How to decide when to buy software and when to build it

The appeal of the cloud has long been that you don’t need to do everything yourself, leaving you more time and resources to concentrate on what makes your company stand out. A classic example is that you buy electricity from the grid rather than running your own fleet of generators because having electricity doesn’t make you unique. The same is true of internal software, which you need to be efficient and reliable, but in most cases you don’t need it to set you apart from your competitors.

“It used to be that your customer didn’t know or care if you and everybody else bought Oracle Financials, or the same ERP package, unless you messed it up. Now they care,” says Jeff Lawson, CEO of cloud communications platform provider Twilio. “The things you know you need to buy are things where all you can do is mess them up. The best thing you can do by building out your own data centers over using AWS is have down time. The best case scenario for running your own email server is that the mail gets there; the worst case is that email doesn’t arrive.”

Twilio

One thing to watch in the build vs. buy decision is employee satisfaction, especially when it comes to the tools they’re using to interface with your customers, says Lawson. “That’s what smart organizations are focusing on,” he says. “One of the line of business shifts we’re seeing is putting people in power who want to build great customer experience and use software to do it. Company after company and industry after industry is realizing that this is how you have to do business.”

Software matters in even the least digital industries now. Take farming, for example. Land O’Lakes, one of the largest producers of butter and cheese in the U.S., is spending $3.5 million to build a service on Google Cloud Platform and Google Maps that will let its dairy farmers track and visualize crop management as a way of increasing yields. And they’re planning to add machine learning, like Microsoft India has with the app that it recently developed for farmers in the state of Andra Pradesh, which provides personalized advice on when to plant or fertilize crops.

That’s an example of what Lawson calls “build and buy,” and it’s why building software doesn’t mean what it used to. “You take building blocks from a variety of vendors and glue them together with parts that are unique to your business and end up with differentiated solutions because you can focus on the value you add,” he says.

Salesforce

Low-code building blocks

Gartner predicts that by 2020 75 percent of apps will be built not bought. At the same time, the analyst firm also talks about businesses turning away from “out-of-the box solutions” and towards “a combination of application components that are differentiated, innovative and not standard software or software with professional services (for customization and integration requirements), or solutions that are increasingly sourced from startups, disrupters or specialized local providers.” Those building blocks might include things like Box cloud storage, Microsoft image recognition, IBM Watson sentiment analysis or data from your own enterprise systems.

Services like Microsoft Flow and Salesforce Lightning, for example, let users build simple mobile apps from components and workflows much more quickly than building traditional custom apps. Adam Seligman, executive vice president and general manager of Salesforce’s App Cloud unit, calls this the ‘low-code’ approach. Flow and Lightning also offer an answer to the declining development budgets for mobile apps that Gartner is seeing.

“The feedback we hear over and over again is that we’re moving to a new phase in business where we have to reinvent our companies,” says Seligman. “You’ve got the demand for innovation and the need to go faster. The low-code approach is a huge lever for that; it’s not the only lever but it’s a huge lever.”

Seligman also sees it as an opportunity for CIOs to be more involved with the business side. “The point of being in business is to make happy customers. CIOs are now part of that.”

“It’s a crossroads. There are CIOs that become CEOs and there are CIOs that become effectively database admins — pick wisely! CIOs who figure this out are going to be the next CEOs. If they can enlist the best and brightest and be the most inclusive with the army they raise to build all these new apps, they will be in a better position to make this happen. Low code is reshaping every CIO’s world right now.”

Box

Businesses need to be digital natives

Take the building blocks approach to the extreme and you get Uber, says Jeetu Patel, senior vice president of platform and chief strategy officer at Box. Uber uses AWS for infrastructure, Google for mapping, Twilio for text messages, Braintree for payments and SendGrid for sending receipts. “A company that’s built one of the most valuable assets in the world has taken 80 percent of what you might consider to be its core code and outsourced it. What they unmistakably own is the curation of the end user experience.”

How do you determine what’s a core service you need to build and what you can buy? Patel suggests asking yourself three questions:

• Can you do a faster, better and more complete job than a service that offers the same thing? “Say you use the Box platform, it should give you an innovation tailwind. The velocity of innovation we deliver should outpace your innovation. When that happens you should think about going out and outsourcing.”
• Can you offer a better experience? “There should be an experience lift so you get either the same or a better experience than you could create yourself. If you can create something better than what you could get from outsourcing a component, you should do it — but if it’s just as good, then by definition it’s not core.”
• Is there a choice of services that could do what you need? “If there’s substitution potential, then again, by definition, it’s not a core service. If I can change Braintree for Stripe for payments, then it’s not a core experience and you should outsource it.”

Avanade

Understanding what is and isn’t a company’s core service requires quite a sophisticated view of software, points out Adam Warby, CEO of managed services provider Avanade. “Getting companies to think about ‘every company is a software company’ — that is really hard for most traditional businesses to get their mind around. They’ll say ‘No, my core business is selling insurance, my core business is building cars, or whatever their business may be. But software is everywhere, and it doesn’t matter what your business is, you’ve got to figure out your role. That doesn’t mean you have to be the builder [of that software], it doesn’t mean you have to be the architect, but you probably need to be the product manager and the product planner. You need to know how it fits into the architecture of your business and your business products.”

Often, it’s newer businesses that are most comfortable with the building blocks approach. “Digital-native, cloud-native businesses are stitching it together,” Warby warns. “Meanwhile, the rest of world is busy trying to unstitch their old model and think through what is happening in this new world, and what is the role of software. The problem is that many of them are not thinking of it strategically enough, either from capabilities or strategy.”

As Seligman says, “It’s a crossroads.”