Grand Central CEO Halsey Minor (also founder and former chairman of CNET Networks) likes to talk about how his company is similar to salesforce.com (he was one of the first investors in that company), which is leading the first wave of business software as a service. Grand Central's business is a bit more esoteric in that the company provides hosted integration services, leveraging service-oriented architecture (SOA) and Web service protocols.

During a video interview and a follow-on conversation with me, Minor asserted that software delivered as a network service is going to replace traditional enterprise software, providing a cheaper, simpler solution.

Like the U.S. Postal Service, Grand Central's business proposition is based on providing a low cost, trustworthy way of routing and exchanging messages that pass through a central hub before distribution to their ultimate destinations. The conceptual model, according to Minor, is to manage the complexity of integration at the hub rather than on the edges, or spokes. Minor's vision aligns perfectly with the principles of abstraction and the central post office metaphor that SOA giants like IBM and BEA use to describe the Enterprise Service Bus. The key difference is in who hosts the connective tissue. Minor believes that the traditional model of internally hosted, non-shared enterprise software is at the end of its lifecycle. However, the death spiral will take a decade, and even then companies will choose to follow more traditional ways for less commoditized applications and sensitive data.

There is growing acceptance (or minimally, awareness) of SOA and emerging Web service standards that guarantee interoperability. With more of a focus on development of fine-grained components, and as the cost-per-interaction declines, acceptance of the SOA services will accelerate quickly.

The combination of technologies allows companies to build and integrate IT infrastructure and applications at lower cost and with more certainty of successful deployment. Enterprises don't have the upfront cost of investing in the hardware, software, security and integration for each application or business process.

Grand Central's platform is based on exploiting the Internet and Web services standards, such as SOAP, WS-Security and BPEL (Business Process Execution Language), as well as tying applications together with legacy transports, such as FTP and AS2 (EDI over the Internet). Data in SAP, for example, is routed to Grand Central's networks, which performs the data transformation, and routes it to another, receiving destination. As an integration platform, Grand Central is taking advantage of the massive industry investment to foster interoperability and standards. The company is the beneficiary of what Minor calls "the biggest IP [intellectual property] give away in history."

However, in leveraging the evolving open standards, Grand Central doesn't have much unique IP itself, and the company has to be faster to market than big competitors like IBM, who are also focused on integration services. Like federated identity purveyors, Grand Central will have to be viewed as trusted and capable of maintaining service levels, such as response time and privacy policies, for customers.

The hub and spoke model makes sense, given that, in the true spirit of ESBs, every hub, or node, doesn't have to reinvent the wheel or duplicate the hardware requirements for delivering an application or performing a data transformation. A software patch only needs to be applied once, rather than at every local installation. Grand Central's Business Services Network doesn't require customer investments in infrastructure. Fees for services, which can range from $25,000 to millions of dollars per year, are based on usage levels, such as the volume of data and the number of relations or services consumed.

Large enterprises could develop their integration services hubs and Web service repositories, but Minor believes that the economic benefits of using an independent, trusted software-as-a service provider will ultimately compel CIOs to do business with companies like Grand Central.

"The problem-solving [Grand Central does] is no less complicated than what enterprises have to do, but every enterprise doesn't need to solve the same problem over and over again," noted Minor.

Grand Central provides the messaging services to plug into existing infrastructure and mediate technology differences through its secure Web interface. Version 4.0 includes process orchestration using a visual editing tool and an implementation of BPEL, an executable, XML-based language for describing business processes. Administrative capabilities include logging, auditing, reporting, policy and permission management, for example. The company also publishes a directory of about 350 business services, ranging from comics and dictionaries (including an Icelandic spell checker) encapsulated as Web services to XSLT (a language to specify how to transform an XML document of one type to another document type) data transformation and the SEC's EDGAR database.

In our interview, Minor claimed that Grand Central has the ability to invest in security to an extent that is hard for any other company or enterprise. That's an overstatement, given the amount of resources other companies are devoting to integration and Web services security issues, but the company does have a unique test bed for understanding the kind of issues that will surface in a complex networked service.

Currently, Grand Central only has a data center in San Jose, CA, but Minor said the company will to build out the network and operations centers globally in 2005. "By the end of 2005, we will have a global footprint and five or six data centers…it will look more like the fabric of Internet itself," Minor said. He also predicted that public Web services, directories of Web services, will take off in 2005 and begin to generate revenue.

Grand Central plans to develop some of its data centers through partnering with telcos, who will become resellers of Grand Central's hosted service offering. In April of this year, Grand Central hooked with AT&T to provide a switch for AT&T's WebService Connect. Minor said the company also plans to support federated identity, such as Liberty Alliance and Passport, as part of the service network.

Minor believes Grand Central, along with the entire new class of hosted services companies, is primed to grow rapidly in the coming year. Minor was coy about Grand Central's financial outlook, but predicted that government contracts alone could account for $25 million in revenue for the last calendar quarter of 2005.

In many ways, Grand Central is more like VeriSign than salesforce.com. It's an Internet and messaging hub or utility that leverages shared infrastructure. VeriSign does it for DNS lookups, e-commerce transactions and telephony, and is looking to move into managing RFID information.

"The model that services will replace software really is in its infancy," Minor said. "It started with those who couldn't afford big, expensive enterprise software…and now large companies are choosing this model as their preferred way because it's cheaper and less complex. For the first time, enterprises have a choice, and those companies who deliver things cheaper and simpler have a very long runway in this economy because we're not going back to the kind of spending we saw in 2000. It will permanently change peoples' outlooks."

Whether Grand Central manages to duplicate the successes of VeriSign or salesforce.com is a long shot, but the train has left the station and Minor's company is on the right track.

You can write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check out my blog Between the Lines or my column archives.