Commentary: Web services, slowly but surely

By James Crawford, Analyst

Ever cautious about technology buzzwords, retailers have been slow to deploy Web services. But with thousands of stores and trading partners, retailers will increasingly use Web services to integrate operations, from the point of sale to the supply chain.

Web services--technologies that allow applications to share and coordinate functionality across the Internet--have caught on in many vertical industries such as high tech and financial services. But holding true to the industry's look-before-you-leap maxim, retail implementations of Web services remain largely in pilot:

• Home Depot uses Web services to shorten checkout lines. Faced with a variety of handheld hardware ranging from brand-new to several generations old, Home Depot deployed Java-based mobile POS software from 360Commerce that uses Web services to tie these disparate devices into an existing POS system. Armed with handhelds, roving clerks can help shoppers check out from anywhere in the store or from seasonal displays in the parking lot.

• Nordstrom uses Web services to make gift cards universal. To make gift cards more useful to its channel-hopping customers, the department store chain connected its legacy-hosted account balance tracking system to Nordstrom.com using Web services standards like the Simple Object Access Protocol (SOAP) and Web Services Description Language (WSDL). Customers purchasing cards at a Nordstrom store can now use the card to make purchases from the Web site.

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• J Sainsbury uses Web services to make promotions more efficient. Using software from Eqos, the British supermarket company deployed a Web-services-based supply chain initiative that shares promotions information with manufacturers. The result: a 20 percent reduction in shortages of promoted items and a first-year cost savings of $4.1 million (2.5 million pounds).

Slow starter
Despite retail's pressing need for integration technologies, deployment of Web services has proceeded at a snail's pace: Only 33 percent of retailers have an active or completed Web services product, less than in any other vertical industry. We believe that three factors are slowing adoption:

• Retailers have significantly more trading partners moving physical goods. Compared with industries like manufacturing--which tops the Web services deployment charts--retailers have more trading partners and locations to integrate. A typical tier-one retailer may have hundreds of suppliers--ranging from packaged-goods giants to mom-and-pop producers--feeding product into hundreds or thousands of stores across the country or around the world. With so many entities to connect, even Web services face a daunting challenge to build up sufficient network effect, so that the companies footing the bill for development and process changes begin to see return on investment.

• Business processes--not technology--stymie collaboration. While Web services promise easier integration among technology systems, unrefined business processes and cross-purposes hamper efforts to collaborate. For example, many retailers and manufacturers still send purchase orders by fax and check order status over the telephone, exchanging the minimum amount of information possible. So in addition to learning how to work with new tools, experienced retail-industry employees must learn new processes to take advantage of the collaboration benefits of Web services.

• Retailers are reluctant to abandon existing IT investments. Having invested heavily in technologies like electronic data interchange, many retailers already have collaboration systems that use proprietary connections, which link a limited number of suppliers and systems. The result: an existing infrastructure that works just well enough to offset some of Web services' touted benefits and slow its deployment.

The shape of things to come
Despite a long start-up period, Web services will be the catalyst for widespread adoption of other new technologies making strides in retail.

• New interfaces bring power to points of service. Web-enabled POS systems will use Extensible Markup Language (XML) Web services and retail-industry technology standards to allow a single device to access information and intelligence anywhere in the enterprise. Nordstrom's deployment of Blue Martini Software's customer relationship management application at the point of sale is just the beginning: In future implementations, the system will notify a customer service representative that some of a customer's likely purchases are out of stock--and suggest on-the-shelf replacements at an appropriate discount.

• Web services integrate applications across the enterprise. Companywide integration issues will be dramatically reduced by Web services that allow applications to seamlessly share complex workflows and information. Customers building Web registries at Williams-Sonoma won't have to worry about last-minute duplication when guests buy and return gifts in stores or online. Web services will ensure that the moment a blender is bought or returned anywhere, every application in the company is instantly updated.

• Web services enabled for extended relationship management boost supply chain collaboration. While radio frequency identification and X Internet sensors will identify demand throughout tomorrow's supply chain, Web services will be the lingua franca for supply chain collaboration apps. As retailers like Target and J Sainsbury deploy private trading hubs, the use of Web services to define flexible processes that accommodate all hub members' needs will allow collaboration with any manufacturer, improving efficiency for everyone from giant Nabisco to much-smaller Cape Cod Potato Chips.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.