The Hot Idea: Rich Business Communications on Loosely Coupled Networks

Fastwater Rapids vol. 1.23, 28Jun99

The value of mortgages originated this year will be about $1.2 Trillion -- a lot of money. According to Forrester, around $19 Billion of these mortgages will originate on the web. $19 Billion certainly counts, but is only about 1.5% of this year's total mortgage market. The really interesting news from Forrester, however, is that the web's share of the mortgage market will reach nearly 10% by 2003. Other analysts put the number even higher, at close to 25% of the total mortgage market.

The growth in the mortgage market is tied to larger, fundamental changes in the way that businesses use the Web. Sure, Web businesses are learning, by trial and error, how to reach more deeply into existing markets. But, just as important, Web based systems have, over the last year, developed new ways of supporting rich, complex business interactions over the loosely coupled Web network. Think of it as enabling technology that is making new kinds of Web businesses possible. Let's look first at some examples of the new businesses, and then at the underlying change that makes them possible.

Rich Customer Interactions

If you go to a site such as E-Loan (www.eloan.com) and work through the application process, one of the most impressive things about the process is how rich the interaction is, and how much intelligence is being brought to the Web forms interface. This is a very big step beyond buying a book or music and providing your shipping information and credit card number. E-Loan is actually accepting complete mortgage applications on line, and, working in real time, is presenting the user with an application that is responsive to user choices. For example, if you are looking for a mortgage for a condominium as an investment property, the information that you are asked for interactively is different than it would be for a free-standing home that you live in.

Behind this powerful, database driven forms interface is an army of customer service people who ensure that the mortgage gets processed, that problems are flagged, and that the customer is able to track the process online.

New systems such as the one being used by E-Loan will most certainly transform the way companies handle complex customer transactions, which is currently still a largely paper and image based process. But the transformation works both ways: the use of complex form processing models is also transforming the idea of what a web transaction is, or can be.

Net Markets

The mortgage origination and services market is an instance of a broader phenomenon that is redefining web business. E-Loan actually acts as a mortgage broker, originating the mortgage and then selling it in the secondary mortgage market. Other vendors, such as Lending Tree, act as marketplaces that bring brokers and mortgage seekers together. In both cases, these companies are acting as net market makers, or "vertical portals," using the reach and immediacy of the Web to address the problems associated with the fragmented, inefficient structure of the mortgage origination market.

This phenomenon -- using the web to build a more efficient market -- is one of the strongest, most pervasive, and at the same time newest developments in the structure of web businesses. Whether the market is for steel (E-Steel and Metalsite), semiconductors (PartMiner, QuestLink), insurance (ChannelPoint), shoes (Shoe.net), or any one of literally hundreds of other business goods and services, the business model of choice increasingly consists of aggregating offers from hundreds, and sometimes thousands, of suppliers, providing services to buyers that make the exchange attractive, and then making money from the transactions or associated services. Gartner estimates that the number of net market, vertical portal business will grow from about 300 at the start of this year to 10,000 at the end of the year, exploding to 100,000 businesses by 2001.

Each of these net market businesses depends on being able to automatically aggregate a complex set of products, from many suppliers, and to offer them to buyers in a way that solves existing distribution channel problems. As was true in the case of the online forms processing for mortgages, these new businesses are using the web in new ways, to support a richer, more complex kind of interaction than was possible even a year ago.

New Uses for Extranets

Not all of these rich, complex interactions are between companies and consumers. In fact, the most rapid changes appear to be in the communications between businesses. For example, in the insurance market, ChannelPoint creates an exchange that ties insurance brokers to the wide variety of offerings from different insurance providers. Other companies are setting up extranet communications to build and maintain online catalogs. Hagel and Singer, writing in the March Harvard Business Review ("Unbundling the Corporation") point to a near term future in which the principal activities of a business, customer relationship management, product innovation, and infrastructure management, are pursued with increasing frequency outside the boundaries of a company, by other companies that provide these essential functions collaboratively. A company developing a new product and taking it to market might well use the Web to work with other companies to design and develop the product, and use the Web again to work acquire infrastructure services to run and maintain its operations, focusing itself only on selling the product and managing customer relationships.

New Foundations for Web Business

Each of these changes in the nature of business on the Web depends on the new capability to use the Web to support rich, secure, "packaged" interactions. The new approaches to business are certainly in response to real market needs, but they are also coming forward just now because of the Web's emerging ability to handle them. This is worth dwelling on for a moment, because understanding the changes in core capability helps in understanding the new applications.

The two key requirements for the kinds of Web business applications we have described are support for communications that are richly detailed, and support for efficient communications even when they are distributed over great distances, across many organizations. Traditional EDI systems have been able to do a great job with communications over distance, but have always been limited to very narrow, well defined communications. Using EDI for the kind of complex, flexible information exchange conducted on the E-Loan mortgage site is hard to imagine -- and not just because the consumer would not have access to the EDI system, important as that is. EDI worked great for simple, well-defined communications, such as payments against invoices. But it not flexible enough to support the kinds of varied, rich interactions required by these new web businesses.

Distributed object systems, on the other hand, have been able to accommodate very rich, flexible interactions, but do not work well over distance. The good news with distributed object approaches has always been that they provided fine grained access to the objects on other systems. But the fine-grained access and the demanding, high bandwidth communications that fine-grained access implies, simply do not work across broadly distributed systems such as the Web.

What is new, underlying each of the new directions in web business, is the capability to use the Web to exchange, rich, complex messages. The richness is not in the actual interaction between two systems, but is encapsulated in the message. What is common to the new systems is the ability to unwrap and use these messages.

A lot of this has to do with XML, of course, since XML is now typically the language of choice for encoding the rich information in the messages. But the XML is only the symptom, and tool, of the new approach to using the Web to do business. The real magic is in being able to conceive of the entire interaction differently, as the construction of a message, or document, that can be sent to your business partner's system, to be acted upon automatically.

It sounds simple when put that way. But it is, in fact, a new way of conceiving of the problem of communicating between businesses. Whether you are looking at the expanding capability to support complex customer interactions, at the ability to build virtual, vertical marketplaces, or at the ability to "unbundle" the corporation, the new business models are growing out of a new capability to create and support rich business communications that work efficiently on loosely coupled networks. It's a very hot idea.