Sunday, July 08, 2007

Transcript of BriefingsDirect Podcast on the Emergence of 'Integration-as-a-Service' for SOA

Edited transcript of BriefingsDirect[tm/sm] podcast with Dana Gardner, recorded June 20, 2007.

Listen to the podcast here. Podcast sponsor: Cape Clear Software.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you're listening to a sponsored BriefingsDirect podcast. Today’s discussion is about an intriguing concept, that of hosted Services Oriented Architecture (SOA), looking at integration as functionality and process that can be accessed on demand, moved off of your enterprise infrastructure, and onto someone else’s. This, I suppose, looks at services and compositing-as-a-service as well.

Here to explain these concepts and how they’re being used practically today -- and the implications for the future -- is Annrai O'Toole, CEO of Cape Clear Software. Welcome back to the show, Annrai.

Annrai O'Toole: Thanks, Dana.

Gardner: The notions of integration and hosting have been bounced around for a while. I recall a company named Grand Central that got quite a bit of funding and had a 1,001 different ways of mixing together services, components, and objects. Maybe it was a little ahead of its time. Why you think that the time is right for something like hosted integration?

O'Toole: You’re right. It is a somewhat back-to-the-future position, and clearly a lot of the ideas we’re talking about are things that Grand Central spoke about -- it must be six years ago. A couple of factors are driving this. First, it’s the whole technology maturity thing. Six or seven years ago, the standards around Web services were in their infancy, and people didn’t have a lot of experience with them. Because they were young, unproven, untested, and lacking in key bits of functionality, people didn’t really want to go there. Technology is one element of it, but there are a few more important elements driving it as well.

One is a secular trend toward simplicity and flexibility. At some levels, this has been driven by teams through virtualization. Storage and processing power are being very quickly virtualized. Applications are being virtualized, with software-as-a-service on demand. There is a long-term shift by customers, who are saying, “We don’t want to own complex infrastructure anymore. We’ve been there, and done that. We want something else.”

Gardner: So, you’re saying that enterprises have gotten a whiff of the notion that they can have complexity removed? They can have consolidation and cost reduction at the same time, and they kind of like that?

O'Toole: They do like that, and they’re willing to pay for it. They’re paying on a subscription basis, but we see many people not wanting to own, or get involved in, large initiatives, rolling out complexity. Before I got on this call, I did a quick refresh of some of the Websites. If you look at the SOA offerings from Oracle, IBM and BEA, they range from a minimum of 13 products to the top of the range, with IBM at 31 products. These are 31 simple products with easy to remember names like “IBM Tivoli Composite Application Manager for WebSphere.” People don’t want to own this stuff anymore.

I’ll give you another data point on the complexity that’s involved here. Recently, we looked at some RFPs. We had an RFP come in – and this isn’t all that unusual – from someone looking to do a big SOA initiative. It was – and I’m not joking -- a 111-page RFP.

Gardner: RFP is a request for proposal. That’s how companies go out and say, “We would like to start a bidding process around that acquisition of a large IT capability of some kind.”

O'Toole: Customers look at the choices available to them, and say, “Do we want to do all this big SOA integration on our own by buying these complex things, or are we prepared to look at alternatives? And, do those alternatives have any reality?” They do, and many companies are shying away from these big, complex initiatives.

Gardner: We’re certainly seeing that. Companies readily grok the notion that SOA is designed to make heterogeneity an asset rather than a liability. If that’s the case, then they certainly seem less interested in going to a single large stack, single portfolio, or even platform approach to that. So, that’s clearly in the market. On the other hand, they want this stuff to work, and they don’t want to be caught with their pants down in six months or a year, due to reliability or performance issues. Perhaps you could help take us to the notion of hosted integration from the perspective of “Does it work?”

O'Toole: This is a critical point. You can sit in a room with a bunch of executives, both from the business and IT segments and, say, “Hosted integration is a good idea,” and they’ll know that. We’ve got some proof points around it. Most notably, one of our marquee customers in the software-as-a-service base is Workday. The PeopleSoft founders got together to rebuild an ERP application, but this time on a hosted basis.

Gardner: Dave Duffield was the founder. Right?

O'Toole: Yes. Today they’re doing hosted integration, and, if you go to the Workday site, you can navigate into what they call the Web services networks. You can see the type of services that they are hosting on behalf of their customers. The whole idea is that they’re taking the integration burden off the customers, so that the customers can integrate their applications with Workday, without having to do any work on the customer end of the connection.

This is a huge portion of the unfolding software-as-a-service story. All application trends, be they 10 years ago when it was big ERP or now with software-as-a-service, have to address the integration problem, because none of these large applications live in isolation.

Workday has taken a novel approach to that around a hosted integration solution, and that works. They have large customers today. They’re handling integrations for their customers and hosting integration into things like ADP. Workday handles the integration between the customer’s data and ADP, which is actually doing the payroll and running checks, making sure that check runs get done at the end of the month and that people get paid. So, that’s a pretty important integration service to be hosting, because if it doesn’t work, and if it’s not reliable, then people don’t get paid.

Gardner: That tends to be top-of-mind for many people.

O'Toole: These aren’t trivial integrations. So, hosting is a big thing.

Gardner: If I could just pause you for a moment. As I understand it, Workday wanted to create some on-demand business applications, but in order for them to create a subscription business model around business applications, they had to conquer this integration issue in order for their application to be accepted. Is that correct?

O'Toole: That’s correct. If you think about it, the work they’re doing is all around handling human resources, the human resources (HR) application. That’s somewhat different from the type of application that SalesForce offers. SalesForce is a stand-alone box. You can use Salesforce.com to do customer relationship management, and it’s not essential that it integrate with other aspects of your business.

HR is very different. It must be integrated with your existing payroll systems, and must be integrated with third parties, such as people who manage benefits or people like ADP, which actually does payroll processing. So, it’s not possible to roll out an HR solution with Workday, unless you’ve got the integration problem solved.

Gardner: Sure, companies use an ecology of providers to help them support their employees in a variety of ways, whether it’s benefits, insurance, or future earnings and stock trading, and a whole bevy of different services.

O'Toole: Exactly. It’s a very complex ecosystem, and integration is one of the things that’s a sine qua non. They don’t have a business, unless they have the integration problem licked. So, it’s very different from CRM. And, as Salesforce.com expands its footprint, it too is running into this integration problem. They have now realized that they’ve got to offer better integration solutions for their customers as well, and they are working their way through those issues too.

As we wind the clock forward, we’re going to see more customers wanting to use on-demand style applications, and wanting integration to be solved in an on-demand way. They don’t want to build all these integrations again. You can also take this one step further. We’ve seen a lot of our enterprise customers, as they think about rolling out big SOA initiatives, are saying, “Maybe, we should really model ourselves as a mini software-as-a-service to our own internal organizations.”

Large enterprise IT departments are essentially rolling out hosted solutions and integrations. We’ve got many examples. We cite JP Morgan pretty frequently as a large enterprise customer that is hosting integrations centrally inside JP Morgan, so that it’s easy for different divisions and some external customers to access application functionality. The point we would make about our vision of how this hosted integration goes forward is that it’s not just for software-as-a-service companies like Workday or SalesForce. This is actually a model that’s good for internal IT as well.

Gardner: So, if we are an internal IT department moving towards SOA, and we access various services, assets and resources -- some internal, some external, some to partnerships -- we’re going to find ourselves in the role of doing integrations as a service anyway. That’s their point. If that’s going to be the case, then why not look for various other organizations that can follow that same beat of logic, and therefore you’ll have a federation approach toward integration as a service.

O'Toole: Another way to think about it is that if we are going to virtualize storage and processing power, we want to virtualize integration. It’s not something that is being rebuilt again and again and again by different companies or different departments within different companies. Let’s really start to move to a hosted model for us, and, as you say, these can be federated in a very coherent way. What’s new now is that the underlying technologies and standards can actually support that model. So, while this model might have been a pipe dream five or six years ago, today it’s reality, and the technologies and capabilities are there to do it.

Gardner: It seems to me that you are offering these enterprises the opportunity to get out of being in the middleware business, or to at least reduce the role that middleware plays for them as a provider and a host themselves. They can offload more of the function that middleware plays.

O'Toole: One of the things that we discovered in our interaction with Workday was that there is a neat concept that we can borrow from the software-as-a-service companies, and that’s a notion of multi-tenanting. You’ll hear us talk about more multi-tenanted integration, where I can take standard integrations -- such as to Workday, ADP, SAP, or SalesForce – and host those core integrations in a central spot. Once I’ve got that core integration built, I can make small changes to make it unique for all the different people who want it.

Everybody will have exactly the same data formats, but I take that core thing and then allow many slight variations that co-exist, and you get this notion of multi-tenanted integration. As I said, you’ll hear us talk about it more, and this is another piece of the puzzle that starts to make this a better, different way for companies to get out of the middleware business, or at least radically reduce and centralize all that’s happening in one virtual spot, and not scattered everywhere.

