In this fast-paced digital age, people are more connected to devices than ever before. No matter what kind of device – smartphone, tablet, or laptop – we got used to spending hours every day with the plethora of applications available in stores; they’re all deeply integrated into our lives. That’s why the number of existing web and mobile applications is increasingly growing, and the utility and quality of these apps are only getting better.
Keeping up with the competition and following the latest industry trends, many companies consider investing in apps that could raise brand awareness, increase customer loyalty, or boost sales. However, not every company has the specialized skills or sufficient resources to handle software development itself. In such situations, there are two common possible solutions: to hire developers in-house and undertake the development process or outsource app development to an experienced third-party vendor.
According to Technavio’s research, the custom app development services market, including the application development outsourcing industry, will experience a growth of $53.7 billion at a compound annual growth rate of 9.4% during the five-year period 2024-2029.
Deloitte’s latest Global Outsourcing Survey 2024 states that 72% of executive respondents indicated that their companies outsource their software and app development functions. Furthermore, 77% of organizations outsource IT infrastructure, while 77% of executives use third-party vendors to support their cybersecurity functions. 41% of responders confirmed they were looking to bump up their outsourcing budgets, enabling them to focus on their core functions and offerings instead.
But, of course, not every outsourced software development project has a happy ending. Back in the year 2000, Dun & Bradstreet released a “Barometer of Global Outsourcing”, which claimed that 20%-25% of all the relationships between clients and outsourcing software development companies would fail within two years. Those numbers have significantly reduced over the past two decades – the market has undergone massive development, and the trust in application development outsourcing has greatly increased. That said, some companies are still wary of the idea: entrusting their precious applications to some strangers doesn’t sound too exciting, after all.
Looking at all these trends combined, it’s safe to say that the demand for application development is likely to keep growing with time. However, before you make any big decisions, let’s take you through an in-depth analysis of the pros and cons of outsourcing software development so you can figure out what would work best for you.
What is software development outsourcing?
Software development outsourcing is when a business approaches a third party to build their software or app for them instead of hiring a team of software engineers or app developers in-house.
Why do companies outsource software development?
One of the most common reasons behind software development outsourcing is a lack of experts. For example, suppose the project you are working on keeps growing, but all your team members are fully booked. You will need to bring on additional people to complete it. Or maybe you’re starting a new project that happens to require more skilled professionals than you currently have. Hiring a single developer can take up to 4 months – sometimes the wait is just too long. In cases like that, application development outsourcing is a much faster and more convenient option.
Another popular reason is the lack of expertise within the company. Perhaps you’re starting a new project on an unfamiliar technology stack; maybe your old project has grown so much that it has become too much for your internal team to handle; maybe your website needs a redesign, but your programmers don’t have the relevant experience to pull it off. If you’re facing similar problems, then outsourcing product development can be a great way to achieve your goals without getting bogged down by risky experiments and amateur mistakes.
The third major reason is a certain type of software or app development not being part of a company’s core set of services. This mainly applies to small businesses since they’re on tighter budgets and, thus, less flexible about expanding their teams. Let’s say your company offers website design, promotion, and advertising services. It would be much more cost-effective for you to outsource app development rather than hire and onboard a team of programmers in-house.
We have a blog article that compares in-house software development and outsourcing. Feel free to give it a look!
Software outsourcing pros and cons
There’s a long list of advantages and disadvantages of outsourcing software development to a third party. Let’s break them down to help you make better business decisions.
11 benefits of outsourcing software development
First up are some of the most worthwhile advantages of software outsourcing that you could enjoy as a business.
1. Time and cost savings
Hiring specialists is expensive. Working with third-party employees will save you the cost of recruiting, arranging a workspace, sick days, vacations, and other full-time benefits or overheads. The only thing you will have to pay for is a fixed number of specific tasks of a well-defined nature.
Plus, every app development project has a time limit. If you hire an in-house development team to work on your app, the project is likely to take no more than a few months; by the end of it all, you’ll have to pay all members of the team, regardless of their actual involvement in the development process. It would also not be okay to hire new people as full-time members and let them go as soon as the project is done, leaving them out of a job.
If you do the recruitment externally, there is no need to spend your resources. You’ll only pay for your application’s development – all the internal problems fall on the third party’s shoulders. It’s also worth mentioning that since the pandemic normalized the culture of remote work, working with third-party developers has become even more cost-effective than hiring an additional in-house developer or engineer.
2. Flexibility in the development process
When you outsource your app development projects, there is no need to train your staff or scour the market for qualified professionals. Outsourcing allows you to quickly find or switch out certain specialists whenever necessary. Such changes can easily lead to conflicts within an internal team; however, they’re not nearly as difficult to deal with in the case of application development outsourcing.
