New Reasons to Do It Yourself

Software licensing headaches and maturing offshore development services are inspiring maverick IT shops to build rather than buy.

Richard Hoffman is not a fan of software licensing terms. "Every time you are on somebody's proprietary [software], they always try to come back and milk you," he says.

But the president and CEO of Hyundai Information Service North America LLC, the IT arm of Hyundai Motor America, has found a partial solution to the problem: building his own software offshore.

"We do a lot more customization and writing of small applications than before," says Hoffman.

That gets him out of annoying licensing situations, such as the time a software vendor wanted to change licensing from concurrent users to named seats. Charging for every user, not just those who used the system at any given time, would have raised the automaker's cost by $3,300 per seat. "You are better off just having some Java coders write it and pay them to maintain it offshore," says Hoffman, adding that most of the applications he has built are for nonstrategic Web services-related processes.

Hyundai's Fountain Valley, Calif.-based company isn't alone. A few other maverick IT shops are bucking the buy trend and building their own software. Their reasons include the perennial problem that off-the-shelf software can't meet their needs, but there's also a new level of annoyance with licensing issues and a new confidence in offshore development.

Off the Grid

Acxiom Corp., a data integration provider in Little Rock, Ark., runs its 6,000-node grid (two processors per node) on software built by its in-house development team.

Acxiom takes a hybrid approach to software, says Ken Archer, product leader for customer information infrastructure. It uses commercial packages where it can but builds its own when it makes more sense to do so.

For example, when Acxiom began building out its grid in 1999, few mature software packages were available. Moreover, many application providers license software in ways that are ill adapted for grid environments. For instance, a license based on the number of CPUs used to run an application isn't suited for a grid environment that can scale across hundreds or thousands of processors, Archer says.

Unlike Hyundai Information Service, Acxiom doesn't use offshore development because it has in-house expertise, Archer says. Moreover, the company is helped by its Arkansas location, where prevailing wages for IT skills are typically below those in major metropolitan markets.

For other CIOs, low-cost offshore development may be encouraging another look at the build option, particularly if they need to customize a packaged product, says Andrew Bartels, an analyst at Forrester Research Inc. in Cambridge, Mass. It may be less expensive to build an application and pay maintenance fees to an offshore developer than it is to buy a license as well as service and support, he says.

"The build argument is becoming more viable because people are feeling very comfortable with the maturity of offshore operations," adds Atul Vashistha, CEO of NeoIT.com Inc., a consulting firm in San Ramon, Calif.

Recognizing that interest in custom development is growing, Indian firms have made it more attractive, says Lance Travis, an analyst at AMR Research Inc. in Boston. Indian offshore providers have ready-made components that can be the foundation of an application in a particular industry, he says.

For instance, Patni Computer Systems Ltd., which does custom development for financial services and other vertical markets, has created templates that provide the underlying code infrastructure. It augments that infrastructure with third-party vendor products, such as those made by content management firm FileNet Corp., according to John Pierce, vice president of insurance industry solutions at Mumbai, India-based Patni.

Still a Niche

Bartels says spending on homegrown systems will account for as much as one-third of software spending by U.S. businesses, estimated by Forrester at about $221 billion this year. Nevertheless, he says, the long-term shift to off-the-shelf applications continues.

Offshore vendors agree. "I don't think the fundamentals of build vs. buy have changed," says Marc Hebert, executive vice president of marketing at Sierra Atlantic Inc., a Fremont, Calif.-based provider of offshore services. "I think that was an irreversible shift," he says, because the selection of packaged software that's available these days is "much richer" than it used to be.

"The trend will be to leverage as much commercial software as possible, because the focus is on putting the pieces together to solve a problem," Hebert says.

Acxiom's Archer agrees. He sees his in-house development as a stopgap measure necessary because commercial providers don't offer the functionality and flexibility he needs. But Archer says that when packaged software is available that can meet his company's requirements, that's what he'll use, because he would rather focus his IT staff on customer needs than in-house development.

1pixclear.gif

BUILD VS. BUY

The basic arguments in the buy-vs.-build debate remain unchanged.

WHY BUILD?

red_bullet.gif
Avoid painful vendor licensing terms

red_bullet.gif
Gain competitive advantage

red_bullet.gif
Adapt to new technology, such as grid computing

WHY BUY?

red_bullet.gif
Leverage vendors’ economies of scale

red_bullet.gif
Gain broader integration capabilities

red_bullet.gif
Ensure that code knowledge won’t be lost

Copyright © 2005 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon