In the age of cloud, do CIOs still need to use software houses?

In the first three months of 2021, the global cloud services market hit over $42 billion, with Amazon earning one in three of those dollars; Gartner sees worldwide end-user spending on public cloud services growing 23% in 2021 to total $332.3 billion, and 77% of organisations recently contacted by a vendor say they are using public cloud to some extent now.

Clearly, a lot of enterprise IT happens in the cloud now. And while a lot of all this is cloud-delivered infrastructure and management, and only a proportion of it is applications delivered over cloud (Software-as-a-Service, SaaS), the question arises, then, that when ‘everyone’ consumes their IT as SaaS, do we still need companies that ‘just do’ software development?

The logic seems pretty convincingly against it. Companies, we’re told, don’t want to carry the costs of big internal IT teams any more (recruitment, training, salaries). With no IT team, there is no call for in-house, bespoke software development, either; enterprises want applications that somebody else builds and looks after. There’s also the very reason that SaaS pioneer, Salesforce, had its famous ‘No Software!’ slogan at the dawn of all this; buying packages for on-prem use means installation, often debugging, patching, upgrading, but who wants all that hassle these days? It’s so much better/easier/more convenient to source a market-leader solution from the cloud that does 99% of all you need which you can turn on or off as you wish.

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Presumably, there might still be some small need for ultra-niche or specific customisation; an external expert, consultancy or independent software vendor (ISV) might well build something absolutely beautiful for them, but how is it then maintained?

All I know is this: we get approached all the time for doing ‘traditional’, pre-cloud software engineering and development, by many, many corporate IT departments. This suggests to me that even though SaaS is huge, the need for independent outside coding help has not gone away. And the question that arises there is, why do they keep on contacting us? What is SaaS not giving them?

‘For 20 years we have been building enterprise software systems used by a single client that deliver what they asked for — competitive advantage’

Don’t get me wrong; cloud is absolutely a factor in today’s enterprise information technology ecosystem. Indeed, nine times out of ten, our work on writing/building, maintaining or extending an internal IT system delivers a solution that almost certainly will be hosted in the cloud. But it won’t be purchased from it. There’s a massive push everywhere to host everything on cloud technology, but cloud does not mean you need to get everything from it (and even in 2021, I would also point out that that term ‘cloud’ still means different things to different people).

And for sure, cloud isn’t where you go for anything but a very, very vanilla package for heartland systems like finance or HR. How do I know this? Because for over 20 years, during all of the cloud hype and the meteoric rise to dominance of the approach, we have been building enterprise systems used by a single client that deliver what they asked for — competitive advantage. They tell us that they don’t feel they can get competitive advantage from using the same solution everyone else uses; a package might do 80% of what they need, but does not contain the final 20%.

Because of course, that final 20% is the most important element. It’s what lets a company do things that no-one else can. The software they paid us to write might be hosted in the cloud, but it’s still their bespoke system, and is unique to them. Nine times out of 10, IT and business people approach us to do that because they believe their specific requirements are different. In one case, a brand that’s an industry leader has come back to us three times for that reason—uniqueness and specificity.

Like it or not, SaaS is by definition the lowest common denominator approach to a business process; you have to offer a vanilla set of functions to the market as a whole in order to get the economies of scale you wanted by building it as SaaS in the first place.

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UK software development industry: alive and well

So you may want something bespoke, but what about that support ‘problem’? This doesn’t seem to be for my customers. They either just take it away forever, which is fine, or they pay us a fee to maintain it and ensure it continues to work now and into the future. If they want changes after that, they simply come back to us and ask us to make them.

Indeed, independent software development is absolutely alive and well, especially in industries like pharma. Figures suggest that the UK software development industry grew 5.3% per year on average between 2016 and 2021, incidentally, and is now around £34.4bn, and might be as high as $400bn globally. Not bad for yesterday’s market?

A final objection I sometimes hear is that people may still need third parties to cut code for them, but they’ll get it done in Poland (nearshoring) or India (offshoring), as it’s so much cheaper.

Well, that’s all well and good if you’re prepared to manage them to do it. But the reality is, you can’t just pick up the phone and call a software company abroad and tell them what you want and then expect to get what you think you want; there’s a layer of interpretation in there that completely gets lost. We have clients that have gone offshore, and it’s gone pear-shaped, and it’s then taken several years to get right. Yes, x-shoring can be initially cheaper, but it’s not when it takes you three years as opposed to us doing it in a month or so. You need to have a software development partner that understands your business as well as you do, or even better than you do, and so far, remote development just hasn’t delivered that.

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‘Most enterprise workloads have not yet transitioned to the cloud’

Software development, then, does still matter in the age of cloud. The analysts agree; the same group that found that initial $42 billion figure, Canalys, also note that, “Though 2020 saw large-scale cloud infrastructure spending, most enterprise workloads have not yet transitioned to the cloud.”

Every time we meet a new client, we tell them to get the standard applications by SaaS if they can — but for the real competitive differentiator stuff, the things you simply can’t get from the market, asking an expert software house to work with you to crack your problem or seize your opportunity remains your best option.

Written by James Percy, founder and managing director of Verasseti

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