Why Outsourced Software Development is on the Rise
Flexibility is key for companies of all sizes, from startups to Fortune 50 businesses. The explosion of remote work that made talent accessible from anywhere is one reason for this - but the truth is that agile support has been in high demand for years thanks to a rapidly and ever-evolving IT landscape. And it’s only getting more popular.
Case in point - the rise in outsourced software development. This practice isn’t new, but it’s gaining steam. In fact, it’s expected to be a $940 billion dollar industry by 2034, nearly doubling from $535 billion last year. It can be a lifeline for any organization, but what exactly is it and how does it work? Let’s dive in.
What is outsources software development?
First, it’s important to define exactly what outsourced software development is, since it’s different from hiring another IT firm. It shares similarities in that a client is still hiring a third-party to own a project, however, outsourced development allows for specialty and flexibility. With outsourcing, you are working with a partner that will build a team around your specific needs, not bending an existing team to you - almost like putting seamless puzzle pieces together. This means tapping talent with certain skills, while being mindful of geographic and budgetary considerations. It’s a tailor-made team to complete exactly what you need, how and when you need it, so you don’t have to worry about being locked into a structure that doesn’t fit.
Outsourcing can cover a wide-range of projects, but is typically used for coding, application design, integrations, testing and maintenance, and packages often include consulting, marketing and other development services outside of technical work. Oftentimes, building superior products means considering a number of other disciplines, such as business analysis and quality assurance testing to give a couple examples. In addition, a project may require a unique application such as AI or virtual reality, and an outsourced partner ensures that you get a team experienced with every element.
How did outsourced software development evolve?
Taking a step back, it’s important to look at how outsourced software development has evolved. Some might be surprised to know that it’s been around for over 50 years, but ever since the invention of the computer, and subsequently IT, outsourced software development has been on the scene.
We can trace this industry back to the early 1960s when computing was in its infancy. Companies started to contract services to limit expenses and source expertise they didn’t have themselves, such as mainframe operations. However, the 1980s provided a turning point. In that time, the net cast wider as industrial jobs expanded overseas, and in turn, the gap across a global workforce became much smaller. Companies took notice, contracting work from professionals in developing countries that were growing into big tech hubs, like India. Here they had hiring options that were more affordable, and in time zones that benefited their flow of business.
However, the big moment that legitimized outsourcing software development came in 1989 in a first-ever deal when Kodak hired IBM, DEC and Businessland to manage its information systems, with IBM on tap to design, build and maintain a data center on the company’s behalf. It was revolutionary at the time, a company of such magnitude hiring outside of its own team on this big of a scale - but it worked.
Jumping ahead to the 1990s, outsourcing accelerated with the threat of Y2K and a need for greater system audits, only to be amplified by the dot-com boom - officially taking outsourced software development mainstream. Broadband internet ushered in a new, easier way to work, making global collaboration easier than ever before. As we entered the 2010s, new regions emerged as big outsource power players, including Eastern Europe, Latin America, and Southeast Asia, creating a larger, more diverse pool of talent that could offer a robust suite of services at more competitive pricing.
This leads us to the era we find ourselves in now. The pandemic shaped working culture indefinitely with an influx of talent working from new corners of the world, accessible at any time. In addition, the rise of AI tools and cloud-based collaboration increased productivity - making outsourced software development an option for any company, and projects of any size, budget or timeframe.
How is outsourced software development important?
Outsourcing software development has gained traction because it’s attractive for a variety of reasons. Let’s break them down.
It’s made-to-order. Outsourcing is akin to ordering a la carte off of a menu. You won’t overcommit resources or pay for expertise that you don’t need. You scope work and budget against your goals, scale it accordingly to project requirements, and that’s it. You can fill needs as-is in the short-term, such as if you’re building something seasonally, doing a one-time IT update, or creating a temporary widget or application. In addition, you get a custom solution. Most off-of-the-self software options lack the agility and specificity companies want - meaning you can maximize your dollars by building exactly what you need.
It’s cost-effective. No matter what your budget, if you’re a startup getting your business off-of-the-ground, or a large corporation undertaking an IT migration following an acquisition - you can outsource these projects and pay for exactly, and only, what you need. Compared to full-time hires and building an in-house team, this method saves against recruiting costs, salaries, healthcare benefits, retirement matching, office space and more. In fact, outsourcing can offer upwards of 40% reduced spending.
