Offshore developers and open source turn the tide to favour tailor-made applications

Open source, new tools and technologies, and offshoring make building, rather than buying, an application an increasingly viable...

Open source, new tools and technologies, and offshoring make building, rather than buying, an application an increasingly viable option.

Five years ago, it seemed as if the debate about whether to build or buy applications was over, with the forces for buying having won the day. Today, conventional wisdom states that the entire market for packaged applications will consolidate to a few mainstream suppliers, such as SAP or Oracle.

This is an over-simplistic and misguided view. There are many markets and submarkets where the option to build is prevalent. This does not mean that companies should consider building a word processor or database. Nor does it mean that companies below a certain size should only consider building their own software. Rather it means that the build-versus-buy pendulum has swung back toward the middle of two extremes.

Building applications is an option that never really stopped. Nearly two-thirds of all software capital spending is used either to customise existing applications or to build new ones. Open source, offshore development and web services are bringing build back as a mainstream option.

The main consideration with open source is how fast it will take off. Smart users are looking at how far and fast they can take open source. Smart buyers are looking at how to use it to their benefit (as well as to the detriment of competition). But it is early days and by no means a simple option. Google is a good example of a smart buyer. It claims to have the world's largest running Linux cluster, with more than 10,000 servers.

Meanwhile, Europe is not leaping to adopt Linux as its primary operating system, although a recent AMR Research survey revealed some pockets of interest. Microsoft dominates the European OS environment, but Linux is making inroads, particularly in Germany. The Microsoft Windows environment clearly dominates the SME segment. Across Europe, almost 75% of users sampled indicated that their primary OS was Windows, followed by the IBM mainframe environment (10%) and Linux (9%).

Germany is the test-bed for Linux in Europe and the adoption rates there are among the highest observed in AMR's global study - even higher than Brazil (11%). Possible explanations include SAP's success with its packaged product offering for the SME market, which incorporates SAP functionality on the open source MAXdb database, and the presence of Linux provider SuSE in Germany may account for more widespread adoption domesticly.

The next leg of the trend towards build is offshore development. One of the main rationales for not wanting to build applications is the expense and amount of time it takes. The ability to significantly cut the labour cost of coding begins to remove one of the largest impediments. But it does not remove the costs and burden of long-term support.

Development labour costs can be more than halved by moving development offshore. Internal IBM figures leaked to the Wall Street Journal in January showed that the internal billing rate for a US programmer with three to five years' experience was $56 (£30) an hour, compared with $12.50 for an equivalent coder in China.

ERP and supply chain supplier Infor has just 40 people in India. It is using them to assist in its ERP consolidation activities. Not only does it gain 2:1 savings on cost (an Indian programmer can earn about $30,000 a year), the company has found that the quality of the staff in India is very high.

When offshore work is combined with open source, as offshore provider Aztec Software is doing, the opportunity to cut costs and rapidly deploy applications increases dramatically. Offshore firms are also pushing into the application space with frameworks in a given vertical market that are about 50% complete and then customised. Think Andersen's Mac-Pac, but with a fixed price contract.

At the same time, these companies are also looking to support these applications - for a price. With most suppliers now utilising offshore development resources, India-based developers are building knowledge of most solutions sold on the market today. It is estimated that Oracle, IBM and Sun have a combined total of 25,000 developers in India. Wipro, an India-headquartered software and services company, is estimated to employ another 30,000.

Finally, if these factors were not enough, the introduction of new tools and extension of old, using web services technology, promises to make customisation even easier: 4GL Tools such as Progress and Lansa are still used extensively by a large number of independent software suppliers and service providers to enhance and extend their solutions.

In addition, an array of new tools has been introduced that is speeding development times. They range from delivering web-service-based integration capabilities to composite application building tools that will assemble applications from both customised and widely-available components. They face some significant challenges before the reality matches their hype, but fast and easy-to-deploy applications are closer than ever.

At the very least web services will make application creation and integration between business processes easier and faster than before, though widespread adoption is unlikely to be as soon as many suppliers claim.

Think about what you could do if you combined an open source technology base with inexpensive, high-quality offshore labour that is using highly productive tools. IBM recently said it will be using an Indian developer to build J2EE banking applications and that it will be building custom, industry-oriented software for industry-specific middleware.

This does not mean that you will throw out your SAP, PeopleSoft or Oracle applications to build your own ERP system, but it does mean that there are some new alternatives for buyers as they look to craft technology products for their business - and it does challenge suppliers to increase their own development, or at least to partner well.

Nigel Montgomery is director, European research, at AMRResearch


AMR's recommendations   

  • Building applications is a real option. Application packages can deliver "overkill" for the functionality required.  
  • Revisit your application decision tree with an option to build applications. It was never a no-brainer to buy rather than build applications. It is even less so now.  
  • Revisit old assumptions about the economies of building applications. Do not forget to include total cost of ownership analysis as well as support costs.  
  • Investigate open source possibilities. While open source applications are in their infancy, the surrounding infrastructure and technology are coming up the maturity curve quickly.  
  • Look for opportunities to build uncommon applications around this technology base as well as to use open source applications for tactical, non-critical business processes.

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