Assembling an in-house dedicated team for an app development project will take about 3 months. This can often lead to delays and stir up customer discontent. Application development outsourcing accelerates the whole process, with many tasks being delegated to other trusted professionals. Contractors are especially useful in seasonal work and project development. Plus, you won’t have to stress over having employees with nothing to do after the project is done.
3. Optimized processes and practices
A significant advantage of most remote development teams is that they incorporate the best practices and methods into their app development process, all the while putting great emphasis on a customer-centric mindset.
4. Faster work pace
Many major IT companies that provide software development services tend to work on several projects simultaneously. Therefore, tasks are distributed among various team members to make the process as efficient as possible. Companies that specialize in outsourcing are particularly efficient with making the development very fast, especially if they are experts in certain things (for instance, you could specifically outsource Java development or outsource .NET development).
5. Fewer stressors and risk factors
Application development outsourcing greatly reduces the risks and stressful dynamics involved in any type of project. Many responsibilities that would normally be on you (such as keeping track of the overall progress, distributing tasks, and ensuring that all deadlines are met) are taken on by the project manager of the outsourced team. That way, instead of constantly worrying about possible obstacles and complications that might arise, you can focus on more interesting or important tasks.
6. Turnkey work
Skilled IT specialists are involved with every part of development: the analysis of business processes, coding, implementation, testing, and system maintenance. The only things required from you as a client are consistent communication and maybe some input, assistance, or feedback when needed.
7. Multiple payment options
One of the key advantages of outsourcing software development is the flexibility in payment. There are various pricing models offered by different service providers.
Fixed model
A fixed model is applicable when the project requires a fixed budget. If you want to outsource app development, the service provider will estimate its price before starting to work on it. The plus is that you find out the cost beforehand and know that it won’t change (not drastically, at least). As a rule, if the outsourced developer makes a mistake in pricing calculations, that’s not on you.
Bear in mind that the cost of development does not always include testing. It could be part of the hourly cost, included in only large-scale tasks, or paid separately. Or it might not be charged at all if the outsourced team does not have the right person for the job and the responsibility of exhaustive software testing falls on the client themself.
The disadvantage of the fixed approach is that the cost always accounts for risks, so it can be 10%-30% higher. Another detail that is worth mentioning is that you have to clearly understand the level of developer you want to hire. Any mistake could lead to further problems with hiring an additional specialist just to fix the problems not addressed by the previous developer. This is not an explicit disadvantage but a nuance since, in this case, it shouldn’t matter to you who performs the task – you just pay for the result.
Time-and-materials model
The time and materials (T&M) model, also known as the cost and materials (C&M) model, is common in long-term IT projects. It requires service providers to bid on a specific project and create a proposal based on the client’s specifications. This can also be seen in a build-operate-transfer (BOT) approach, in which the provider initially develops and controls the project’s development. The T&M model also requires the provider to operate in-house or under the supervision of the client.
Let’s take a closer look at this model using an example.
Suppose you are a software development company that needs to outsource a project to a third-party vendor. You have agreed to pay the vendor for the work they will do on an hourly basis, as well as for any materials or expenses they incur during the process. The vendor will provide you with a detailed estimate of the time and materials required to complete the project. This will include things like the number of hours each team member will need to work, as well as any hardware, software, or other materials they will need to purchase. Throughout the project, the vendor will track their time and expenses carefully and will provide you with regular updates on their progress. You will be billed periodically (usually weekly or monthly) based on the number of hours worked and the materials used.
Outstaffing
Outstaffing is a full buyout of specialists. For example, an outstaffing company supplies a programmer of a certain level (junior, middle, senior) to work as a staff unit in the client company. If the outstaffed employees get sick or decide to quit, the company is obliged to quickly find replacements for them – that is, in 1-5 days to avoid downtime.
A possible downside is the fact that you might hire a middle-level specialist, but some tasks turn out to require a senior expert. To tackle this, you have to make sure that your contract foresees the ability to change specialists to ones with a higher skill level. If not, then you’ll have to hire additional specialists. Also, you must properly understand all the different types of specialists you need to hire. Of course, you can hire additional professionals when your project is in progress, but then you might lose precious time while the new person(s) catches up on all the project details and is fully onboarded.
For outstaffers, the risks of this work format include the possible burnout of employees and problems with their professional development. For example, let’s say a company has a lot of specialists on its team. Those who are involved in client-side development can sometimes feel a bit left out – they might feel like they’re barely taking part in other projects or company life.
