easier for retailers to accept special orders for inventory they don’t own in cases where they forward orders to manufacturers for direct-to-consumer deliveries and then account for them as store sales. Outside of web services, such activities would not benefit from automated application-to-application communication, requiring more direct data entry by retailers.

Multi-channel

REI’s Hughes adds that web services will also blur the lines between different selling channels, because it will make it easier for retailers to build network links between online and offline operations. “If we want to have a successful, common user experience across all the channels, that means we need integrated systems,” Hughes says.

REI, which right now is using XML to integrate data between REI.com’s e-commerce platform and the corporate-wide customer relationship management application, is planning to use web services to build more integration between its CRM system and its three selling channels—stores, catalog and web site. That will enable the CRM system to better collect and analyze customer buying behavior in all channels and issue targeted marketing programs to audiences based on buying behavior, Hughes says.

Its size makes it an ideal candidate for web services, analysts say. “The larger the organization, the more potential for realizing benefits from web services,” says Boone of IDC. “But the higher the complexity of a large organization, the greater the need to have web services standards in place and get it right the first time.”

Web services also play into the need for companies to have scalable infrastructure that can easily expand along with their growth as well as with the growth of their trading partners. To connect with multiple trading partners, for instance, a retailer might have to integrate disparate applications running on different platforms. An inventory-tracking system at a distribution center could be a Java-based application running on an IBM platform, while the in-store systems could be running on Microsoft technology. Integrating them could require extensive code writing. “But because web services can abstract you from specific technology, you don’t have to worry about which technology your systems are built on,” says Sholler of Meta Group.

Security threats

But web services can also pose serious security threats by exposing corporate data outside of a company’s firewall, where the automated push and pull of web services could let that data get in the wrong hands. If a retailer is using web services in an external b2b environment, it will need to assure that it controls access through what’s known as Port 80 in corporate firewalls. But security in web services is not just for external exposure, says LeClaire. “Businesses should care even more about securing web services behind the firewall, to make sure that when two applications are communicating, no one is eavesdropping,” he says.

Companies that provide web services management and security services include Blue Titan Software Inc., San Francisco; Forum Systems Inc., Waltham, Mass.; Reactivity Inc., Belmont, Calif.; Talking Blocks Inc., San Francisco; DataPower Technology Inc., Cambridge, Mass.; and Islandia, N.Y.-based Computer Associates.

As is the case with most evolution of technology, web services will grow after the experiences of early adopters become known, and particularly after major industry players begin to realize efficiencies and higher customer service capabilities that force others to follow suit to remain competitive.

Behind the scenes

But the spread of web services technology will also occur in a more behind-the-scenes way, because major technology vendors, including Microsoft, IBM, Oracle and SAP, are all building web services standards into their applications and development tools. “New applications will use web services as a matter of course,” says Knickle of AMR. “This will be a push from the developers, not a case where you just wait for large companies to force small companies into a new technology.”

“You’ll wake up one morning and find that all software products support web services,” says Jerry Rightmer, CTO of 360 Commerce Inc., which is building web services technology into its suite of retail operations software.

And as retailers get their technology infrastructure updated with web services, they’ll reach the point that web services are intended to provide: An environment where business processes that increase value in operations dictate what technology does—instead of the other way around, where business processes are forced to fit the parameters of technology. “Retailers will see where they need to better integrate applications to improve operations, and then see where they can build web services to make that happen,” Knickle says.

Says REI’s Hughes: “We’re not leading our business with technology. We’ll be building customer service with web services. That’s what it’s all about.”

paul@verticalwebmedia.com