The Real Economics of SOA

The title of the InfoQ article, “Economics of Service Orientation” caught my interest, but unfortunately I was left disappointed. I felt that the article missed the mark somewhat and also missed some of the important costs of Service Orientation in its eagerness to concentrate on the benefits.

In my view, the real economics of SOA is about how many times you pay for the same function.

In the world of packaged applications you have very coarse control over the number and bundling of the functions that you have available. If you buy a packaged application, then you typically buy a bundle of functions or capabilities – some of these hopefully will be functions that you need, yet others will be functions that you don’t need.

An example of this is if you buy a billing application which has inbuilt functionality for handling customer contact details. You may not need customer contacts in your billing application because it already exists in your CRM (for example). However, as delivered, the billing application requires its own proprietary customer contact details module because it is incapable of working with a 3rd party’s CRM data. So there are a bunch of costs associated with purchasing a packaged application:

  1. The cost of the functionality that you require.
  2. The cost of the functionality that you don’t require (the vendor charges licence and support fees for the whole package, not just the bits you really want to use).
  3. The infrastructure cost of hosting all this functionality – required and not required.
  4. The cost of integrating the functionality you require into your business processes.
  5. The cost of integrating and potentially mitigating the functionality that you don’t require.

If we consider cost 5) in the context of my example. Even though you have a perfectly good CRM, the billing system requires contact details to be managed within its own application database, so you have to integrate your CRM with the billing application. There may be side-effects of this integration which need to be mitigated. You may need to invent whole new business processes to manage duplication between two or more systems and the inevitable synchronization problems that arise.

In an SOA utopia, there is more fine grained control over the functions that you acquire from a vendor. In particular you can buy only the functions that you need and then have them plug into other services in your information infrastructure. This saves a number of costs:

  1. You only pay for the function that you require
  2. You don’t pay for the functions that you don’t require
  3. You only pay to host the functionality you have bought – not a bunch of tag-alongs. And if your function is remotely hosted, the costs of hosting the new functionality may be very low.
  4. You pay only the cost of integrating the required functionality into your business processes
  5. You don’t have to pay to integrate and mitigate functionality you don’t require

So the economic value of SOA is in the finer granularity with which you can manage the cost of your IT functionality. The job of the enterprise architect moves from managing a portfolio of applications – complete with duplicates and overlaps – to one of managing services or functions, with hopefully minimal duplicates and overlaps.

But this picture wouldn’t be complete without considering the additional overheads required for a well functioning SOA. Architectural standards and governance are required to ensure that you buy the right services at the right time and that the services can be integrated properly into your business processes. You should then add in costs associated with:

  • There is a cost for running an enterprise architecture function – managing standards and governance.
  • The cost of acquiring a specific function may be higher because of the additional planning and research required to get the “right” function for your business processes and to fit into your enterprise services framework.
  • The integration cost of exposing functions as services is generally going to be higher than just building a point integration. This is because of the greater degree of planning involved with providing a service in a reliable and re-usable manner.

But hopefully the additional cost of architectural governance and standards should be offset by the savings in managing services as opposed to packaged applications.

As a final note, it’s interesting to note that the economic model is similar for the vendors as it is for their customers. This is why many packaged application vendors are hopping on the bandwagon of SOA. These vendors have acquired applications with overlapping functionality and require a more fine-grained approach for managing and selling their functionality.