8. Access to relevant skills and experience
Outsourcing opens you up to a global talent pool. Hiring an external vendor for software development gives you access to a team of talented techies who know what they’re doing and how to get you your desired results. That’s because outsourcing firms are very careful about their teams’ proficiency levels. Each member is typically appropriately trained and qualified in the services they provide.
So, with outsourcing, you’re hiring a team of experts to help you throughout the entire development process and advise you on the best technology options for your company. In other words, you pay for access to information on how to use the latest technologies to your advantage outside of work hours.
9. Focus on core business
While some companies prefer to keep software development projects in-house, outsourcing is often a more cost-effective alternative. Your in-house workforce is constrained by time, resources, or both, whereas outsourcing provides you with flexibility and knowledge that will improve the outcome of any project.
In-house teams are fantastic, but they can easily become overwhelmed. This is especially important to prevent in software projects, where quality should never be compromised. So avoid DIYing any serious mobile or web development project to save time and hassle.
When comparing keeping it in-house vs outsourcing software development, the latter is also a great alternative if you’re working on another project at the time of development. That way there will be no distractions or interruptions from either side of this arrangement, making it go more smoothly for everyone involved!
10. Innovative technologies
Access to the latest technology stacks, in addition to talented developers, is another benefit of outsourced software development. Artificial intelligence, automation, and machine learning technologies are only a few of the most commonly employed solutions in IT projects, and incorporating them into yours will bring in more customers.
However, you can’t rely on your in-house development team to stay up with current technology, let alone upskill in such a short period of time. Because software development evolves at such quick speeds, it is best to save internal resources for core business processes.
At the same time, you can be confident that you are working with seasoned professionals when you hire outsourced software developers. They are continually up to speed on the most cutting-edge innovations in the market, providing you with a significant competitive advantage.
11. Scalability
The goals of expanding and growing are easily achievable with the assistance of third-party specialists. These professionals have years of expertise and can advise you on how to best reap the benefits of outsourced software development to build your business. This has a number of advantages and puts your company on an accelerated route to success. Such teams can not only help you steer your company and projects in directions you never considered before but also bring all those ambitious plans to fruition.
Cons of outsourcing software development
With that long list of benefits, you might be wondering why not to outsource software development. Well, there’s more than one potential issue, and we believe you should be prepared for all possible troubles you could run into. So, let’s discuss some likely disadvantages of IT outsourcing for app development projects.
1. Confusing or low-quality code
What happens if you often change your outsourced team or decide to abandon application development outsourcing and work on your own? Since your code might end up being worked on by many different people, its quality can seriously suffer. In some severe cases, this can lead to the app needing to be rewritten from scratch.
2. Business risks
Third-party companies are not immune to normal business risks: they can suddenly go bankrupt, lay off their employees, or even shut down altogether. Therefore, despite its obvious advantages, this type of delegation of tasks always presents a huge risk: there is a possibility of getting a raw, unfinished product due to unexpected business problems at the contractor’s end.
3. Time zone differences and communication challenges
Different time zone differences are a common risk for those working with offshore companies. The larger the time difference between you and the outsourcing provider you hired, the harder it might be to find a convenient time slot for both teams to communicate and resolve emerging problems.
4. Lack of control over the team
By partnering with an outsourcing software development company, you lose the ability to personally monitor their processes or activities. Of course, you will get regular reports – they’ll make sure to update you on how well the project is going. Good companies ensure that the clients who delegate their tasks to them are closely involved and engaged in the project. Still, you might not always get so lucky.
5. Expensive if you make it a regular thing
Usually, cost is a major differentiating factor when building software in-house vs outsourcing it – hiring a specialized development company is cheaper than setting up your own IT department. The employer saves on employee salaries, tax deductions, the need to create new workplaces, management, downsizing risks, etc. But if software development services are required constantly and especially full-time, maybe you’ve been underestimating your needs. Consider expanding your team and hiring some permanent skilled developers and engineers if you don’t want to end up spending a fortune on app development outsourcing.
6. Information security concerns
Of course, there is typically an NDA that the service provider signs when you’re outsourcing software projects. The contract talks about specifics like data security, intellectual property rights, and consequences of breach. But even if you have the most sophisticated security measures in place, transferring important data to a third party increases the likelihood of it falling into the wrong hands.
7. Different business philosophy
Every company has a set working tempo and environment that caters to its specific needs but might not seem ideal to an outsider. Every IT team is used to a specific management structure and set of progress tracking tools, which may be unfamiliar to the other party. When faced with a completely different style of management, you may feel as if you are losing control of the project and have no idea where it is heading.
