Thursday, January 28, 2010

Build or Buy: Software is still Business

Although for some of you this may seem like an obvious topic, apparently for a lot of people, developers and non-developers alike, this is not so obvious. Today we want to look at how the business of building software is impacted by the possibility of buying third party code to include in a product.

Software business basics
So how do software companies make a living in the first place? Of course there are all kinds of software companies, but we'll focus on the ones making products and selling them to customers, because there is a lot of misunderstanding as to how this all works.

Business wise a software product starts it's life with a first release, which adds value for it's users in some way, making them willing to pay some money to use it. The money payed by the users for the first release pays for the development costs of that release and hopefully makes a bit of money on top of that as a profit.

But the life of a software product doesn't end there. As people start using the software, bugs are discovered and new features are wanted. And as time goes by, technology changes. All this causes changes to the software, part maintenance, part newly build features. Obviously these changes also cost money. That's why most software companies either charge for updates or have some form of a subscription fee or maintenance fee.

Obviously there are other models for making money from software, but what I described above is the classic model, which compares to other businesses.

Why buy?
So why should you buy some of your code? Well, although software development has come a long way, we still have a lot of work that is not directly related to the software products we are building. Let's take an average Line Of Business (LOB) application for example. Changes are you'll need forms that take input and check if that input meets certain requirements. If the input doesn't meet the requirements you'll need to tell the user what's wrong. Sounds familiar, right? So why would you build it yourself? All that will do is cost you a lot of time and effectively a lot of money, while buying a set of controls for your platform is likely a much faster and cheaper option.

So why not choose open source?
That's actually a good question. Let's examine a common software company that uses the classic business model described earlier. A company like that most likely has a release schedule and a support desk. Now let's try and fit some open source control set into the mix. You've used it in some release and now you get some support calls. It turns out there is some problem with an open source control you've used. Now, all of a sudden, you need to dive into this code so you can get that bug fixed. There is usually no support or support is for a considerable fee. And there is no way to guarantee support times for these third party controls.

So are there any downsides to this deal? Well, there are some, but they can be overcome. First there is the reduced amount of control on whatever code is bought. You don't do the maintenance, nor do you add any features yourself. However, you can steer this by making proper use of support channels and participating in feature requests.

And then there is something particularly hard for startups, cash. You do need immediate cash to pay for the license. But think about how much time it would take you to build this stuff yourself and how much money you'd need to live off of and how much time it would take away from you building your company. I think it's the best investment you can make in a startup.

So why do people refuse to buy?
Well, one of the most important reasons for developers to go against this is the all famous Not-Invented-Here syndrome. No developer in his or her right mind would actually admit it, but quite a few developers suffer from this syndrome. They'll come up with all kinds of lame excuses for not buying the code, including all kinds of 'What-If-In-The-Future' scenarios that, if you're honest, don't make any sense.
It doesn't usually come form bad intensions, though. One possible cause is that developers are proud of their work and their skills. They'd love to be able to say that they build that cool feature that comes with the source you intend to buy. Another possible cause is that they think they can actually build it better. Trust me, they can't. The simple reason is wide spread usage of the code you can buy. It's probably been used by considerably more developers than you have in your company, so it's been tested more rigorously then any code you could produce.

When not to buy
So why don't all sofware companies just buy everything and slap the code together? Well, first of all if all software companies did that, there would be no more code to buy. But seriously, every software company has a core business, something that makes their product unique and different from their competitors. Once code touches the core business you should always build the code yourself. This way you create focus in the company and you create a specialty in your core business, instead of an all round product that does only so-so on filling the needs of your customers.

So should you build or buy? If it does not directly touch your core business and if you can justify the costs, yes you should.

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