The hype surrounding Web services mounts with every day. Dynamic composition of applications. Obsolescence of traditional applications. The claims escalate as technologists work mightily to craft compelling visions of disruptive technologies.

The users of technology - the business line managers who must meet quarterly budget targets - develop allergic reactions as these visions pour forth. Their skepticism stems from deepening disappointment over the limited returns generated from previous technology visions, including the rush to build Web sites and install massive enterprise applications.

These users are increasingly focused on near-term results, especially in the form of significant operating cost or asset savings. They don't want visions, they want business cases. And they are deploying Web services technology, but it's not where we might expect.

Early adopters are deploying Web services in production environments, driven by powerful economic benefits. Simply put, the technology delivers significant operating savings (not just IT savings) with relatively modest investments and very short lead times. It helps users extract even more economic value from technology investments that are already made. In this environment, that's a compelling proposition.

The technology enables lower-cost and more flexible connections across existing applications. This isn't (yet) about composing new applications, it's about exposing functionality of existing applications and making it accessible to other applications. Surprisingly, the technology is being deployed first at the edge of the enterprise, facilitating connections with business partners in key business processes like supply chain management and sales channel management. This is precisely where the complexity of connecting with very diverse technology platforms most challenges executives. It is also where this new technology has the most distinctive advantage relative to existing technologies like EAI. A diverse array of companies, from General Motors and Dell to Eastman Chemical and Wachovia, are finding real value can be generated now.

But there's a hitch. We're talking about mission-critical business processes extending beyond the firewall and encompassing many enterprises. Web services standards are helpful in facilitating connections, but more than standards are required to deliver mission critical functionality in these environments. Early adopters have creatively fashioned workarounds and accepted some risk to obtain the benefits. But it's going to take a lot more to accelerate and broaden adoption.

Service grids will be required to unleash the full potential of Web services technology. Service grids represent federations of managed enabling services designed to support more robust and flexible connections across application services. These enabling services help to ensure mission-critical functionality, including reliable messaging, security, and third-party performance auditing. These managed enabling services will be delivered by a variety of specialized utilities, operating either within an enterprise or, more likely over time, operating as independent businesses. Early examples of these utilities include VeriSign and Contivo. Large companies may organize their own service grids, knitting together specialized utilities to meet their specific needs. More generally, service grid integrators will emerge to assemble the appropriate group of specialized utilities for particular application environments.

These service grids are essential to cost effectively support connections in business processes spanning multiple enterprises. By sharing enabling services, enterprises significantly reduce the investment and technology expertise required at the connection nodes. By relying on managed services rather than simply deploying technology, enterprises will be better able to cope with the inevitable exceptions that arise when they seek to reconcile differing policies, processes, and semantics. By focusing people on managing the technology across many application environments, service grid utilities will be able to accelerate learning regarding performance requirements and develop appropriate skills and technology to push the performance envelope.

Service grids are still in a very early stage of formation. Early contenders include specialized providers like Grand Central or companies moving into this space from adjacent arenas, like E2open and Commerce One. For providers, service grids represent a significant business opportunity. For technology users, service grids represent a significant business requirement. To avoid a hitch in the take-off of Web services technology, that requirement must be met.

About The Author
John Hagel is a business consultant based in Silicon Valley. He has served as a senior executive with several technology companies and spent 16 years as a partner at McKinsey & Company, Inc. John is the author of the forthcoming book, Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services (Harvard Business School Press). For more information, visit www.johnhagel.com john@johnhagel.com