What is inter-service communication and what are its main challenges?

Inter-service communication refers to how microservices exchange data and coordinate with each other over a network. Unlike a monolith where modules call each other in-process (fast, reliable), inter-service calls cross network boundaries, introducing challenges: Latency (network calls are orders of magnitude slower than in-process calls), Partial failure (the downstream service might be unavailable), Data serialization overhead (converting objects to JSON or protobuf and back), and Version compatibility (services must handle different versions of each other's API). These challenges require deliberate design decisions around synchronous vs. asynchronous communication, retry strategies, timeouts, and API versioning.