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Web services ROI

This column offers advice from experts on how to determine ROI for Web services projects before proceeding with deployment.

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Web services ROI
Web services may top the IT world's buzzword and hype list these days, but unless it can show a real return on investment (ROI), it will go the way of many other much-hyped technologies — the way of the dodo.

In this column and the next, we'll take a look at Web services and ROI. This column offers advice from the experts on how to determine ROI before you proceed with a Web services deployment project, while Part 2 will look at a real-world example of how a business determined its ROI, and found quick payback.

Before deciding on an ROI for a Web services project, keep in mind that there are two different types of possible ROIs — an ROI for a project that will generate new revenue, and an ROI for a project in which you'll save time and money. As a general rule, it's easier to figure out an ROI when new revenue is generated than when you're focusing on cost-savings, simply because it can be difficult to accurately figure out how much money and time a project actually saves.

Calculating ROI for integration and development projects
Nicholas Evans, a director in the Integration Services practice of BearingPoint (formerly KPMG Consulting), says that the two types of projects most likely to generate ROI for Web services projects are integration and software development. In the short-term, he says, "integration can lead to a quicker ROI because it will reduce costs for integrating with partners or other applications. You can just expose a Web service on the network, rather than have to write specific adapters for each of your customers." Because of that, the ROI on integration projects, he says, can be relatively quick. Getting a good ROI for Web services-based software development projects can take longer, he notes, and can stretch out for several years.

Evans, who recently moderated a panel about Web services and ROI for the Software and Information Industry Association, says that key to ensuring a good ROI on an integration project, is that you start not with the technology itself, but instead by examining your business processes and business strategy. After that is done, "decide which processes would benefit from being used as a Web service. Focus on those that are reusable. If you have pieces of software or logic that you can code as a Web service and reuse in a number of business applications and processes, you're likely to get a good ROI. For static legacy processes that are unlikely to change, it's not worth ripping it all out and building it from the ground up."

Calculating ROI for new business initiatives
Several vendors say that the primary ROI that their customers are seeing from Web services are projects that garner new revenues, rather reduce costs. Dave Spicer, CEO of Flamenco Networks, notes "Our customers are building Web services for external purposes, looking for new revenue. It's easier to come up with an ROI for new revenue, rather than for cost-savings." The reason for that, he says, is that with Web services, "it's easy to go after new opportunities with a very quick turnaround — often in a few months. I think that's the allure of Web services."

As an example, he points to McKesson, which sells a portal connecting doctors offices with hospitals. Building a Web-services-based portal using Flamenco software allowed McKesson to sell new informational kiosks to hospitals that allows doctors to reach into their own files at their offices, no matter where they are in a hospital. This capability led to new business for the company, and a fast ROI, he says.

Spicer recommends that any company that wants to do an ROI calculation before investing in a revenue-generating Web service first appoint a business architect and a technical architect to the project. Together, they can calculate the potential payoff of the new project, as well as the costs of building it. In this case, the final calculation for determining ROI for a new Web-services-based business opportunity is simple, Spicer says. You measure your new revenue, calculate your cost to build the application, and the ROI will be there for all to see.

Gregg Bjork, Senior Vice President, Products and Services for Systinet, agrees with Spicer that for now, revenue-generating projects are quicker to lead to a good ROI than integration projects. He says this is because in today's hard-pressed economy, "the ability to generate new streams of revenue is vitally important."

As an example, he points to Deutsch-Telekom, which deployed location-based services and provided rich content via a portal built almost exclusively using Web services technology.

"They looked at the cost of deployment, than at the revenue generate post-deployment, and generated an ROI figure," he says. "They were impressed enough that they bought more software and are looking at integrating payment services into the portal."

Bjork says that big cost-savings can be had when using Web services for application integration as well. He claims that the cost of doing integration with Web services is dramatically lower than doing it via traditional enterprise application integration (EAI) products. "The cost of the product for EAI can be from $500,000 to $2.5 million," he claims, while the cost of doing using a Web services platform like that sold by Systinet is from $5,000 to $15,000. He adds that EAI projects also take much longer to complete than Web services projects.

The bottom line
So what's the bottom line on ROI? If you're generating new revenue via Web services, the calculation is straightforward and easy to figure out ahead of time, and so a "go/no-go" decision on a Web services project should be easy to make. For integration and cost-savings projects, the numbers get squishier. But even for those, if you focus on developing Web services for business processes and applications that will likely be re-used, you'll go a long way towards ensuring a solid ROI.

Continues in Part Two

About the Author

Preston Gralla, a well-known technology expert, is the author of more than 20 books, including "How the Internet Works," which has been translated into 14 languages and sold several hundred thousand copies worldwide. He is an expert on Web services and the author of a major research and white paper for the Software and Information Industry Association on the topic. Gralla was the founding managing editor of PC Week, a founding editor and then editor and editorial director of PC/Computing, and an executive editor for ZDNet and CNet. He has written about technology for more than 15 years for many major magazines and newspapers, including PC Magazine, Computerworld, CIO Magazine, eWeek and its forerunner PC Week, PC/Computing, the Los Angeles Times, USA Today, and the Dallas Morning News among others. As a well-known technology guru, he appears frequently on TV and radio shows and networks, including CNN, MSNBC, ABC World News Now, the CBS Early Show, PBS's All Things Considered and others. He has won a number of awards for his writing, including from the Computer Press Association for the Best Feature in a Computer Publication. He can be reached at preston@gralla.com.

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