Almost every company faces the same “develop or buy” dilemma when it comes to the digital transformation of their business whether it is because of growth, optimization of the processes, or staying ahead of the competition. Within that, there are many different business challenges that can be solved with some kind of digital solution or a tool. Before deciding on the type of solution, businesses need to think through their needs and consider all of the options available. Some of their needs and challenges are simple and often found within a certain industry so there are already existing solutions that can be used right away. But a lot of other challenges are very specific, complex, and require a lot of effort to be solved.
All of these challenges can be solved either by an off-the-shelf solution or with custom-developed software, but what exactly is the difference between them, and which path is the best for you?
What is off-the-shelf software?
Off-the-shelf software or commercial off-the-shelf (COTS) is the pre-designed and usually generic type of software that is mass-produced with the goal to reach a wide variety of customers.
What is custom-made software?
A custom-made software is a type of software that can be tailored to fit your business needs (it is also called tailor-made software or bespoke software), you can modify it as your business expands and it is unique.
Which path is the best for you?
Now that is the hard question and the answer is never simple. As we already said, you need to know your business’s needs, outline the pros and cons of both paths and keep your long-term goals in mind. We are going to break down a few things you should know and watch out for.
Off-the-shelf and custom-made software offer very different levels of competitive advantage. Off-the-shelf software doesn’t provide much leverage in this case since your competitors are using exactly the same product, they know the boundaries of it and what you can do with it.
On the other hand, custom-made software is tailored to your business, you can modify and adjust it according to your or market needs. You are using a product made exclusively for you with different kinds of features and specifications that other companies don’t have access to.
At first glance, it might seem there is a big difference in expenses, but that isn’t the case, let us explain why.
Off-the-shelf software is typically less expensive than custom-made software because it was produced for large numbers of customers, but since most of them have monthly/yearly subscriptions, their neverending billing eventually catches up with the price of custom-made software and usually exceeds it. You also might want to determine cost-effectiveness in the cost per user model if you have a larger user base or if you expect growth. Some well-known products are priced so high, their price exceeds custom-made software rather quickly. Many wrongly think you can just install the software and use it. There is still some setting up to do alongside educating your employees on how to use it efficiently. All customizations are paid on top of the current subscription plans and are provided only by certain consultants. There is no trade-off between your wants and their offers, which can leave you with a lot of features you don’t use or need but still have to pay for them.
Tailor-made software is designed and developed to your specific needs and that requires planning, making requirements, wireframing, developing, testing, adjusting, and deploying the software. Of course, you will have to wait for it to be developed since such projects are made from scratch, but it will be easier to use and it will save your employees’ time. It also requires a larger investment at the beginning but lower maintenance costs.
Off-the-shelf products usually have regular updates, and most of the time they are not expensive or might even be free. Also, there can be excellent customer support and community. But sometimes you might not get updates for a longer period of time which means you will work with outdated software that might cause a negative impact on your business. Another risk is not upgrading the software since it is common practice that companies do not provide support if you are using outdated software. Furthermore, if updates are poorly synced or not compatible with an ERP or some other software it can cause significant operational risk.
With custom software, you determine whether you would like to make the changes, and you determine when to make them. You own the software so you are independent regarding the decisions you make. There is no waiting for new releases, adding new features, or changes. But still, this is not a risk-free solution, it is very important to partner up with a reliable vendor who will be there to provide you with support throughout the years.
Nature of the Company
The nature of the business can also have a big impact on the decision to buy off-the-shelf software or develop your own software.
Smaller companies often don’t have the budget, time, or expertise to make custom software. Also, their needs are unlikely to require complex solutions and integrations. In that case, an off-the-shelf software could probably solve most of the challenges. Exceptions are small companies that are focused on growth and want to expand their business. For them, developing custom software can create more efficient processes since custom software is easily replicable and scalable. Off-the-shelf software often has subscriptions per user which mean doubling expenses when there are twice as many users.
Custom software is best suited for large enterprises that have complex systems, processes, and requirements because its development and use are quite flexible and company-specific.
Scalability is among the most important elements to consider when deciding which path to take. The software should be scalable to fit your current business needs but also to have room for future add-ons. Over time you might want to add features, sections, and more users to the software. Custom solutions can be designed to work with newer technologies in addition to legacy systems.
Off-the-shelf software will not provide such possibilities and it might not be able to integrate with newer technologies such as IoT, edge computing, and cloud technology without serious customization.
A quick summary
- Built exclusively for you and your unique challenges, meaning it can provide an almost perfect solution for your problems, there is no “nice to have” – you have it all
- Easily modified and replicated for scaling your business and implementing new technologies
- Provides competitive advantages
- Dedicated support
- You own the software and its data
- Larger investment upfront
- Bad vendor risk
- A longer period to develop
- Requires know-how
- Usually lower upfront costs, but there exceptions where price exceeds custom-made very quickly
- Quicker to set up and use
- Often has a free trial and it is easier to switch between products
- Community support – reviews, best uses, etc.
- May not compatible with your current systems
- Neverending subscription and fees per user
- Difficult to modify and often doesn’t have a dedicated support
- You have to fit your business to the software
- No competitive advantage
We know that the choice is not easy and there are a lot of factors to consider. You should always think about the short-term and long-term costs of both options. In our opinion there is no conclusive winner, it all depends on the circumstances and problems you are facing. Both off-the-shelf and custom-made software take the lead in certain situations.
There are a lot of examples of off-the-shelf software on the internet and not so much of a custom-made, so we are going to give you a few examples of custom-made software from our dedicated teams. Our team helped Strabag aggregate real-time data from 13 different ERP systems and Digital.ai to develop leading deployment automation and release management platform.
If you have any doubts about whether custom-made software is the right path for you, feel free to book a meeting with us and we will help you find the right solution.