Gardner: Just to step back a moment. We’re not just talking about loosely coupled interoperability here, right? We’re talking about integration across a variety of different needs that organizations would have, depending on their unique legacy, applications, and platform environments. So, when we talk about integration and hosting, we are going to give them a quite a long check list. Is this is going to be the binary, object, and component level, or we are just talking loosely coupled XML and mashup types of activities, or all of the above? How do we make this into a list that could be managed from the provider perspective as well as from the customer’s perspective?

O'Toole: We’ve seen two fundamental preferences here, and there are two options for what you want to host. The first option we would broadly categorize as very loosely coupled data transformation. A lot of the things that people need to solve in terms of integration problems are really data transformation. How do I take payroll information from one provider, transform it, and send it down to another provider? Most people can deal with that. Most people can wrap their head around how that can be done in a hosted manner. What’s involved there is that it’s loosely coupled and it’s data. It’s ultimately some kind of XML or it gets converted into XML somewhere along the line.

The next thing is a step up from that. Now that I can get information between these things, do I want to have some orchestrations or some kind of inter-company business processes? It’s not just getting data from A to B, but it’s, “I want to get data from A to B, and then I want to call C, and when C has completed its job, then I want to call D, and when that’s complete, the whole thing is done.”

That’s next level of complexity, and it involves a more sophisticated approach. But, both of them are possible and both are in operation today. As far as what customers are going to go for, I think they’ll be happy to do data transformation initially, and when that’s really working for them, they might be prepared to take the next step and host business processes in the cloud.

Gardner: I suppose another trend in the field these days, Annrai, is that the very notion of an application is up for grabs. We used to have applications as packaged applications of functionality, and they had logic, data, and presentation, but we are moving away from that.

It’s coming down more to who understands vertical business issues and can assemble components and assets and services to create advantage, efficiency, and productivity benefit by combining human knowledge, understanding, and relationships. That’s different than just plopping down an application and then rallying everyone around it to work within its requirements and definitions of productivity. It seems to me that what you are doing, even if it’s on the loosely coupled basis alone, is allowing for that redefinition of business applications and processes to accelerate as a catalyst to that. Do you agree?

O'Toole: Absolutely. We’re already well past the definition of applications as monolithic, stand-alone entities, and we are already into a more federated, loosely coupled environment. Look at the things that SalesForce is trying to do, for example, with AppExchange, and their desire to host more and different applications, but all in the same SalesForce portal.

You’re going to see that model applied in a very generic way across a whole range of different applications, and it’s really going to break down the barriers between applications. In some sense, it’s taking mashups to the next logical conclusion. That process has already started. We’ve already seen the first inklings that it’s coming to every large enterprise on the planet over the next several years. The alternatives to it just don’t make economic sense anymore.

Gardner: It could happen to these enterprises, whether they want it to or not. The line-of-business people and those who are aggressive about seeking out productivity on their own are going to do that.

O'Toole: A good analogy is what really drove client-server or the Internet as big computing waves. The line-of-business people could sit at a desktop and see something in action. You had color, and it wasn’t a green-screen mainframe application, and you could get them tailored really quickly. Business people got that very readily.

Gardner: They really increased the universe of participants in computing.

O'Toole: Correct. With the Internet, you could show people a browser and they got it really quickly. For the longest time, a lot of concepts around SOA have been inexplicable. You can’t explain them to a business person. You think you might get there, but then you start talking about governance and you are just down the weeds. You can’t sit them at a laptop and show them SOA, but you can sit down and show them mashups. You can show them hosted applications. I believe that you can even show them hosted integrations.

We can show our customers ADP runs, on which they’d have to do nothing in terms of getting them to work. You can show those to business people, and they get it. That’s what’s changing the definition of what an application is, because business people can actually see these mashups and all the stuff running for themselves, and they say, “This is really interesting. Now, I know what this stuff is all about.”

Gardner: You’ve mentioned SalesForce several times, and you’ve mentioned Workday. Is there going to be an opportunity for other types of organizations? I’m thinking about Amazon, Google, and Microsoft recognizing that there’s an opportunity for them to come in and provide more subscription-based services, these loosely coupled integration points and mashup points.

Is that how you see this evolving, that there will be a handful of large generic players? Or, will this be something that needs to be done on a more specific basis closer to the individual organizations, closer to individual departments, or perhaps both. Will we have a grassroots ecology of small providers as well as some large mega providers?

O'Toole: Yeah, that’s a very interesting question. I don’t have the answer, but there are a few trends that you can see. Undeniably, a lot of the bigger players are actively trying to muscle into this space already, Amazon, in particular, with their accessories stuff. They’re great. So, you’re going to see more of that. However, the other people who are going to make a huge contribution are the whole open-source community.

