Web services, comprised of three core technologies, let business applications interact over the Internet through XML, a cheaper alternative to EDI for exchanging data. Because of the cost, EDI is primarily used by large companies to conduct business transactions electronically. By supporting Web services, GXS hopes to make its network more affordable for smaller companies looking to distribute product catalogs and exchange purchase orders, invoices, and other documents associated with many business transactions.
GXS, which is often hired by businesses as an E-commerce outsourcer, has been pressured by large clients to find ways of reaching smaller suppliers. "The reason the big guys come to us is to reach the smaller guys," chief architect John Radko says. Last year, the company reduced its staff of 2,500 by 17% after scaling back its projected growth rate to between 5% and 10%, from 20%. The company's large enterprise clients include DaimlerChrysler, Target, and 3M. The company claims to process a billion transactions a year with a value of $1 trillion.
GXS's move to Web services makes sense because many companies are using the technology as a cheaper way to integrate applications within internal networks. "Most of what we're seeing in Web services is internal to an organization, but the next logical step will be to private exchanges," Meta Group analyst Hollis Bischoff says. However, widespread adoption of Web-services technology may take longer than the 18 months predicted by proponents. The economic downturn has prompted many companies to avoid major software integration projects without a compelling business benefit. "There's a lot more cynicism out there," Bischoff says, predicting that wide-scale adoption is more likely within 18 to 36 months.
During the dot-com era of the late '90s, many venture-funded startups launched public Internet-based networks, called E-marketplaces, for connecting buyers and suppliers. When few managed to generate enough transaction volume, the market shifted in favor of E-marketplaces sponsored by consortia of companies. For the most part, those operations have only taken a small portion of their founders' procurement volume. Today, the movement is toward private exchanges with major buyers or suppliers forming the hub. AMR Research projects the software market for private exchanges will reach $35 billion by 2005.