Web services are self-contained business functions that operate over the Internet. They are written to strict specifications to work in conjunction with other similar kinds of components. Some of the more established functions at this stage are messaging, directories of business capabilities, and descriptions of technical services. But other functions are in the works as well.

Web services are important to business because they enable systems in different companies to interact with each other, simpler than before. With businesses needing closer cooperation between suppliers and customers, engaging in more joint ventures and short-term marketing alliances, pursuing opportunities in new lines of business, and facing the prospect of more mergers and acquisitions, companies need the capability to link up their systems quickly with other companies. Thus web services give companies the capability do more business electronically, with more potential business partners, in different ways than before, and at a reasonable cost.

Because web services are written according to standards, all parties work from the same basic design. Companies then add value and business advantage to the basic design to meet the needs of their customers. For example, a company can offer its suppliers the capability to view their inventory levels so they can replenish the stocks without the need for separate purchase orders. Web services provide the basic messaging and service-description functions for this kind of electronic relationship. Suppliers can build on these basic features to provide better services to the customer. And, because they are built on standards, companies can extend these capabilities to other trading partners.

Also, because Web services are built on standards, they make it possible for many system developers to enter the market, which increases competition and brings down the costs. The competition among vendors also encourages more innovation in the products and services offered to business customers. And basing systems on standards helps prevent being locked-in to a specific vendor or type of computer or software.

Web services also make it possible for many system developers to enter the market, which increases competition and brings down costs. The competition among vendors also encourages more innovation in the products and services offered to business customers. And basing systems on standards helps prevent being locked-in to a specific vendor or type of computer or software.