Over the next several years we’re going see a different set of development tools emerge around wikis. I was looking at some of this QEDWiki stuff from IBM and some from Oracle, and I think you are going to start to see a different way for people to build enterprise applications along enterprise mashup sever concepts. That hasn’t really begun yet.

There are leaves blowing in the wind, but there’s nothing concrete there just yet. If we conquer that one, then that’s going to put really flexible composite application construction into the hand of every size organization. That means we wouldn’t end up with this thing owned by just the big players, such as, “You are just going to get what Amazon wants to give you and nothing else.” It will create a new world for organizations of different shapes and sizes to have easy-to-use tools to build their own stuff.

Gardner: So, perhaps it will be a very fertile period, in which the number of people that can participate in development – who have a role in how to exploit information technology for their business purposes – expands. They don’t have to go through a keyhole, pushing requirements in and waiting for something come back through the door six months later. We will increase the number of people that can directly participate in shaping how IT helps them.

At the same time, we’re also compressing the time it takes for them to recognize some value from this. That is to say, if they can start doing mashups, if they can relate their knowledge of business issues and problems directly into a hosted environment or mashup interface of some kind, then we increase the number of people, but we compress the time before those people can enjoy the benefits of their labor.

That sounds like a very powerful combination that will -- perhaps even more than what we saw in client-server and Web browsing -- accelerate adoption and drive people to want to have a role in this. This goes especially for the younger people today who are used to driving their own destiny online.

O'Toole: As the Web 2.0 generation gets into the enterprise, they’re going to have a very different view of how things should be done. They want it done the way that they have experienced this medium as teenagers. They’ll say, “What do you mean you can’t do it the way I want to do it?” I certainly hope that that’s the way it turns out, because we are just about due for another major innovation in the app development life-cycle.

Gardner: For some of these interesting possibilities to occur, we also have to get back to the pragmatic notion that it needs to make business sense. For an organization like Workday, SalesForce, or Amazon, given the resources that they are going to need to pull this off, there’s going to be a lot of translation and semantic traffic, as you get close to the orchestration that you described. A series of events has to happen in a certain of pattern and be published and subscribed.

A complexity comes up about different requirements being fired off before the other set can be attempted. They’re going to have to have quite a bit of infrastructure and resources. Is there a business model that makes sense for them be able to fund their needs, provide the reliability and speed that people are accustomed to, and still make a profit? How does this work in dollars and cents terms?

O'Toole: There are two aspects to this. As we practice this multi-tenanted integration, what that’s going to enable us to do is dramatically driving down the cost of integration. If I am a customer in a large enterprise, on Amazon, or whatever, and I go and build an integration, I’ve got to build it uniquely for every single app and version of the app that it touches. So, I’ve got to kit out this huge infrastructure and code this unique piece of integration. That’s really expensive.

If we can move away from that to a different infrastructure, even though it’s still a pretty complex infrastructure, what it supports is the notion of building the integration once, and then making minor modifications to customize it for lots of different users. That can amortize that infrastructure cost over many different customers. If I can move to that model, that changes the economics for the provider. It enables them to offer more flexible pricing models to their customers.

The obvious ones are in the subscription-based models for the integrations that they host for you. That’s how I see the economics of it working. I really believe that because of the innovations that have been taking place in both the standards and in the underlying infrastructure for SOA around the ESBs, this multi-tenanted integration is here and is going to be a big driver in the current equation.

Gardner: So, at a basic level, we’re talking the 80-20 rule again, where 80 percent of the functionality is recurring and common. Its reuse can be paid for over a period of time, and then the 20 percent is dealt with case by case, and that can be managed as a cost, because of the efficiencies of the other 80 percent.

O'Toole: Correct.

Gardner: What is it about the technologies today that’s going to make that possible? Obviously, infrastructure, virtualization, and the storage prices have come down significantly. I suppose there’s another issue we haven’t talked about, and that’s the ability to get the highly specialized people to do these things. Each company, if they try to hire them individually to build this, might find, despite their great intentions and ability to invest, that they just can’t find the people.

Therefore, they might be forced to recognize that, given the scarcity of resources, there has to be a more cooperative approach. Let’s let those skilled people who are fundamentally ready to attempt these things do it, but more in a more centralized way. Then, we can all enjoy that common 80 percent benefit. Two questions. One, does it make sense, given the human resources issues, that we centralize? And is that another factor in the cost equation?

O'Toole: One business that’s there waiting to be created is a universal hosting business for integration, pretty much along the lines of what Grand Central had in mind.

Gardner: And what Google has done when it comes to search. No one can touch them, because of their expertise in that.

