We cannot foresee the full potential of service-oriented architecture (SOA) any more than Henry Ford could have foreseen the scale of today's automobile industry when the first Model-T car rolled off the production line nearly 100 years ago. But there are signs that it will be equally far-reaching. If so, this will be because of the same force that made Ford rich: the open market.

SOA is an architectural style in which software applications are organized as a set of loosely coupled services. It is being adopted by many enterprises today because it results in agile IT systems that can be more easily adapted in response to change. But it has another capability that could be far more important. SOA allows an enterprise to use externally provided services and to choose between similar services provided by different suppliers. It enables market competition.

This can bring major benefits and will do so for many of the services for which competition is opened up by SOA. But it can also bring major changes, and large-scale adoption of SOA could lead to a revolution in the way that business enterprises are structured. This is something that corporate planners should start thinking about now.

Market competition results in improved products and larger-scale operations.

Product Improvements Come from Competition

You can get away with "any color so long as it's black" only if there is no competitor offering a choice of color. If the customers want something and the suppliers can provide it at reasonable cost, competition will force them to do so. An automobile of today may look like a Model T superficially, but there are huge improvements in performance, reliability, comfort and safety, which have been introduced as a result of market competition.

This is not to deny the value of good design. But there is no way that anyone in 1908 could have sat down and designed an automobile of 2007. The factors underlying a modern design emerged slowly, partly through the reward of good choices by market success.

Standards Enable Markets

For the automobile, the enabling standards include those defining the kind of fuel that is used and the way the controls are laid out. Some standards, such as those relating to fuel, may be precise and formal, perhaps with legal force. Others, such as that the brake pedal is on the floor to the left of the accelerator, may simply be unwritten conventions that everyone follows but are nonetheless important. The conformance of automobiles to these standards enables users to switch brands easily and painlessly, and provides the basis for market competition.

When products improve, more people buy them. This leads to economies in production and delivery, so the products become cheaper - which means that even more people buy them. This is a familiar cycle in the manufacturing industry and applies to software products too.

This virtuous circle led to the massive growth of the automobile industry and made cheap personal transport available to most people in the U.S. and many other parts of the world. The application of the same market forces through SOA could lead to equally significant improvements in the way that organizations interact and changes in how they are structured.

Markets in Online Services

The current conditions are right for the growth of markets in business services delivered via the Internet.

Amazon.com and eBay provide leading examples of this trend. Much attention has been paid to the revolution that they have achieved in delivery of services to end users, but they have achieved a possibly greater revolution in delivery of services to businesses. They provide sales and marketing services that other companies can use to reach end customers. They even provide payment services through PayPal and Amazon Payments.

Software as a service (SaaS) is a part of the trend too. This is the idea that a provider hosts and operates a software application for use by its customers over the Internet. Analysts expect that adoption of SaaS will grow. For example, Michael Maoz, VP distinguished analyst at Gartner, believes that while it currently accounts for just a small percentage of software sales, in eight or 10 years time it might reach 30 percent.1

But SaaS is not the whole story. While many business services rely on software to some extent - and that extent is increasing due to techniques such as intelligent agents that enable software to perform many of the tasks traditionally assigned to people - few of them are implemented in software entirely. And services of many kinds - however implemented - can be delivered by one business to another via the Internet.

The markets in online services are developing. The number of business services delivered via the Internet is growing, and we are beginning to see some competition. The launch of Google Checkout in June 2006 was trumpeted as providing competition to PayPal. Such competition can only result in the availability of improved online payment services to retailers and their customers.

Fundamental market-enabling standards are now falling into place. These include formal standards such as the Internet Protocol (IP) and the Simple Object Access Protocol (SOAP). They also include the principles of service orientation. This is not a formal standard - how would you frame a formal definition of loose coupling? Nevertheless, service orientation is becoming a convention that everyone follows.

The Role of SOA

SOA is being adopted by many enterprises because it delivers agility. It does this by virtue of the ease with which basic software services can be recombined to deliver new business capabilities, and because there are powerful tools that take advantage of its clear structure to give more rapid software development.

