Richard Hoffman is not a fan of software licensing terms. "Every time you are on somebody's proprietary [software], they always try to come back and milk you," he says.
But the president and CEO of Hyundai Information Service in the US, the IT arm of Hyundai Motor America, has found a partial solution to the problem: building his own software offshore.
"We do a lot more customization and writing of small applications than before," Hoffman says.
That gets him out of annoying licensing situations, such as the time a software vendor wanted to change licensing from concurrent users to named seats. Charging for every user, not just those who used the system at any given time, would have raised the automaker's cost by $US3300 a seat. "You are better off just having some Java coders write it and pay them to maintain it offshore," says Hoffman, adding that most of the applications he has built are for non strategic Web services-related processes.
Hyundai's company isn't alone. A few other maverick IT shops are bucking the buy trend and building their own software. Their reasons include the perennial problem of off-the-shelf software not meeting their needs, but there's also a new level of annoyance with licensing issues and a new confidence in offshore development.
Off the grid
Acxiom, a data integration provider, runs its 6000-node grid (two processors per node) on software built by its in-house development team.
Acxiom takes a hybrid approach to software, says Ken Archer, product leader for customer information infrastructure. It uses commercial packages wherever it can but builds its own when it makes more sense to do so.
For example, when Acxiom began building out its grid in 1999, few mature software packages were available. Moreover, many application providers license software in ways that are ill adapted for grid environments. For instance, a licence based on the number of CPUs used to run an application isn't suited for a grid environment that can scale across hundreds or thousands of processors, Archer says.
Unlike Hyundai Information Service, Acxiom doesn't use offshore development, because it has in-house expertise, Archer says. The company is also helped by its regional location, where prevailing wages for IT skills are typically below those in major metropolitan markets.
For other CIOs, low-cost offshore development may be encouraging another look at the build option, particularly if they need to customize a packaged product, says Andrew Bartels, an analyst at Forrester Research. It may be less expensive to build an application and pay maintenance fees to an offshore developer than it is to buy a licenCe as well as service and support, he says.
"The build argument is becoming more viable because people are feeling very comfortable with the maturity of offshore operations," adds Atul Vashistha, CEO of consulting firm NeoIT.com.
Recognizing that interest in custom development is growing, Indian firms have made it more attractive, says Lance Travis, an analyst at AMR Research. Indian offshore providers have ready-made components that can be the foundation of an application in a particular industry, he says.
For instance, Patni Computer Systems, which does custom development for financial services and other vertical markets, has created templates that provide the underlying code infrastructure. It augments that infrastructure with third-party vendor products, such as those made by content management firm FileNet, according to John Pierce, vice president of insurance industry solutions at Mumbai, India-based Patni.
Still a niche
Bartels says homegrown systems will account for as much as one-third of US businesses' total software spending this year, which Forrester estimates will be about $US221 billion. Nevertheless, he says, the long-term shift to off-the-shelf applications continues.
Offshore vendors agree. "I don't think the fundamentals of build vs buy have changed," says Marc Hebert, executive vice president of marketing at Sierra Atlantic, a provider of offshore services. "I think that was an irreversible shift," he says, because the selection of packaged software that's available these days is "much richer" than it used to be.
"The trend will be to leverage as much commercial software as possible, because the focus is on putting the pieces together to solve a problem," Hebert says.
Acxiom's Archer agrees. He sees his in-house development as a stopgap measure necessary because commercial providers don't offer the functionality and flexibility he needs. But Archer says that when packaged software is available that can meet his company's requirements, that's what he'll use, because he would rather focus his IT staff on customer needs than in-house development.
A third way
Nancy Ritter has taken a third approach to the buy-or-build question.
The vice president of information technology at Crowley Maritime, is using on-demand software hosted by GT Nexus. The software powers transportation and logistics systems to connect suppliers and customers with her company.
Ritter says she likes the flexibility of the software-as-service model. But while Ritter doesn't build applications, except in limited instances, she says offshore development has already reduced the cost of the software she buys.
For example, when one transportation software vendor began using less-expensive offshore maintenance and support, Ritter demanded contract terms that enabled her to take advantage of the vendor's reduced costs. The vendor agreed to cut its maintenance charges by $US25,000 per year for the next four years to reflect that savings, she says.