Every business needs a website, and there are constantly not enough programmers. This has led to interesting changes and trends in the web development outsourcing market, which we’re going to analyze in this article.

If you’re not a programmer, or you don’t have programmers on your team, then you have to outsource the production of your software.

Many businesses even let go of their in-house teams in favor of outsourcing companies or freelancers. Such a transition can be hard at first, but ultimately it forces entrepreneurs to simplify and streamline their workflow and business processes.

Those that succeed at outsourcing and managing remote work have more resources to specialize on their products and run like lean, mean, entrepreneurship machines.

In this piece, we’ll analyze how outsourcing has changed over time, why it gives businesses a competitive edge, and how to make the most out of an outsourcing engagement.

The global market for software outsourcing

To put it simply, outsourcing means paying another company to do things instead of doing them by yourself or with your team, or by hiring new people to do them.

Outsourcing makes life easier for entrepreneurs and managers who have the budget to pay for it, as well as the necessary skills to oversee the service provider.

Businesses can outsource a large portion of their processes these days, from accounting, customer service, hiring, invoice management, all the way to building software.

Except for software-first companies, like game studios or software development agencies, a lot of businesses don’t need full-time programmers on their team. Even if they did want to hire, they would have to tap into an extremely tight IT services labor market and later invest significant resources into actually managing the specialists efficiently.

The best developers either work for high-profile tech companies and industry-leading enterprises, or become freelance consultants – or join the ranks of outsourcing companies.

However, although extreme growth in the IT industry continues to be… well, extreme, the outsourcing market is actually getting smaller (you’ll see why in a moment).

How much is the global software outsourcing market worth?

In 2018, the global market for outsourcing was worth $85.6 billion, which is a pretty steep drop from 2016 when it was worth $104.6 billion.

Over half of that market, around $62 billion, was IT outsourcing.

All the while, global spending on IT services reached $993 billion in 2018, and is forecast to grow to $1147 billion by 2021.

So why is the outsourcing market getting smaller? It could be explained by the fact that traditional outsourcing has changed. Businesses far and wide have been adopting cloud solutions to host their data and provide the tech infrastructure they need. It plays a huge part in the modern outsourcing market.

The same goes for Robotic Process Automation. Essentially, it’s the same as outsourcing, but not to a person, but an artificial agent, sometimes quite intelligent.

Cloud and RPA are not ‘traditional’ types of outsourcing, so they might not be included in the outsourcing market statistics. However, they solve almost the same problems for companies as outsourcing does. They free up your time, and provide a reliable solution for a reasonable price.

Who does the outsourcing and to what ends?

In short – the North and South Americas are the largest buyers of remote services. In 2017, according to KPMG, they were responsible for 41.5% of outsourcing deals globally. Europe, Middle East and Africa accounted for 35%, and Asia and Oceania – 23%.

According to a Clutch survey of 529 small business owners, 37% of small businesses are already outsourcing at least one business process. 52% were planning to outsource in 2019. They outsource mainly to be more efficient (24%), and get access to expert knowledge and skills (18%).

When it comes to bigger companies, in Deloitte’s survey of 521 market-leading companies, 93% are already using, or plan to use cloud computing, and 72% are using, or plan to use Robotic Process Automation.

Small companies outsource in order to do things that they don’t have the knowledge or resources to accomplish – like building websites or performing accounting tasks. Large businesses, on the other hand, seem to mostly outsource commoditized processes, like hosting and server management, or repeatable manual processes that robots can do faster.

In other words, small businesses outsource to gain competences and results they can’t generate themselves. The big players outsource to become more flexible and leaner than their competitors.

As you might have noticed, we didn’t mention lower costs – and that’s because…

Outsourcing is no longer about cost reduction

One of the major changes in the outsourcing market is that managers don’t outsource only to cut costs anymore. They see outsourcing as a way to become more flexible, agile, and competitive.

In approaching outsourcing options, low price is no longer the key consideration, so managers are looking at different criteria to find the best providers. A recent Deloitte survey clearly shows this trend:

42% of surveyed managers admit that they should’ve spent more time choosing an outsourcing partner. A lot of them admit that they need to take a more strategic approach to outsourcing in order to transform business processes, rather than just passing them over to someone else.

Companies are clearly becoming aware that outsourcing is a complex way to streamline business, and not a simple tactic to quickly cut costs. Outsourcing has turned into a collaboration that enables businesses to evolve capabilities – speed, flexibility, bleeding-edge technology – that they wouldn’t be able to reach without external support.

Because of that, we can expect the outsourcing market to continue growing, but not in the traditional sense. Instead of expanding outwards and competing on prices, it is more likely to deepen, differentiate, and focus more and more on providing high-quality, innovative, and even disruptive solutions.