Many of the services of a SOA will be Web services that conform to SOAP and perhaps to other Web services standards such as WS-Messaging and WS-Security. Through such Web services, an enterprise can expose its business capabilities in a standard manner. But SOA does not just mean the use of these formal interface standards; it also means the adoption of the principles of loosely coupled services that relate to business activities. It is difficult to interact with an enterprise that uses Web services standards but does not follow the principles of service orientation, just as it is hard to drive a car that has its brake pedal in an unusual place.

SOA does more than giving an enterprise internal agility. It means that an enterprise can easily switch between different providers of the same service. Because of this, the widespread adoption of SOA by organizations that use each others' services encourages competition. This works, not only for pure software services, but also for business services that have interfaces that are exposed as Web services.

Take a credit rating service, for example. In the past, the interface to such a service would have been by letter post, or perhaps by telephone or even email. Now, the interface can be by exchange of SOAP messages. The service may be provided by software entirely or may still involve people, but the interface is exposed as a Web service, enabling it to be integrated into a service-oriented software architecture. This makes it easy for a lending company to outsource credit rating, rather than doing it in house, which in turn gives the lending company a choice of suppliers and allows it to concentrate on a different core business area, perhaps credit-card administration or marketing.

Competition to provide services is the start of the circle of better features and increased adoption, delivering prosperity to service providers and satisfaction to their customers.

The Impact on the Enterprise

The ease with which enterprises can obtain business services over the Internet will have a big impact on the way that they are organized. Sales and marketing were traditionally regarded as integral to the business, but Amazon and eBay have shown how easily they can be externally provided. There are growing possibilities for outsourcing other parts of the business, such as logistics and customer support, even extending to such areas as accounting and human resources.

This means that companies can concentrate on what they do best. For example, a widget manufacturer may make excellent widgets but have low sales because of poor order processing. It can outsource order processing to a specialist company and concentrate on making even better widgets.

It will become natural for startup companies to develop in this way, as small organizations focus on their key business ideas and use external providers for the support services that they need, only bringing those services in house when there is a compelling reason to do so. But what of existing organizations that started at a time when companies naturally provided most of these services for themselves and have grown into major corporations, with hosts of interdependent departments? They must adapt to compete. Can they do so?

An enterprise's IT systems often form a major barrier to change. IT enables an operation to be performed in the same way over and over again, very cheaply. Enterprises have built their IT systems with the aim of reducing the cost of their business operations and with little thought to the need for those operations to evolve. Cost reduction through IT has been a big success story, but too often the result has been a lack of agility. There have been well-publicized cases where an agreed merger of business organizations had to be abandoned because their IT systems were incompatible. Equally, dependence of a core business IT system on the systems used by a supporting department can make it difficult for the services provided by that department to be outsourced.

The adoption of SOA can help an organization to overcome this problem. It can give the enterprise greater agility, not only to change what it does, but also to change its structure. A CEO who decides that a new enterprise architecture is needed to deal with new competition will find it easier to make that change if the IT architecture follows the principles of SOA.

The operation of an open market can lead to undreamed-of improvements in products and increases in the scale on which they are produced - provided that the conditions are right. We now have the right conditions for the application of this principle to business services. This will lead to major benefits for society through the improved operation of business enterprises - but will produce major changes in the way that those enterprises are structured.

The growing continuous cycle resulting in improved products is already appearing in the world of SaaS. Liz Herbert, a senior analyst with Forrester Research, describes how SaaS enables community-driven improvement through the incorporation of one customer's successful customization into the product base and through the use of Web forums for customers to share best practices.2

With widespread acceptance of the standards for Web services and the principles of service orientation, there could be explosive market growth in many business services delivered over the Internet. New enterprises can then adopt lean business architectures and focus on their key business ideas. Existing corporations will have to restructure to compete.

Although the trends are recent, they are beginning to become clear. Large corporations take a long time to restructure. They should start planning now.


  1. Michael Maoz. Podcast: Software as a Service: Evolution or Revolution. Gartner, Inc., June 2006.
  2. Liz Herbert. "When Software as a Service Makes Sense." Cygnus Supply-Demand Chain, February/March 2007.

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