November 04, 2009 by Stan Lepeak
One of the functional outsourcing areas we reviewed in the most
recent global EquaTerra Pulse survey was the application
development and maintenance (ADM) space. ADM demand, at least
on the application development side of things, has been hit hard by
the economic downturn of the past 18 months. Buyers typically
view new application development efforts as more discretionary
(often rightly so) and are more likely to cancel or delay them when
budgets are tight. ADM efforts are often delivered via
shorter term contracts or through the use of contract labor pools,
making them easier to curtail than longer term and more formalized
true outsourcing efforts. The maintenance side of ADM holds
up better because it is harder to cut back on supporting of
existing applications than it is to pull back on the development of
new ones.
There are others change afoot in the ADM market, however, that
will impact the level and nature of buyers' longer term
demand. The preference for commercial software applications
over custom code, a long running trend, continues to grow and is
reinforced as commercial apps continue to become more configurable
and app vendors target more specialized application areas that in
the past were out of scope. The growth and maturation of
software as a service (SaaS), both as a software delivery and new
economic model for point and enterprise applications, further
erodes the traditional ADM model.
These are all good things for buyers but create challenges as
well as opportunities for traditional players in the ADM space,
especially tier two and below Indian providers. The ability
to provide cheaper and often equally or better skilled software
development resources proved a boon for the Indian IT services
market. From the buyers perspective, however, configurable
semi-off-the-shelf software designed to support specific business
processes, deployed rapidly, and priced in a rental model, is an
evolutionary step up from any legacy custom software development
effort.
There is no reason why legacy ADM providers cannot capitalize on
SaaS opportunities. Developing compelling SaaS apps, however,
requires much more than good ADM skills. It requires an
understanding of key business process and vertical industry
requirements of the applications being developed, the means to to
support an annuity pricing model, and the ability to provide hosted
support and related services above and beyond those offered in
traditional application maintenance efforts.
Custom ADM will never "go away" but making a good living
providing ADM services will increasingly require a complementary
and quality SaaS story and capabilities. Read more on this
topic at the EquaTerra blog.
Stan Lepeak
Managing Director, EquaTerra & EquaSiis Global Research