Has Cloud Fundamentally Changed the Build v.s. Buy Debate Forever?
With Legacy software, what you bought stayed pretty much the same until you upgraded- assuming it worked at all :p But with SaaS the provider is continually innovating, so the software doesn't actually stay the same- it continually improves. And if it doesn't work, you leave, having only spent the monthly payments in the interim, not the capex like before.
When you consider the classic "build v.s. buy" argument you would think that the science might be straightforward. But anyone involved with the process knows the decision is not:
Decades of trial, error, and egghead analysis have yielded a consensus conclusion: Buy when you need to automate commodity business processes; build when you’re dealing with the core processes that differentiate your company.
But I think the build v.s. buy argument has changed forever....
Let's put it into the context of billing software- how many people continually innovate on their billing engine? Not many I think, there are differentiating features to be getting out the door to beat the competition! And certainly not with as many bright minds as a SaaS vendor does. When the vendor releases a new version, the API increments and the customer get's to implement the new features at their leisure, ensuring backwards compatibility.
Recently, I had discussed this with Dan Burkhart, President of Recurly at HostingCon in Austin, Texas. Dan put's this down to a sort of Engineers optimism- the belief that they can solve anything.
Most companies generally underestimate the level of effort required to build their own internal billing management system- most software developers are problem solvers by nature and they think Gosh I can do this, I've either done something similar or I know I have the chops to get it done and what tends to be underestimated is the level of effort required to maintain, to own and manage internal billing in an ongoing fashion. We've got a lot of companies who actually built this in house and they come to Recurly and say Gee, we've built this in house and we've got 3 to 4 FTE's against it and so you do the math.... call it $150k a head- that's a significant investment. So the build path ends up typically being much more expensive than the buy path.
The question they should be asking is- are they solving the right problems? Problems that will differentiate themselves from the competition.
Dan and I also talked about their competition- Chargify- they're both playing the innovation game right now and competing for customers. It was by chance that I ran into Jonathan Kay from Grasshopper / Chargify later that week when I was visiting Mimecast's Boston office. This is one of the brilliant features of the SaaS business- competition is driving innovation- delivering better services (software) to customers.
I'm incredibly proud to be part of this IT revolution- a revolution in which Customers are in the driving seat and are winning.
I think the Cloud, and SaaS in particular has changed the build v.s. buy debate forever.