Pros and cons of outsourced development – consumer internet

Over the last couple of days I have been pondering the pros and cons of consumer internet businesses outsourcing development. 

At the Glasshouse event this week Michael Birch (CEO of Bebo) described how he personally developed his first social networking site – Ringo.  The story goes that he was introduced to Friendster, loved it, and after playing with it for one hour decided he needed to build something similar himself – and then spent the next 13 days doing just that.

There is something about the passion that story shows and short time from idea to live site that attracts me to this development model (although I’m sure Michael re-used a lot of code from his previous ventures).

The other benefit of doing your own development is that it makes it easier to change course part way through, or indeed all the time.  That can be important in the early days of a project when your ideas are evolving rapidly.  Also I kind of feel that you will get a higher quality result if you have your own team of people who are passionate about what they are doing – particularly in the case of consumer internet where the developers are often target users.

The other side of the story, though, is that inhouse development means employing more people and getting locked in to their way of doing things.  Or to put it the other way round – outsourced development gives you more flexibility both in terms of resource (you can scale up to meet deadlines and then back down to zero) and technology choices.  From a financing perspective this means less risk.

There is also the benefit of lower cost if you outsource your development to Eastern Europe or India.

I’m thinking about this issue as I consider investments in businesses that have both models and whilst you can build successful companies both ways I am heading towards the conclusion that on balance having at least the core of your development in house is the model I would go for.

I’m not sure though, and I know that a number of you have a strong vested interest in one side or the other of this argument so I’d be very interested in anything that advances these thoughts.

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  • My extremely biased opinion is to have development team sitting in EE. It should be seeded by founder with strongest development skills. On the other hand, the marketing/sales part of the team should be close to customers. Of course, in such setup the marketing-development communication may become an issue, but where it isn’t?

    Since our target users are heavy internet users, we have the luxury to have both parts in one place. This might change when we’ll get outside of seed stage 🙂

  • My extremely biased opinion is to have development team sitting in EE. It should be seeded by founder with strongest development skills. On the other hand, the marketing/sales part of the team should be close to customers. Of course, in such setup the marketing-development communication may become an issue, but where it isn’t?

    Since our target users are heavy internet users, we have the luxury to have both parts in one place. This might change when we’ll get outside of seed stage 🙂

  • Outsoucing Development for Consumer Internet Startups

    Nic Brisbourne from Esprit Capital has a thought provoking post about outsourcing development for early stage consumer internet companies. I think this is a useful discussion as the issues are clearly a little different for this kind of company than they are for a mature enterprise working in a more stable competitive environment.
    We’ve had portfolio companies try …

  • Outsoucing Development for Consumer Internet Startups

    Nic Brisbourne from Esprit Capital has a thought provoking post about outsourcing development for early stage consumer internet companies. I think this is a useful discussion as the issues are clearly a little different for this kind of company than they are for a mature enterprise working in a more stable competitive environment.
    We’ve had portfolio companies try …

  • Fabio

    I went through the same question when I decided to start up my own business and now I can say I’m happy I haven’t outsourced the deployment of the project. I have to say that I’m not a programmer, so it was incredibly hard to understand which way to go, what technologies to pick and then finding the right people. I think that a unique service should be built in-house, while more ‘standard’ things might be outsourced from day 0. I’m seriously evaluating outsourcing for the future, when the basis of the service will be firmly there.

  • Fabio

    I went through the same question when I decided to start up my own business and now I can say I’m happy I haven’t outsourced the deployment of the project. I have to say that I’m not a programmer, so it was incredibly hard to understand which way to go, what technologies to pick and then finding the right people. I think that a unique service should be built in-house, while more ‘standard’ things might be outsourced from day 0. I’m seriously evaluating outsourcing for the future, when the basis of the service will be firmly there.

  • My two cents would say that it is both risky and experimental to outsource nonetheless it is more economical for companies competing for a larger market.

  • My two cents would say that it is both risky and experimental to outsource nonetheless it is more economical for companies competing for a larger market.

  • It can risky for now , but in tha future….

  • In general, outsourcing would mean lower costs and more savings for a company. These savings could be used for research and development or advertising to increase sales. For me, outsourcing is the best way to boost a company's revenue. It's all about finding the right people to get the job done.

  • In general, outsourcing would mean lower costs and more savings for a company. These savings could be used for research and development or advertising to increase sales. For me, outsourcing is the best way to boost a company's revenue. It's all about finding the right people to get the job done.

  • All companies should be cautious, especially if they are considering offshore outsourcing. It is ideal for all businesses to want to invest in something that they know is efficient, professional, and at best, can minimize overhead costs. An in-depth research about the outsourcing vendor’s capabilities and an open communication between mutual parties can make it easier for both to target the same goals.

  • The first step in an outsourcing strategy is to achieve cost savings, typically through process efficiencies.