Outsourced vs. in-house software development: Which is the right choice?

When it comes to custom software development, two primary options are available: executing it internally or choosing to outsource software development. The final decision, however, depends on various factors, including the desired level of control and available resources.

Opting for outsourced software development can offer relief from managing intricate processes directly and often proves more cost-effective. On the other hand, in-house development provides control and the capacity for immediate alterations.

In this article, we’ll delve into both methods — providing definitions, listing pros and cons, and highlighting successful examples of both internal and external software development initiatives, to guide you towards an informed decision.

Understanding in-house software development

Explanation of what in-house software development entails

In-house software development, as the name suggests, unlike outsourced software development, involves the creation, management, and upkeep of software solutions within a company’s internal structure. This means that a company has its own team of IT professionals on board who work on the company’s software projects.

The process begins with a company identifying a software need, following which, the in-house team conceptualizes, designs, develops, tests, implements, and maintains software solutions. This approach puts the organization in full control of the entire software lifecycle.

Pros and cons of in-house software development

In-house software development has numerous advantages. Firstly, having an internal team allows for a high degree of customizability. The dedicated in-house team, being intimately familiar with the company’s specific needs, will tailor software solutions that closely align with the organization’s goals.

In-house development also ensures better protection of sensitive data as there are fewer avenues for potential data leakage. In addition, it allows for quick decision-making and problem-solving, better communication, and no language or time barrier that could potentially hinder real-time collaboration.

However, in-house software development also has its potential downsides. Compared to outsourced software development, the disadvantages primarily include high upfront costs such as expenses related to hiring, training, and retaining qualified professionals. It can also translate to longer development times as existing staff may need to learn new specific skills or technologies. Furthermore, there’s the aspect of the limited in-house professional knowledge. The in-house team might not be vast enough to cover every technology, thus restricting the scope of innovation.

Thus, despite the challenges, in-house development still offers full control over software development projects and more efficient decision-making and problem-solving, though managing team size according to the project’s requirements can also be a challenge.

Suitable scenarios for opting for in-house development

The decision to opt for in-house software development largely depends on the specific situation of the company. Here are a few scenarios where this might be more suitable option:

If the software is based on extensive proprietary knowledge, then an in-house team, already familiar with company or industry-specific nuances, might be more beneficial.

If you have a project that is ongoing, large-scale, and not constrained by a strict deadline, starting an in-house team might work best.

If the software contains critical sensitive data where high levels of data security and privacy are needed, an in-house team would normally be a safer option.

If the software being developed is a core business product, having full control over the development process can be crucial. In this case, an in-house team can be preferred to maintain strategic alignment, control over intellectual property, and direct involvement in iterative development.

In conclusion, assessing the most suitable scenario for in-house development largely depends on the concrete needs, resources, and goals of an organization. It’s a strategic decision that warrants careful consideration.

Example of in-house software development

Booking.com, one of the world’s leading digital travel platforms, is a testament to the power of successful in-house software product development. The idea was conceived by Geert-Jan Bruinsma in 1996.

Initial inquiry

Bruinsma, a tech-savvy Dutch entrepreneur, came up with the idea of a comprehensive online platform that would simplify hotel bookings for travelers around the world.

Solution

The initial solution involved offering a wide range of accommodations in a user-friendly online platform where users could find extensive information including photos, reviews, and location data. This would enable users to make informed decisions to meet their specific travel needs. Since its inception, the Booking.com site has always been a product of in-house software development.

Terms and costs

The exact terms and costs of developing the platform are confidential. However, given the complexity of its system, one can speculate that it was a significant investment. The development costs would have likely involved high-end software systems, talent acquisition for programming and development, continuous system upgrades, bug fixes, and systems maintenance.

Outcomes

Booking.com has grown exponentially since its launch, now boasting millions of listings and serving customers around the globe. Its user-friendly interface, extensive array of accommodations, and reliable customer service have made it a go-to platform for travelers.

What made in-house software development the right choice in this situation?

By developing in-house, Booking.com could maintain complete control over the development process, allowing for continuous innovation, modification, and upgrades based on user feedback and demand. It also gave them a distinct competitive edge by owning a uniquely tailored technology platform. This strategic decision has clearly contributed to Booking.com’s extraordinary success in the dynamic and competitive online travel market.

Unraveling outsourced software development

Description of outsourced software development process

Outsourced software development is an arrangement where a company hands over its software projects to an external agency, which could be located within the same country (onshore) or overseas (offshore or nearshore). The main reason companies choose to outsource is because they do not have the required skills in-house, or they prefer to channel their resources into essential business functions. The process involves identifying the right outsourcing partner, defining the project, negotiating the terms and conditions, and managing the relationship with clear communication protocols.

Pros and cons of outsourced software development

Outsourced software development can offer certain significant advantages. Firstly, cost efficiency is a massive factor, as firms can save on hiring costs and reduce overheads by paying only for the work done. Outsourcing also provides access to global talent and expertise, helping to create high-quality software with the latest technologies.

Furthermore, outsourcing can offer scalability and flexibility, allowing organizations to easily adjust their software development capacity according to project requirements.

On the negative side, outsourcing can result in communication hurdles, particularly when differing time zones and languages are involved. The risk of losing sensitive data could also increase due to less direct control over data management. Additionally, the quality of work could vary and may not always meet expected standards.

Nevertheless, outsourcing software development allows companies to tap into global talent for cost-effective and high-quality software solutions, while challenges such as communication and consistency can be managed with a reliable partner and clear protocols.

