All growing organizations inevitably face the same choice: should we purchase an off-the-shelf product or order software development tailored to our unique needs? Although it sounds like a technical decision, it is, in fact, a strategic one since the choice will influence aspects such  as budgeting, timeline, competitive advantages, and even internal collaboration.

In this article, we will describe each of the two approaches, discuss their pros and cons and share some recommendations on how to choose between off-the-shelf software and custom software development.

What Is Off-the-Shelf Software?

Off-the-shelf software (often abbreviated as COTS) refers to the commercial software designed for the mass market and available to all customers right after purchase or subscription. Some examples of such applications are Microsoft 365, Salesforce, QuickBooks, Shopify, Slack, and so on. Such products are easy to integrate and configure, which typically allows the customer to start using the software in a matter of days.

Since the vendor shares the costs of software development with all customers, the cost of each user is relatively small, while the product itself gets benefits from being constantly tested and improved by thousands of people.

What Is Custom Software Development?

Custom software is the application built specially for one customer and aimed at solving his particular problem. This type of software may take any form, starting from a custom integration layer between other systems and ending with the whole platform or a web/mobile application available to the end customer.

Such kind of software development may be performed either by the customer himself or his software development partner, depending on the situation.

Off-the-Shelf Software: Advantages and Disadvantages

Where it shines - Advantages

 Speed. You may get up and running in a matter of days or, at most, weeks.

 Low costs. No significant expenses related to development are necessary, except for the purchase fee.

 Proven and reliability. Being used by thousands or even millions of people, the product is already debugged.

 Continuous vendor support and updates. Security patches, new features and documentation come as part of the package.

 Existence of rich ecosystem with multiple training, consulting services, and so on.

Where it struggles - Disadvantages

 One-size-fits-all solution. Typically, you have to change your process to fit the software, rather than vice versa.

 Feature bloat. You may spend your budget on capabilities that you would never use.

 Lack of competitive advantage. Since the software is available to everyone, the same product could be purchased by your competitors.

 Vendor Dependence. If the vendor changes the price, removes some capabilities, or discontinues the product altogether, you have no control over that.

 Integration problems. Connecting the software with other systems may be difficult.

 Hidden long-term costs. With per-user subscription fee, the cost keeps increasing along with the number of users.

Custom Software: Strengths and Limits

Where it shines - Advantages

 Perfect fit. The application perfectly suits your process without any adjustments.

 Competitive advantage. Unique capability of your application (proprietary pricing engine, customer experience) is hardly available to your competitors.

 Scalability on your own terms. You define how the system will be scaled, what connections it will be made with, etc.

 Complete ownership and control. The road map of the software, data stored in the system, intellectual property belong to you.

 Smooth integration with existing systems. It can be designed from day one to work with your existing systems.

 Improved long-term economics. Without per-user fees, custom software is cheaper than off-the-shelf products with big user base.

Where it struggles - Disadvantages

 Significant upfront cost. Significant financial investment in design, development, and testing is required.

 Long deployment period. Depending on the project, it is going to take months to deploy.

 Ongoing Maintenance. You have to care about bugs fixing, security, and infrastructure on your own.

 Project and delivery risks due to unclear requirements, bad scope definition, or inappropriate software development partner.

 Skills requirements. You need qualified developers either within your company or provided by a software development partner.

Side-by-Side Comparison

The Real Cost Question

While comparing the $50-per-month subscription for an off-the-shelf product with a six-figure cost of software development may lead you to the conclusion that buying is cheaper than building, it would be too simplistic. The proper way of comparison is Total Cost of Ownership (TCO) over 3-5 years period.

For off-the-shelf products, besides the subscription fees, it is necessary to consider customization, integration costs, manual workarounds, learning curve, and so on. For custom software development projects, there is the cost of design, development, maintenance, testing, security, hosting, and so on.

In general, small teams with commodity requirements tend to win with off-the-shelf products, while larger companies with more complex processes prefer to build their own solutions. For latter, the custom software is cost-efficient both due to lower costs and higher productivity.

When Off-the-Shelf Is the Smarter Choice

The requirement is typical and easy to describe (accounting, communication, email, payroll, etc.)

 You need a working solution right now.

 You do not have enough budget for custom software and the process is not a competitive advantage.

 There is enough mature, high-quality software available on the market.

 You do not have enough resources to manage the project.

When Custom Development Is Worth It

 The process in question is a part of the competitive advantage (proprietary logistics, underwriting, marketplace logic, etc.)

 Existing tools require expensive workarounds or cannot be integrated with your crucial systems.

 You have some compliance, security, or data-handling issues.

 You expect to grow rapidly, where per-user licensing becomes prohibitive.

 You need to productize and sell this software to the third parties.

 You have already outgrown a bunch of off-the-shelf solutions connected by spreadsheets and manual workarounds.

The Middle Path: Hybrid Approaches

This is rarely an all-or-nothing choice. Many successful companies combine both:

 Purchasing basic software and development of a differentiator. You may use off-the-shelf software for such purposes as HR, accounting, and communication and invest in custom development where you gain competitive advantage.

 Customization of a platform. With low-code platforms and salable products such as Salesforce or Odoo, you can tune the existing solution rather than develop everything from scratch.

 Building integrations. Sometimes custom integration layer and middleware between off-the-shelf tools is all you need.

 Deployment of the off-the-shelf software and migration to custom. First, you may try the existing commercial software, see how the process works and, then, move to the custom software.

A Practical Decision Framework

Here are some questions that should be answered before making the final choice:

1. Is it a commodity or core function? If it is core function, it is worth considering building. Otherwise, off-the-shelf software is the way to go.
2. How well does the off-the-shelf solution cover your needs? If there is already some product covering 80%-90% of your needs, purchasing is the best choice. Otherwise, development becomes more reasonable.
3. What is the TCO for next 3-5 years for both options? Carefully compare off-the-shelf and custom development solutions and take all costs into account.
4. How fast do we need the solution? High demands regarding the project timeline force the choice in favor of off-the-shelf software.
5. What risks of vendor lock-in do we have? Consider the issue of data portability and what happens if the vendor changes the pricing policy.
6. Do we have enough resources to manage the development? If not, you should be prepared to find a competent software development partner.
7. What is the expected growth rate? The larger growth, the more important becomes ownership of the platform.

How to Make Custom Software Development Successful

 If you decide to go with custom development, here are some practices that will help to reduce the risks significantly:

 Define the problem to solve, not the long list of features.

 Start with minimum viable product first and evolve the product according to the usage.

 Find the right software development partner with deep domain expertise.

 Invest in documentation, tests, and security from the very beginning.

 Allocate budget for maintenance which typically takes considerable part of the cost of development.

Conclusion

There is no universal solution for everyone. Off-the-shelf software has its strengths in the issues of speed, cost, and simplicity. On the other hand, custom software has some competitive advantages. The smartest software companies always combine them: purchasing solutions for commoditized functions and building solutions for core competencies.

In order to make the right choice, you should determine the requirements to the application, estimate the total cost of ownership for both options, and define whether it is a core function or a commodity.

About Orisys Infotech: A custom software development company in India providing IT solutions towards Application Development, Software Product Development, Mobile App Development, Web Development, API Integration, Software Support & Maintenance, Digital Marketing Solutions to its clients throughout the world.

Also Read: In-House vs Outsourced Software Development : How to Choose the Right Model