Thursday, July 10, 2008

SOA and Web 2.0

Economic principles such as network effect and the long tail play a role in how Web 2.0 may impact your business.

Network Effect

  • The value of a service in one place depends on the amount of usage elsewhere – the more the better.
  • This is especially true of services that offer some form of communication – the value of the service depends partly on the number of other people you can communicate with.
  • There is a positive feedback loop – as more people use the service, it may increase in value, thus persuading more people to use the service. This feedback loop may result in a rapid growth curve.
  • This leads to the concept of critical mass – the level at which the growth curve becomes self-sustaining.

Long Tail

  • The traditional Pareto principle (80% of the value comes from 20% of the cases) assumes a significant proportion of fixed costs. For example, a bricks-and-mortar bookshop must devote shelf space to any book in stock, and there is a cost associated with excess inventory.
  • But in a service-based economy, it may be possible to alter the supply-side economics – for example shifting from fixed costs to variable costs – and this means that the rare items (both individually and in aggregate) could be as profitable as the popular items.
  • The economic viability of the long tail depends critically on bringing down the fixed costs of servicing the long tail, and shifting to a more flexible variable-cost regime.

Web 2.0 and SOA together can help provide a cost-effective way of accessing these network effects and long-tail benefits.

  • Cost reduction – leveraging existing systems through services, helping to cut cost of customization
  • Cost mitigation – providing services not solutions, shifting responsibilities to collaborating partners. For example, customer self-service, small communities providing their own solutions. Thus collaboration helps spread the cost.
  • Shift from fixed cost to variable cost – for example through “pay-as-you-go” on-demand pricing – thus helping to reduce the risk and the barriers to adoption.
At the same time, IT organizations are also often looking for ways to improve the delivery of solutions to their business users. Web 2.0 technologies and approaches may help reduce developer effort and time to solution, as well as providing more agile solutions that can be rapidly remixed and re-assembled to meet changing demands.


In order to achieve these Web 2.0 benefits, there are some questions that need to be answered:
  • What are the implications for IT management? How can I guarantee the continued security of my core systems? How can I provide the necessary quality of service to my existing users as well as the new ones?
  • What are the implications for business management? How can I guarantee the continued integrity of my products and services? If third parties are able to mash my services with external services, how can I retain control of my brand and corporate image?
  • What are the implications for corporate governance and compliance? Do these external arrangements introduce new risks?
Clearly many organizations will not be prepared to go ahead with Web 2.0 without good answers to questions like these. This is why it will be important to have a well-structured approach to Web 2.0 and SOA.

This is an extract from an article Lawrence Wilkes and I wrote in February Extending SOA with Web 2.0. Commissioned by IBM and available free from the CBDI Forum website.

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