In order words, we are likely to see intensifying speciation and increasing divides between –

Different types of outsourcing companies

If you want to outsource, say, the production of your website, there are a lot of options you can take.

The first thing you might consider is hiring a freelancer. With sites like Upwork or Freelancer.com, finding the right person can feel easy. However, the hiring manager needs to carefully manage the freelancer, and take care of the administrative procedures.

Then there is virtual employment or outstaffing. What’s the difference compared to outsourcing? As Talmatic explain in their blog, outstaffing companies essentially take on the hiring process, which means there is virtually no bureaucracy. You pay the outstaffing agency to find the right person, and then you manage that person like they’re a part of your team. It’s one of the most affordable and convenient ways to outsource web development or software development these days.

You can also pay for a software-as-a-service suite (SaaS) that will enable you to easily build your own website without any programming. This option would be the least costly, but it still requires you – or someone on your team – to do some (actually, most) of the work.

Finally, there’s also traditional outsourcing, also called the Managed Services Model. Here you hire an external company to set up a team, make all the technological decisions, and build a website that you have envisioned.

The biggest challenge here is communicating your requirements clearly, in a way that the outsourcing partner knows exactly what to do and how much resources (and hence your money) they can spend on the project.

In the MSM model, a big part of any successful partnership is a solid contract. The most common types of contracts are:

  • Fixed-price – both the price and the requirements for the project are agreed upon from the beginning
  • Time and Materials approach – the requirements are clear but open to changes, and the price is flexible and depends on how much the outsourcing partner spends on building your site
  • Agile – a mix of the above, usually with a stated budget limit, and an open approach to the requirements of the project so that they can be changed during production

In addition to the mode of cooperation, we can also classify outsourcing partners by their location relative to the buyer: onshore – in the same country, nearshore – on the same continent, and offshore – on a different continent.

Finally, we can define traditional and disruptive outsourcing:

Traditional outsourcing is a typical engagement where one company pays another to do something, like building a website. The work is done by human workers and the service doesn’t rely on technology. It enables managers to do things for which they don’t have in-house competences.

Disruptive outsourcing relies on modern technology to provide novel services that aren’t possible with just human workers. This includes SaaS solutions, cloud computing service providers, and robotic process automation. The work isn’t the only thing that is outsourced here, but also things such as the tech infrastructure that the business is built upon.

As you can imagine, when combined with traditional kind disruptive outsourcing enables companies to be even more agile, flexible and efficient.

What about the prices?

As you might have guessed, the cheapest option is SaaS. E.g. in the context of building a website, services like Wix and Squarespace enable you to set up and publish a decently-looking site for a small monthly fee (typically around $10-$30/mo). Not surprisingly, it’s also the most labour-intensive and limited option, which only works if you need a very simple site that will essentially be an online business card.

You can also hire a freelancer, or a virtual employee, to build a bespoke website for your business. Rates for freelance web developers start at around $10/hour, but that’s for the least experienced programmers – seasoned professionals can ask for multiples of that.

Indeed, according to CodeMentor the average market rate is between $60/hour and $80/hour. In addition to that, you will also need to pay for web hosting and manage the entire development process to make sure the finished website meets your requirements.

The time for traditional outsourcing, i.e. the managed services model, comes when your business is more digital-centric – think e-commerce, social media, high-profile blogs, or digital services.

In these cases, you usually don’t just need a website, you need a web application that has much broader capabilities. These are demanding projects, so if you don’t have an experienced in-house team, the second-best option is to work with an outsourcing partner that has significant experience doing similar projects.

All of the above options can be mixed-in with disruptive outsourcing. For example, your website can be built by an external partner, and then hosted on the Amazon cloud.

Things to keep in mind when outsourcing web development

In order to get the most from outsourcing, buyers need to take extra caution to protect their interests and ensure maximum results:

The first thing to do is properly vetting possible outsourcing partners. Ask for references, look at the portfolio, ask an expert if the company looks solid.

Second, don’t forget about clear, precise communication. It’s important that both sides of the engagement are on the same page about all conditions of the agreement in order to avoid problems that come from simple misunderstandings. It’s crucial to set your expectations straight from the start, and clearly communicate them to your business partner. Waiting for them to do the right thing is not a good way to go.

Another point that looks obvious but gets overlooked a lot: when you’re paying someone to build your software, or website, you should have the rights to the finished product. Make sure that it’s in the contract.

***

The software outsourcing market is constantly evolving, and though some statistics might suggest that it’s stalling, the fact is that a big part of outsourcing budgets has moved over to innovative technology services. Companies outsource more than ever, but do it in different ways and for different reasons.

In the future, we might be able to build websites by telling an AI a vague story – but that’s still a long way off; until that time comes, there will be need for professional skills and human judgement.

Pour your heart out