It’s fast. When you outsource, you can experience a nearly 50% faster time-to-market. Teams are fluid, built from anywhere, made up of professionals with any skill. This means bringing in the right technical experts that are specialized at exactly what you need, which accelerates workflows. However, it also gives the benefit of time by hiring people from across the globe, in time zones that enable round-the-clock productivity and where they can get work done before your day even starts.
It’s hands-free. When you work with an outsourcing partner, they own the project from the top down. A project manager can act as an intermediary to oversee day-to-day activity, set deadlines, and manage feedback and changes. As the client, you don’t need to micromanage the process, knowing someone capable owns that responsibility. And in addition to an experienced point person, these agencies create a collaborative environment by using tools for complete transparency where clients can easily track progress, get updates and more.
It offers complete freedom. You’re not locked into anything long-term. You can choose the talent, budget and type of work that caters to your specific goals. And because you have access to an endless pool of talent, you also get to bring in different perspectives and experience that could spur innovation that may otherwise stall when you work with fixed teams from similar backgrounds.
Finally, it frees companies to focus on what they do best. Most companies aren’t tech-savvy, and hiring is the best recourse for getting their software up and running. It allows businesses to focus on exactly that, business, and without being burdened by the decisions or workstreams that will slow down the speed at which they do it. Outsourcing projects to experts who know how to get it done and done quickly, leaves leaders focused on the other operational levers that will shape and grow their companies.
Examples of outsourced software development
Every company utilizes some type of software to manage operations, so it’s important to understand what type of software different industries might commission work for. Sometimes it’s about size - startups need help creating prototypes quickly, while enterprises may be undergoing digital transformation. And sometimes it’s about industry and need.
The types of projects are limitless, but let’s take a look at some more pointed examples by industry:
Tech and Startups: develop web and mobile apps, backend systems for data collection, analysis and testing, and UI/UX to define the user experience.
E-Commerce: custom user platforms and payment systems, integrations with third-party software and maintenance.
Finance: banking apps, trading systems, security audits and APIs to establish guardrails for how different software applications communicate and share data.
Healthcare: telemedicine apps for consultations, patient portals to retrieve test results, submit insurance and schedule appointments, and EMR systems that act as a digital health chart.
Retail: inventory systems to manage product stock, mobile points of sale to create digital touchpoints with consumers, and loyalty apps to reward customers.
Education: digital learning systems such as virtual classrooms and apps that allow students to connect with teachers, peers and other resources.
Logistics: fleet tracking and route optimization platforms, and warehouse management systems to oversee the flow of inventory being received and delivered.
Travel & Hospitality: online and mobile booking engines and integrations with CRM systems to manage the flow of sales, marketing and customer data.
Media & Entertainment: streaming apps and portals to access digital content.
Real Estate: host site to list properties, 3D tours and customer relationship management systems.
Most people may not realize just how much outsourced software development affects their everyday life. While the above examples highlight how to apply it to a variety of industries, it’s also important to recognize that a lot of tools we know and love today were built this way as well. For example? The productivity and communication app Slack that millions use for work everyday didn’t build an internal team when pushing beyond their prototype in 2012. They hired outside help for design and app development instead. They had a strong product vision, but not the deep bench of experience or capacity in their early team to make it a reality. But they also understood what most startups do - speed matters to remain competitive and scale. They were able to stay heads down on strategy while their product got quickly up and running the way they wanted it to without their interference.
Another great example is WhatsApp, which allows users to easily exchange secure messages and make calls to anyone, anywhere in the world. As a scrappy startup, they turned to an expert in Europe to handle their iOS app development. Back in 2009, WhatsApp supported only basic features managed by a small team. That team didn’t have iOS experience, but knew iPhone users could become an incredible amount of their potential users, and it was an audience that would help scale their business. By outsourcing, they were able to be an early mover in Apple’s App Store on a quick timeline, and on a budget. While they would eventually create an in-house team to manage bugs and build out features, getting someone with the experience they needed quickly helped turn WhatsApp into the powerhouse it is today.
How To Utilize Outsourced Software Development
Maybe you’re a founder of an exciting new startup, or a CTO running IT across a global operation. How should you look at outsourced software development, and how can you utilize it? Stay tuned for more insights about how to find the right vendor, and right applications for outsourcing, and how it’s the best plug-and-play solution for your business. You can also learn more about how Amplify Tech Labs does Outsourcing Product Development here.
