In-House vs. Partners: No Holds Barred

by Sandy Hildebrandt
February 2005

Should you use a partner for Web services? Or do it in-house? What's the difference? Find out as we watch these two slap on boxing gloves and let it fly in the ring.

Over the last couple of years, I have heard and read a lot about what the e-business landscape will look like over the next decade. Most people are saying the same thing: "There will soon be no such thing as an Internet business." In other words, every business will someday have a presence on the Web as strong as their non-Web, traditional presence, if they don't already.

As I watch the Web become more and more an integral part of everyday life, for consumers and businesses alike, my opinion of this view has changed. Although it's very clear now that the Internet must be a part of any successful business, my overall interpretation of how businesses adopt Web technologies has changed a little.

To Outsource or Not To Outsource?

Let's look at a few examples first. Take customer care departments. They've been an essential part of business for a long time. It's not a new technology, although the phones and tracking systems continue to evolve and improve. Every company needs this business component. How many companies do you know who outsource it? Many do, not surprisingly.

What about payroll and HR services? Why are there still so many staffing agencies out there? Surely hiring and firing have been around for ages. I know, I know… the reasons for outsourcing these services differ, and comparing a customer care department with an HR department or an IT department may not be apples and apples. But that's not the point. While the reasons for outsourcing will vary, the benefit of doing so doesn't change.

So this debate begs questions like: Is it really the smartest thing to bring an entire IT staff and equipment in-house? IT groups are increasingly being outsourced to third parties, some of which even reside in other countries. Who would have imagined that, years ago?

“… third-party vendors provide enormous cost savings and other benefits in many cases.”

As part of a Web company that provides third-party products and services, I'll admit I am biased. But objectively, third-party vendors provide enormous cost savings and other benefits in many cases. So stay with me as I discuss a few of them.

I've seen many companies do many things internally that were outside their core specialty and reason for being in business. Sometimes things go well and the decision isn't a bad one. Often, however, the result is a few months or years of pain and suffering, ultimately concluding in an outsourced relationship.

In most cases, no arrangement can beat a good, solid partner to work with who has the expertise and specialized technology in a business's area of need. If the price of that relationship is reasonably affordable, it will nearly always be kinder to the bottom line and the level of stress than doing the same project in-house.

In-House vs. Partners

What does a 'partner' really mean anyway? "An associate who works with others toward a common goal"…"One that is united or associated with another or others in an activity or a sphere of common interest". (dictionary.com) More on this in a bit … but first, let's make clear that each side should watch the low-blows and have a good clean fight. Slap your gloves together, return to your corners, and when you hear the bell, come out fighting!

Every company has a sweet spot. Here, we refer to that sweet spot as a company's core business. It's why you got started, the entire reason you are in business. Simply put, it's your specialty. Naturally, it makes sense to focus on your core strengths, and use others to do what they are good at in order to complete your business. Now, you might be thinking to yourself, well yeah that does make sense but it also makes sense to broaden the scope of what we do -- keep complete control over everything related to the business. My response to that is, yes, absolutely, as long as it doesn't distract from your core business, and/or cost you too many dollars to make good business sense. I believe that last point is the vital driving force behind any good decision a company makes. Yes, there are other reasons, which I'll review here, but ultimately they all tie back to "what's the cost and does it make sense with what we do?"

(Ding, Ding)

Using web services as the sample subject, the most important issue you'll need to look very closely at when deciding whether to do your web services in-house or find a partner is the actual, ongoing cost you will add in both scenarios. With each, these costs may include a one-time shot to the pocket initially, but long-term cost is usually the more critical component.

Most of you reading this article have companies whose sweet spot lies in areas other than web services. That being said, some hires will likely need to be made if choosing the in-house option. These are long-term hires, since they will need to develop the application as well as maintain it and adapt it for the life of the application.

Who needs to be hired? This will vary according to the project, but will likely include at least one or more of the following: programmers, designers, IT staff, project manager, customer support reps, and possibly others. Of course, this doesn't include the hardware and equipment to host and run the application(s). (A nice flurry from Partner, who landed a couple jabs and a hook.)

“…you will benefit instantly from years of R&D and investment…and valuable suggestions to the developing product from other businesses like yours.”

I can identify two debatable benefits from doing web projects in-house. One, you gain a sense of satisfaction that you are helping the economy by hiring so many folks, and two, you don't have to share any of the revenue with a partner. Hopefully the revenues get to a point that you are making more money than what you invested and continually invest into the project. (Both sides have come out swinging!)

A couple other issues must be evaluated when straying too far from your core business. A partner has likely spent years developing their technology (of course, if they strayed too far from their core specialty, their technology may not be very good). This means you will benefit instantly from years of R&D and investment, mistakes that were made and corrected, and valuable suggestions to the developing product from other businesses like yours. There is no huge learning curve with a partner. It's as though a flashlight got flipped on and you can see your path versus groping in the dark trying to figure your way to the desired result. (That was a pretty good shot to the midsection… looks like it may have hurt In-house!)

Here are a few more points of interest when using a Partner, since they already have the software developed, the turn around time will be much faster, plus they will usually support the application for no additional fee. You may need a custom add-in here or there that fits your business, but the design aspect or 'paint job' will be the primary time requirement for the project. Add the content specific to your business and you're off and running. In other words, turn-around time to launch of the product using a partner is light years faster.

In-house does have another advantage that should be thrown in here. Many companies are adamant about having full control of all aspects related to their business. They want no involvement whatsoever from an outside party, regardless of cost savings or other benefits. Where this is true, a partner simply cannot compete. However, it should also be established here that the right partner will provide a large extent of daily control by enabling access and tools to manage and administer the application. (In-house threw a right hook that came out of nowhere! Apparently, it was just a glancing blow and did little damage.)

One of the most comforting benefits of a Partnership is this -- the good ones are very interested in seeing you succeed, just as the definitions earlier, alluded to. They care about your business because they want to be your Partner for the life of your business. If you aren't happy, they aren't either because their success depends on yours. They are motivated to see their product become integral to the success of your business. (Partner rebounded quickly from that last shot and just delivered a haymaker! In-house is wobbling, and the referee steps in…)

(Ding, Ding)

We've reached the end of the bout. Upon review of this match-up, we saw each corner get in some jabs, but the Partner landed more hooks, uppercuts, and a haymaker to end the fight!

Final Decision

Again, it's clear that the Internet is here to stay and eventually every company will have a strong Web presence to compliment their traditional physical presence. Most do already. The real question is how each business establishes their Web presence in the most cost-effective and hassle-free manner possible. If the Web isn't your sweet spot currently, you may benefit tremendously by finding the right partner that specializes in the technology you need. Then you can focus effectively on what you are good at. In more cases than not, it seems to be the best approach.