TCO in Digital Commerce: How Composable Solutions Outperform Monolithic Legacy Systems

While cumbersome monoliths become increasingly expensive over time, MACH-based commerce platforms promise a lower Total Cost of Ownership. Here is what you need to know.

TL;DR

• Composable solutions are more cost-effective than legacy, monolithic systems
• This applies to Total Cost of Ownership (TCO) as well as Total Cost of Change (TCC) and Total Spend Productivity (TSP).
• Composable platforms that are designed for change cause lower TCO, as customizations and extensions require less effort and time compared to monoliths.
• Legacy monoliths tend to accumulate technical debt over time, leading to hidden costs that must be considered when calculating the Total Cost of Ownership.
• Composable solutions help minimize unproductive IT work such as administration and maintenance, thus driving Total Spend Productivity.
• The Emporix Digital Commerce Platform helps keep TCO, TCC and TSP low by laying a solid foundation for cost-effective Composable Commerce.

What is the Total Cost of Ownership and why does it matter?

TCO is a key metric for businesses to make valid decisions about their investments. By considering all the costs associated with acquiring and operating a technology or service, TCO provides a broad overview of the financial impact of an investment over time. 

When making strategic technology decisions, considering the TCO is key, especially in cost-critical businesses. Understanding the TCO enables decision makers to take informed procurement decisions and assess how the technology supports achieving business goals.

How is the TCO calculated? 

When calculating the Total Cost of Ownership of technology, an IT system or platform for digital commerce, it is necessary to take into account all the costs of selecting, building, deploying and maintaining it over a certain period of time, e.g., three to five years.

Costs to consider when calculating the TCO

• Upfront cost for selecting and evaluating solutions, planning and preparing the business environment.

• Implementation cost for development and customization, integration, migration, and training.

• Operational cost includes ongoing expenses for infrastructure, data, network and hosting, licenses and subscriptions, scalability of services, security, maintenance and support, etc.

Other types of cost often overlooked

Digital commerce decision-makers tend to focus on the TCO, even though this is only a fraction of the actual costs of operating an online store, marketplace, customer portal, etc. Beyond the TCO, there are two more metrics to consider when investing in technology:

• Total Cost of Change (TCC) measures the cost of customization, development or innovation of technology. Composable systems that support change have low TCC, while monoliths tend to hinder change and therefore generate higher costs.
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• Total Spend Productivity (TSP) measures how much budget is invested in initiatives that directly contribute to the company's strategic goals. Since monolithic legacy systems cause much operational overhead, their TCP is usually poor.

The TCO of monolithic E-Commerce platforms

Monolithic software platforms have played a major role in digital commerce in the past. However, in many companies they have become an obstacle to growth, hindering agility and innovation as their level of customization increases and lead to rising overhead costs.

When strategically choosing between monolithic and composable solutions, TCO serves as a key metric for comparing the costs of these two approaches. However, the conventional way of calculating TCO falls short when evaluating costs associated with adapting to new business requirements and technical innovation over time.

The hidden cost of technical debt

“10 to 20 percent of the technology budget dedicated to new products is diverted to resolving issues related to tech debt.” - McKinsey

Technical debt in digital commerce refers to the off-balance-sheet total of all technological work, especially maintenance, servicing and development, that a company must perform to maintain its ability to compete and innovate. 

The downsides and consequences of technical debt

• Adapting to opportunities and changes in the market takes too long.
• Complications in customizing and integrating new features can be costly.
• Unexpected challenges cause projects to miss budget targets and deadlines.
• IT staff are unmotivated by managing complexity instead of driving innovation.
• The effort to simply maintain existing systems without adding value grows.

Companies that stick to their legacy systems out of habit or the money, effort and time they have invested over the years (sunk cost fallacy) should critically evaluate the real cost of technical debt and, if necessary, opt for a fundamental technology change.

The cost of staying with a monolithic solution vs. replatforming to composable commerce

Familiarity with a monolithic legacy system and the perceived comfort of not having to change a running system comes at a price. The ongoing cost and risk for operation and maintenance can be very high, although this is often ignored or glossed over.

Replatforming from a monolith to a flexibly adaptable system is of course not free of charge. In fact, the cost of orchestrating technologies yourself can be quite high when getting started, but soon pays off through more cost-efficient operation and higher flexibility.

How Composable Commerce helps companies control and keep their TCO low

“By 2024, the IT costs of managing SaaS operations will be halved as a result of the adoption of composable application architectures.” - Gartner

Easier scaling up and down

Monolithic systems are often not designed for dynamic change. Without the ability to scale automatically, companies struggle to cope with increasing traffic or new business requirements. This can lead to competitive disadvantages and a poorer customer experience, as well as higher costs when customization becomes necessary.

Modular system architectures that allow organizations to orchestrate smaller, independent services as needed can be more easily and individually scaled and maintained to keep the system performing at the right level at all times.

Easy replatforming from monolithic legacy system to composable commerce

Moving from one monolithic commerce suite to another means shutting down the legacy system and introducing a new one from scratch. A gradual transition without interrupting operations is usually not possible, which makes replatforming a major complex project.

In contrast, replatforming from one (MACH-based) composable commerce architecture to another can be implemented gradually, as both self-developed and turnkey services can be migrated from the legacy to the new environment very easily and quickly.

Less costly extensions of the platform (adding other microservices)

For all-in-one systems that integrate core E-Commerce functionality into one monolithic architecture and are not designed for change, any extension or customization can be very costly. Even if the monolithic system provides APIs, extensibility is usually very limited.

MACH-based Composable Commerce architectures allow businesses to flexibly orchestrate services and add best-of-breed components quickly and with little development effort. This helps keep the Total Cost of Change (TCC) low throughout the entire system lifecycle.

Lower maintenance, minimum technical debt

As mentioned above, technical debt in a monolithic legacy system comes with growing hidden costs as maintenance and development efforts increase over time with architectural complexity. Complexity can turn any intervention, no matter how small, into a major risk.

A service-oriented MACH architecture allows dedicated development teams to maintain individual services without compromising the overall system due to complex interdependencies within the monolith - reducing maintenance effort, time, and risk.

Predictable costs

The more complex a monolithic system becomes over time due to a myriad of customizations, the harder it is to track invisible interrelations and dependencies within it.

Neither the effects nor the costs of modifications and extensions can be reliably predicted.

Modular E-Commerce systems that essentially consist of third-party SaaS components generate almost no hidden costs since technical debt is minimized and licensing costs for individual components can be reliably calculated. This also applies to major changes.

How Emporix helps to keep TCO low

Emporix offers a MACH-certified (Microservices-based, API-first, Cloud-native and Headless) digital commerce platform that, as described in this article, allows you to extend the platform easily, reduces the maintenance costs and stops the replatforming viscous circle. If you would like to learn more about how Emporix’s TCO compares to your current TCO, contact us for a personal consultation.