With all the ready-to-rent, easy-peasy SaaS software products on the market, the conventional wisdom has become that you’d be nuts to build your own software. For one thing, companies can sign up and pay for SaaS out of operating, not capital budgets, which has accounting advantages. For another — hey, it’s easy, and face it, software developers don’t come cheap.
But a couple interesting cases cropped up this week, with two big companies bringing more software development and related work back in-house. First, CIO Journal reported (registration required) that Facebook is building its own sales software internally, according to Facebook CIO Tim Campos. It will tie into Facebook’s existing Salesforce.com account, but Facebook will run the system.
And on Thursday, The Wall Street Journal reported (registration required) that Delta Airlines is buying data and intellectual property from Travelport LP so that it can control and manage — and presumably enhance and modify as needed — its own operational and reservations system, according to CEO Richard Anderson.
The argument for buying
At MIT’s CIO Symposium this week, ThomasNet CEO Mark Holst-Knudsen said the biggest mistake of his career was when he approved the building of some software when the company should have bought it. His takeaway, as reported earlier:
“‘You shouldn’t build anything that’s available off the shelf that’s not the source of competitive advantage,’ he noted. For ThomasNet, that advantage lies in its system for managing product and CAD information, which enables it to build product catalogs with specifications that can then be transmitted to distributors with different ERP requirements.”
It’s the definition of “core competitive advantage” that gives big companies wiggle room here, and some will doubtless hear the siren call of vendors who say it’s time for big companies to re-invent themselves through bold new software products.
No one could argue that Facebook’s core expertise lies in developing massively scaled infrastructure and the software that runs atop them, but the decision still flies in the face of convention that holds companies should buy what they can and reserve their BYO chops for the most core, valuable assets. As for Delta, I guess the reservations system is the epitome of core. But again, hiring on software expertise is a very expensive proposition in this day and age.
ROI is a tricky calculation
When it comes to Return on Investment (ROI) calculations on buy versus build, anything can happen. For one thing, all that SaaS software isn’t exactly cheap — and most SaaS vendors require at least a one-year buy in (and push for three years). For 100 users, Salesforce.com’s Enterprise edition lists for $150,000 per year. Many SaaS purchases are eerily reminiscent of the old enterprise software sales cycle that the SaaS players said they wanted to disrupt.
The IT executive of a large Bay Area company, who requested anonymity because he is not authorized to speak on buying decisions, told me his company did the math and concluded that creating its own cloud infrastructure out of open-source software was an attractive way to minimize VMware licensing costs. And it gives the company a way to build exactly what it needs without being constrained by vendor strictures.
When it comes to applications, he added, it’s not always a given that off-the-shelf packaged software is less pricey than building your own, but that has to be considered on a case-by-case basis.
The siren call of new and shiny apps
The ability to build and field truly new applications is a benefit that Pivotal CEO Paul Maritz has been hammering on for the last year. He paints Pivotal’s big data platform as the foundation for next-generation applications that could open up new revenue streams for companies. Speaking at Structure Data in March, he said rather ominously that for some companies in hyper-competitive markets, there is no option.
“Some players…have clear enough line of sight to competitive opportunities that they’re willing to build afresh, leave IT legacy behind and build a new platform,” he said. “There’s nothing like the gallows to focus the mind.”