O'Toole: It’s absolutely possible for someone to own the data centers, and the expertise to offer this virtualized integration. Someone – in fact several people -- are going to try to own that over time. For a lot of small- to medium-sized businesses, that’s going to be hugely attractive. I can well imagine this small- to medium-sized business coming along and seeing a palette of available hosted integration – from SalesForce to all the different desktop CRM applications and SAP integration -- sitting out there, ready for them. If it doesn’t exactly support what they need, there’s a simple model, where they can send in the data format, state the business processes they need to support, and they’ll get a quote back saying, “This is what it’s going to cost you on a monthly basis.” I see that as a very viable option.

Gardner: Okay. If I’m an enterprise, and I’m intrigued by some of these notions and believe that this is the future, although I can’t readily predict at what pace and where things will happen, how do I get started? How should I rationalize this to my CFO? Is there a formula in terms of, “We can reduce our capital expenditures by blank percent, but we’re going to have to increase our subscription payments or recurring predictable expenditures by another?” How do we help companies understand how to get started, and then how to explain why this would make sense financially? Are they going to be paying by transaction, by user, by application, by service? It’s pretty hard to put a meter on this. Where do you attach the meter on how to build for these things?

O'Toole: They’re all good questions, so let me break them off one by one. For a lot of our enterprise customers, what we say to get them started is that as they think about their SOA initiatives and building internal SOA applications, they should be planning, building, and hosting the integration to those services at the same time. What we say to them is, “Okay, this great hosted integration vision doesn’t quite exist today, but you can create a mini version of it for yourself inside your own organization. So, when you build a service that you’re going to offer to either internal customers or to external ones, don’t only build up service, but find out who’s going to need to use that service, and build the integrations for them.

That gets them going down a path, where they’re at least containing all their own internal integrations in one spot. Maybe some time in the future, they’ll be able to hand that off to someone else, but that’s another day’s work. So we say to them, “That’s a good starting point.”

Alternatively, if they’re a smaller businesses, and they’re not interested in doing SOA things, we then encourage them to look at companies like SalesForce and Workday and see how they are approaching these integration problems.

Gardner: Go at it through the software-as-a-service applications approach.

O'Toole: Exactly. Go down that road. So, there are two starting paths, depending on whether you’re going to build stuff yourself or you don’t want to be in the development business at all.

In terms of cost justification and how you price for this, right now I don’t think you can charge on a per transaction basis. Our thinking is that you’re still going to charge for this just in terms of the overall volume that you need for CPU-based pricing, because we don’t think that pricing them on an individual transaction basis or an individual integration point basis make sense. People don’t really want to go there yet. We just say, “Okay, the services you’re going to need to create are going to need two or four CPUs, so that bounds your price and you can either pay on a subscription base or you can do it a one-off payment.”

Gardner: Does the per-employee model work in this respect?

O'Toole: No. Certainly, we haven’t seen them working well, because for most organizations, they start off doing something pretty simple that isn’t critical to the business. So, you can’t turn around and say, “You are JP Morgan. You’ve got 150,000 employees, so this simple thing is going to cost you ... blah.” This is still an evolving area, but I think the point that we’d make is: this is being done now, so whether you’re doing it on an internal basis or you’re someone like Workday and you are doing this on a pure hosted basis, this is the model.

People are already going with this model now, and they’re increasingly not going with the model of buying complex SOA suites and three years worth consulting. They’re adopting approaches that are much more on-demand and hosted from the get go. So, the future is now. This stuff is happening at the moment as we speak.

Gardner: It’s very exciting. As people process the notion of SOA and recognize the benefits, particularly the small- and medium-sized businesses, these light bulbs start to go off, and things fall into place.

I’m glad we’ve had a chance to explore this a little more deeply. It’s a very interesting adjunct to the SOA discussion, as well as that discussion around how applications, by definition, are changing. We might soon have some examples of how the cost benefits are real and compelling.

So, thank you, Annrai, for joining us in this discussion about hosted SOA, hosted integration and interoperability, and eventually getting to the notion of services compositing as a service.

This is Dana Gardner, principal analyst at Interarbor Solutions. We’ve been joined by Annrai O'Toole, CEO of Cape Clear Software. Any parting thoughts, Annrai?

O'Toole: No, I think I’ve said all that I needed to say on this one. So, as usual, it’s a pleasure, thanks for having me on the show.

Gardner: Sure. I think it’s a subject we should probably revisit every six months or so, because it’s bound to have some twists and turns in the journey, no doubt. Thanks for listening.

Listen to the podcast here. Podcast sponsor: Cape Clear Software.

Transcript of Dana Gardner’s BriefingsDirect podcast on the emergence of integration as a service for SOA. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.