Is your business humming along smoothly with off-the-shelf software, or are you starting to feel its limitations? In 2024’s dynamic tech landscape, choosing between custom software development or buying a pre-made solution is more critical than ever.
The stakes are high: 65% of applications will be built using low-code by 2024 (Source: RADIX), highlighting the rising trend of custom development. But let’s face it, the allure of readily available software with seemingly low initial costs is tempting. So, which path leads to success?
Businesses have these tie breaker questions and most of the time they choose the wrong answer. Should they build their own software or buy it off the shelf? Both the answers are correct but it depends on the nature of the business and a series of factors that will make it.
This question makes more sense in 2024 with the wide set of use cases for custom software and ready-made ones. Let’s jump into details!
What is build vs buy software?
Build
This approach of building involves custom software development. When a business opts to design, create, test, and maintain its own software tailored to its specific requirements. The process is usually undertaken by an in-house development team or outsourced to a software development company. The primary advantage is that the resulting software can perfectly align with the business’s processes, offer unique functionalities not available in the market, and potentially provide a competitive edge.
Advantage
- Customization: Tailored exactly to business processes, offering a perfect fit for unique requirements
- Scalability: Designed to grow with your business, accommodating changes and expansions seamlessly
- Competitive Edge: Offers unique features that can differentiate a business in the marketplace
Disadvantage
- Cost: High upfront investment in development, testing, and deployment.
- Time to Market: Development can take months or even years, delaying potential benefits.
- Maintenance: Requires ongoing support and updates by an in-house team or contracted developers.
Buy
This approach refers to purchasing off-the-shelf software developed by a third party. These are pre-made solutions designed to meet the general needs of a broad market segment. Buying software typically involves a one-time purchase or a subscription model, offering the advantage of immediate implementation, lower upfront costs compared to custom development, and support from the vendor
Advantage
- Cost Efficiency: Lower initial costs and a predictable expense model (often subscription-based)
- Quick Deployment: Immediate implementation, allowing businesses to benefit from the software right away
- Reliability: Tested broadly across diverse environments, potentially offering greater stability out of the box
Disadvantage
- Limited Customization: May not perfectly align with every business process, requiring work arounds
- Dependency: Reliant on the vendor for updates, support, and scalability
- Generic: May lack unique features that could provide a competitive edge
How should you decide whether to buy a software or build it?
This is not a simple yes or no question, multiple factors decide the course of our choice. If we could put answers to each of question below then we will come to a decision on which one to choose.
1. What are your business requirements?
Choosing between building custom software or buying off-the-shelf can be tricky. Here’s a quick guide to help you decide:
Unique Needs:
Build: If your business has unique processes or workflows that existing software doesn’t address, building a custom solution might be better. This gives you the flexibility to tailor the software exactly to your needs.
Common Needs:
Buy: If your needs are common and well-served by existing software, buying is often the faster and more cost-effective option. You’ll benefit from established features, ongoing maintenance, and support from the vendor.
2. What are your financial constraints?
Weigh flexibility against affordability to choose the best fit for your business.
Tight budget? Consider buying software. Subscription models often offer lower upfront costs but can add up over time.
Ready for a bigger investment? Building allows for greater customization and potential long-term cost savings, but requires significant upfront expense and ongoing maintenance.
3. What are your time constraints for implementing a software solution?
Immediately or 6 months down the line:
Buying pre-built software can get you up and running quickly, minimizing disruption. This is ideal for established needs with clear-cut, off-the-shelf solutions available.
While it takes longer upfront, custom software can perfectly integrate with your existing systems and evolve alongside your needs, offering long-term benefits and a competitive edge.
4. Will your business structure evolve over time?
If your business is poised for change and adaptation, building custom software allows it to evolve alongside your needs. You gain control and flexibility to adapt features and functionalities as you grow.
For established needs and stable processes, buying pre-built software offers faster implementation and lower upfront costs.
5. Do you have access to the necessary technical expertise
Let’s be honest here:
Consider buying pre-built software. It offers quicker implementation and avoids the need for extensive development expertise.
Building software allows for complete customization and long-term ownership, but requires a dedicated development team with the necessary skills.
6. What is the potential return on investment (ROI) for each option?
Building software offers potential long-term value through customization and control. But upfront costs and development time can be significant. Buying software provides faster implementation and lower initial investment. However, ongoing licensing fees and limited customization can impact long-term affordability and flexibility.
7. Do you need the software to integrate with your existing systems?
Building: Offers full control, but custom integrations can be complex and costly.
Buying: May have pre-built integrations, saving time and resources. However, compatibility isn’t guaranteed.
For Startups? How does build vs buy impact them?
Startups is no different in weighing all the above factors when deciding whether to build or buy software,
Core Competencies and Strategic Importance: If the software is central to the startup’s value proposition or offers a significant competitive advantage, building may be the preferred option.
Budget and Resource Constraints: Startups need to consider their financial situation and whether they have the resources (time, money, talent) to invest in custom development.
Market Dynamics: The need to quickly adapt to market changes or capitalize on emerging opportunities may influence the decision towards buying to ensure faster deployment.
Long-term Vision: The choice should align with the startup’s long-term strategy, considering aspects like scalability, flexibility, and potential pivots.
Real World Examples of Build vs Buy Software
Building Custom Software: A Case Study of Netflix
Netflix’s decision to develop its custom content delivery network (CDN) called Open Connect. It exemplifies the build approach’s advantages. Faced with the unique challenge of streaming vast amounts of data globally, Netflix concluded that existing commercial CDN solutions could not meet their scalability and performance needs. Building their own helped Netflix to optimize streaming quality and reduce costs, providing a competitive edge by ensuring a superior user experience.
Key Takeaway: Building custom software can offer unparalleled advantages when unique operational challenges or strategic goals cannot be met by existing solutions.
Buying Off-the-Shelf Software: A Case Study of Small Businesses Using Shopify
Many small businesses opt to buy e-commerce platforms like Shopify to quickly launch and manage their online stores. Shopify offers a comprehensive solution that includes website hosting, payment processing, and inventory management, which can be prohibitively expensive or complex for small businesses to develop on their own. This approach allows small businesses to focus on their core operations and growth rather than the intricacies of software development and maintenance.
Key Takeaway: Buying off-the-shelf software can provide a cost-effective, efficient path to digitalization, especially for businesses with common needs that can be met by existing platforms.
