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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