Software Outsourcing

Definition:

Software Outsourcing is a technique where a software development project is delegated to external development experts (outsourced) rather than using in-house manpower. This can involve outsourcing just specific tasks within a software development project or delegating the entire project to a third party.

Analogy:

Software Outsourcing is like contracting a plumber to fix a leaky sink.

Before you decide to contact them, you will consider why you need to to hire someone. You don't need this plumber on payroll, so there is no need to hire them as a personal employee. Have you tried all of the home remedies and still can't figure it out? Or are you busy with your own job so it wouldn't make sense for you to spend time to figure it out yourself? Either way, you know that you need to fix the problem now, because it will probably cause problems in the future.

As the employer of the contract worker, there is some risk in hiring someone you haven't worked with before. However, you can manage that risk by doing due diligence and communicating the scope of the project with the plumber.

In other words:

Software outsourcing takes place when companies choose to have custom software solutions developed by a third party.

Why is software outsourcing important?

It's one thing to know what a term means, but that is worthless if you don't know why you should know what software outsourcing is in the first place. Let's break down the importance of this tech term based on two high level categories. We'll walk through an explanation as well as provide a score, 1-10, that shows you how much you should care about software outsourcing.

Pre-Product: 6/10

The first will be if you do not have a product yet. This means that you don't have a physical product. Maybe you're in the ideation phase, or maybe you're almost ready to start development. Whichever it is, we'll get into why software outsourcing is important and why you should or shouldn't care about it if you do not have a product.

If you don't have a product yet, software outsourcing is a term you should familiarize yourself with as it is a path towards building your product. Maybe you have technical skills or technical team members who can handle development - but if you don't, you'll need to find a way to build your product. Software outsourcing lends itself as a cost efficient way to build products.

Live Product: 6/10

The second category is if you do have a live product. Maybe you just launched your business or maybe it's been live for years and you're continuing to improve its quality. Regardless of the scenario, if your product is live, software outsourcing carries a different weight.

If you already have a live product, that means you have someone who helped you build it! With a live product, software outsourcing can lend itself as a way for you to help augment/supplement your development roadmap, freeing up your engineer's time so you can get more done, quickly. It also can serve as a way for you to extend your roadmap as it tends to be cheaper than in-house development.

Examples of software outsourcing

So you know what software outsourcing is, by definition. You know if you should care about it or not depending on your situation as a business/company/product. To dig in deeper, we will walk through some examples so we can make sure you really have a solid grasp on software outsourcing.

Software outsourcing scenarios:

There are multiple different ways that a company can outsource their software; we'll walk through them all.

1. On-shore software outsourcing
   
   When working with an agency or freelancer based in the same country that you are in, then you are engaging in on-shore software outsourcing. You are outsourcing some of your software development to this agency or freelancer. It is outsourcing because the people you are bringing in to help with development are not your full-time employees, they are contracted workers. You are outsourcing your software to developers located in the same country as your company. For example, if you are a startup in Argentina and working with an agency based in Buenos Aires, you are engaging in on-shore software outsourcing.
   
2. Near-shore software outsourcing
   
   When working with an agency or freelancer based in a country next-door to your country, then you are engaging in near-shore software outsourcing. The contracted developers are your next-door neighbors, located right on your shore. Near-shore outsourcing is a common strategy that companies will use when they want slightly cheaper development that is still close to their home-base (typically searching for the same time-zone). For example, if you are a startup in the US and you are working with developers in Mexico, that would be referred to as near-shore outsourcing.
   
3. Off-shore software outsourcing
   
   If you work with an agency or freelancer that is based in a different country than your own, you are engaging in off-shore software outsourcing. For example, if you are a startup in the US and you are working with developers in Colombia or India, you are engaging in off-shore software outsourcing. Companies will look towards this path in order to maximize their cost-savings as you can typically find countries whose average salary and living wage is cheaper than that of your home country. Near-shore outsourcing is technically still off-shore, because you are outside of the country.

Key Takeaways:

1. Software outsourcing takes place when companies choose to have custom software solutions developed by a third party.
   
2. If you don't have a product, you don't need to worry just yet about software outsourcing.
   
3. If you do have a product, you want to learn about this process to help reduce development costs or extend your development roadmap.
   
4. There are three different categories of outsourcing: on-shore, near-shore, off-shore.
   
5. Software outsourcing is utilized to help save costs and accelerate development roadmaps.