Businesses are investing in technology more than ever. With employees and clients now either working from home completely or in some capacity, software and technology expenditure is increasing to accommodate the new needs of businesses that have to adapt in this new environment.
In 2022, IT spending on enterprise software is expected to amount to around 672 billion U.S. dollars worldwide, a growth of 11 percent from the previous year according to Statista.
The business decision to build or buy software is a critical one. If it goes well, a successful implementation or project can either provide savings, efficiencies, or even new profits for a business. Picking the wrong software or a failed implementation can mean the software is abandoned and a loss on the investment. In this article, we will help you understand some of the pros and cons of building vs buying software for your business needs.
The cost of buying or licensing cloud-based software is almost always going to be lower than building your own software. Typically you will have small monthly recurring costs or perhaps an annual agreement. You can project exactly what the cost for that expenditure will be especially if the pricing is a fixed price based on seats, and or processors assuming your needs don’t change.
The downside is that instead of having a one-time fee, you are now stuck making monthly or annual payments and you don’t actually own the software with most cloud-based software licensing agreements. The moment you stop paying, the service gets turned off for you. Also, as your needs and business grow, expect that your licensing costs will increase along with you.
Take, for example, Zoom. At $14.99 a month, or $179.88 a year per user is going to be much cheaper to use if you only have a few users in your organization. If you have a 5,000 person organization and go with the $19.99 per user enterprise plan, you are looking at an annual cost of $1,199,400.
There may be other costs associated with buying software as well. Software rarely works in a silo and will need to be set up and integrated into your organization’s systems and tools. If you lack the expertise, you may have to hire an agency to help with integration.
Although the cost of building your software can be big upfront, if you don’t expect to change or improve the software very much, this could be a one-time expenditure vs multiple recurring expenditures. There are ways to reduce the upfront costs of building software via a minimum viable product approach. Here are some great tips on how to reduce your mobile app development costs. Note that there are always going to be on-going maintenance costs of having your own software such as cloud-hosting provider and other SaaS tools you used to build your own software.
The cost of building software that’s close to feature parity of a commercial well-funded SaaS product is going to be much more than licensing the same software. It doesn’t make sense to build something for only a few internal users if a ready-made piece of software can be licensed for a cheap monthly fee. Most people only consider the labor costs of building the software, but there are also the infrastructure costs as well as maintenance costs that are now yours to bear. Whether you are using your own internal software team or an external development agency to help build your software, maintenance and upkeep costs will have to be factored into the total costs of building your software. According to McKinsey, on average, large IT projects run 45 percent over budget and 7 percent over time while delivering 56 percent less value than predicted.
The best part of buying software is that it’s already made. You can have it a lot faster than having to build it yourself. In cases where the software doesn’t really have to talk to your other systems, you may be able to have it up and running the moment you sign up and pay with your credit card. Nothing beats time to value if you can use it right away.
The more deeply the cloud software needs to integrate with your systems and data, the more work it usually takes to set up and install that system even if it’s a SaaS. For example, migrating from an on-premise data center to a cloud based Google Cloud Platform or Amazon Web Services is not something you can do instantly with a credit card sign up. There can still be a huge amount of work that needs to be done to migrate to a new piece of software.
The downside of building your own software is it takes time, to define the requirements, plan and architect the product, design the user experience, wireframes, look and feel, and finally, to build it and test it. You can find ways to reduce the time and cost of building software, but it will be hard to compete in terms of time compared to buying ready-made software.
Trying or buying ready-made SaaS is relatively low risk. This is especially true if there’s a free trial and no annual contracts. You can try it for free or pay a month and if it doesn’t work for you or fit your needs, you don’t have to continue and simply cancel your subscription. You will not have invested a lot of time and money into it and simply try another. You also know what you are getting because you can see it and use it before making any long-term commitments.
Although many SaaS agreements have monthly subscriptions, bigger enterprise SaaS may require long-term contracts such as annual or multi-annual contracts. Then there’s the cost of implementing the SaaS into your organization which can also be a huge upfront investment. The risk of picking the wrong SaaS is, therefore, greater because you could be stuck in a multi-year agreement with something that doesn’t quite work for your business.
If you have a very clear vision of what you need and you’ve done the appropriate calculation of building vs buying ROI, building your own software might be less risky than buying software that doesn’t quite meet your needs. Only you know the needs of your organization and if you can build it at a fairly lower cost than what it would take to license the software for your entire organization, it might make a lot of sense to consider building your own software.
If you don’t have the team or the technical expertise to build software, building your own software is a very risky endeavor with a high probability of failure. Statistics on the success and failure rate of software projects are pretty grim. According to the Standish Group Chaos Report a few years ago, the average is only 16.2% for software projects that are completed on- time and on budget. This is why it’s very important to hire a proven, vetted team with great credentials.
The pro of renting vs owning is that problems are not your responsibility. If there’s a problem, outage, bug or feature you need, you can file a support ticket. Support costs are usually extra in enterprise software but generally speaking, issues and concerns are not yours to deal with.
Responsibility is very high when it comes to building your own software. You’re in charge of getting it delivered successfully whether you use internal resources or an outsourced agency. The planning, resourcing, budgeting, delivery, and long-term maintenance of the software you build are all your responsibility.
The one major downside to buying software, especially if this is going to be something that is critical to your business is that you ultimately do not control it. In most cases of cloud software, you can never really “buy” it to own, unless you can afford to buy the software company itself. The subscription fee is only the right to use it. If there’s a feature you want, but it’s not on the software company’s product roadmap, that feature may never see the light of day, especially if you aren’t a big enough customer to make it worth their trouble. Also if you plan to sell the software rather than just using it internally, it will be difficult. Some SaaS companies allow you to white label their product as your own, but most do not. Ultimately it’s not yours to control.
When companies decide to build their own software, a big part of that decision is because they wish to control its destiny. If you want to create a software business and sell your software to customers, owning and controlling it will be key to your success. If customers want certain features, you can add them. Investors may not even consider you if you do not own a key critical piece of your technology, but were simply licensing it. You can change it and evolve it as your customers’ needs change. Bought software may not be exactly what you want, but you have to manage with it. If you embark on building your own software, you can design it to be exactly what you want.
If you want to have a competitive advantage, it’s not going to be using the same software that the rest of the industry and all your competitors use. You have to create a competitive advantage and by definition, that isn’t available to everyone, otherwise, it wouldn’t be an advantage. To have a tool nobody else has, you have to create it. That’s the most important reason to build your own software.
If owning your software because licensing fees have grown too large as you've scaled or controlling your destiny is important to you, then building your software might make the most sense. Click here to find the right partner to help build your software application.