Ideal situations for choosing outsourcing

In the context of software development, outsourcing has grown increasingly popular due to its various advantages. Here are some scenarios where outsourced software development may be the optimum choice:

By assigning certain operations or functions to an external body, businesses can harness specialized knowledge and skill, without having to invest in extensive training or recruitment.

For startups or small to medium-sized companies with a tight budget, outsourcing can be the most cost-effective option.

If software development is not a core part of the business, it can be more efficient to leave it to external experts.

During a sudden need for scaling, outsourcing can provide the necessary tools and resources without the hassle of hiring and setup.

If a company needs software developed quickly and effectively, outsourcing to a dedicated team could expedite the process.

Outsourced software development firms often have access to cutting-edge technology and can afford to invest in research and development, offering innovation that might not be feasible in-house.

However, like in-house development, the decision to opt for outsourced software development is dependent on the individual circumstances and needs of the organization.

Example of outsourced software development

Many projects developed through outsourced companies are protected by non-disclosure agreements for various reasons. However, we can provide a real-life example of a project we worked on with the UK Retreats company.

Initial inquiry

UK Retreats, a client based in the UK, had a vision to create an app that would streamline the booking process for unique holiday accommodations across the country. They aimed to leverage their extensive database of exclusive stays and turn it into a convenient booking app. Initially, they had considered building a complex system inspired by renowned travel aggregators.

Solution

Upon evaluating the niche market in the UK, it became apparent that a complicated solution was not necessary. Instead, we identified that a mobile-first web app with a monetization system would be more suitable. Our analysis of UK Retreats’ target audience revealed a preference for accessing the app through mobile devices instead of desktop computers. Consequently, we adopted a mobile-first approach and developed a web app accordingly.

We also undertake a comprehensive design process for the app. To ensure client satisfaction, we started by considering the negative references provided by UK Retreats, focusing on elements that they did not want to see in the final design. We presented the client with three different versions, each with a unique color palette, before finalizing the design. The end result aligned perfectly with the cultural context of the UK, creating a visually appealing and user-friendly experience.

Terms and costs

The development of the web application was completed within a span of three months. The project was completed at a cost of under $50,000.

Outcomes

Within the first month of its launch, the web app gained 850 subscribers. Presently, the UKR Club has surpassed 10,000 users.

What made outsourced software development the right choice in this situation?

UK Retreats’ decision to outsource software development was driven by the need for an efficient, affordable solution. With our expertise, we provided an option better suited to their unique UK market, a solution that might have been overlooked by an in-house team.

Our professional Instagram page showcasing our UI/UX design capabilities assured the founder of our design quality and creativity, making outsourcing a trusted, cost-effective choice. This allowed UK Retreats to focus on core operations, confident that their app development project was in capable hands.

You can find the full case study on the website.

Now, let’s proceed to the part where we discuss the resources needed to develop the software product. We’ll focus on MVP costs for convenience.

Costs for the MVP: In-house vs. outsourced software development

In-house development

Costs and timelines for in-house development can vary considerably, largely due to your team’s existing skill sets and resources.

For instance, consider the development and design of a Minimum Viable Product (MVP). Regular MVP development undertaken in-house could range from $60,000 to $80,000. This estimate includes the salaries of your permanent staff, such as developers, designers, and a project manager. The process could span approximately 4–6 months. However, if there’s an urgent requirement and the MVP development needs to be accelerated, it may require additional resources or overtime, which would increase the cost to around $120,000–$160,000 and reduce the timeline to about 2 months.

When it comes to maintaining the project post-development, costs can again vary. Infrastructure support might start from $500+ per month, depending on the system’s complexity and your internal resources. Additionally, consulting costs can fluctuate based on your team’s existing expertise and whether you need to involve external consultants. If external consultations are necessary, expect to budget around $500+ per consultation.

Keep in mind that these figures are rough estimates. The actual costs will depend considerably on several factors, such as project complexity, team location, employee salaries, and whether you need to consult externally. One must carefully consider these factors when assessing the cost-effectiveness of in-house development for your specific project scenario.

Outsourced development

For example, for projects outsourced to us, the costs for software development and design are as follows: A standard Minimum Viable Product (MVP) development, which typically takes around three months, costs around $30,000. For projects with an expedited timeline, requiring completion within one month, the urgent MVP development cost would be $50,000.

In addition to development and design costs, there are also charges for maintenance and consulting. Infrastructure support begins at about $300 per month, varying with the project’s complexity and needs, while consulting services are priced at around $400 per consultation.

It’s essential to note that these are the costs associated with outsourcing the project to our team. If you’re interested in what these costs comprise or wish to understand more about how we embark on MVP development for startups, we recommend reading more on our MVP Development page. Our detailed guide will provide you with a clearer picture of the services and value you will be receiving.

Summing up

The choice between in-house and outsourced software development depends largely on the specific needs, resources, and objectives of an organization. Each method has its own set of advantages and disadvantages.

In-house development provides the benefit of a high degree of control, better protection of sensitive data, quick decision-making, and better communication. However, it may entail higher upfront costs and longer development times. On the other hand, outsourcing allows for cost efficiency, access to a more comprehensive skill set, and the ability to adapt quickly to changes in project requirements. Nevertheless, it may also lead to communication challenges and increased risk to sensitive data.

Regardless of the chosen route, maintaining clear communication, setting well-defined goals, and offering continuous feedback can significantly improve the software development process. Should you choose outsourced software development as your path, Ronas IT team will be more than happy to help. Just let us know by clicking on the button below.