You can prevent this mismatch and subsequent discomfort by outlining the intended structure of the business process from the start. That way, you can be confident that the collaboration between your company and the outsourced vendor will meet your expectations.
8. Hidden costs
While businesses strive to outsource in order to save money and achieve a high-quality final product, there is always the risk of receiving a large bill full of hidden expenses. This is especially true if you’ve decided to outsource your work outside of your home country.
Some businesses will double-bill the client or provide a misleading overestimation. Phone calls, meetings, additional consultations, and even travel expenditures can all be considered hidden costs. It all adds up in the end, but while you’re in the middle of a project, there’s no turning back.
9. Limited motivation
Outsourced teams may not have the same level of commitment or passion for your project as an in-house team would. Since they might be working on multiple clients’ projects, they might simply not be as invested in a single company’s (your!) long-term success. And as an outsider, you can’t really be going around giving pep talks.
Trends in outsourcing
The experience of outsourced teams can immediately and effectively impact your product; you can implement breakthrough technologies first and reap the benefits before anybody else. Here’s a basic list of innovations that are currently being employed in outsourced software development.
Cloud services
Businesses utilize cloud computing to outsource data management and storage as well as other IT functions. This allows them to collaborate effectively with teams all around the world and exchange and alter information in real time. As a result, costs are reduced, and efficiency is increased.
The most common cloud-based services are:
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- SaaS (Software as a Service): Rather than installing software, a cloud provider hosts it and makes it available to end users through the internet.
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- PaaS (Platform as a Service): Allows businesses to design, manage, and operate their own apps without having to construct or maintain the platform or infrastructure.
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- IaaS (Infrastructure as a Service): This is another contemporary trend in IT infrastructure outsourcing. It is a pay-as-you-go service in which a third party provides you with cloud-based, internet-based infrastructure services like storage and virtualization as needed, but the operating system, any data, applications, and so on are your responsibility as the user.
Cybersecurity
As cyberattacks become more common, high-level data security will be one of the most critical problems in the coming years, and there will be an increasing need for cybersecurity outsourcing firms.
Although many cloud service providers offer security solutions, these are typically insufficient for creating enterprise-grade security. To ensure high-level security in cloud computing and fight against data breaches and targeted assaults, additional third-party solutions are frequently required.
AI (artificial intelligence) and ML (machine learning)
AI, one of the top global IT outsourcing trends, refers to computers or systems that can perform tasks and improve themselves based on the data collected by emulating human intelligence. Machine learning involves a type of AI that uses data and algorithms to replicate how humans learn, enhancing its accuracy.
According to a recent report by MarketsandMarkets Research, the global AI market was valued at $214.6 billion in 2024 and is expected to grow to $1,339.1 billion by 2030, with a CAGR of 35.7%.
As these intelligent technologies grow more popular, the outsourcing market has taken note, and the number of organizations offering such services keeps growing.
AI and ML can manifest themselves in various ways. Here are a couple of examples.
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- Recommendation engines can automatically propose TV shows to consumers based on their viewing habits.
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- Chatbots employ artificial intelligence to better comprehend consumer needs and provide more effective solutions.
We can’t forget to mention the biggest and loudest trend of the past few years: ChatGPT. Microsoft became its biggest sponsor, investing $1 billion in 2019, including credits for processing power via Azure. In 2024, it was reported that the tech giant had committed to invest a total of $13 billion into the company over multiple years. The company behind ChatGPT, OpenAI, is valued at $157 billion according to reports from early 2025.
Web 3.0
Web 3.0, the latest Internet technology, integrates blockchain, AI, and ML to enable real-world human engagement. Digital transformation is already one of the key assets in the business world, and as many businesses may already be looking to dabble in blockchain development, the demand for competent software vendors will increase. Blockchain services will soon be one of the most important IT outsourcing trends because everyone appreciates the concept of a decentralized web. Developers can use blockchain technology to construct applications that securely store data across several decentralized computers.
Alternatives to software outsourcing
If you are still unsure about the benefits of software outsourcing, don’t have many opportunities to try it out, or don’t fully believe in delegating all responsibilities to others, you can experiment with offshoring (outstaffing), onshoring, or nearshoring.
Offshoring
If you’re not willing to give up complete control over your project, you can employ offshoring. This is a great alternative because you keep the simplicity and speed of hiring new employees, get valuable personnel from all over the world with economic benefits for yourself (this model is less expensive than outsourcing), have full control over your processes, and can personally check all the results.
Onshoring
If you’re seeking specialists only in your region who share your values, work ethic, or company culture, consider onshoring. But do note that the economic rewards from this will be minor, and the selection of acceptable employees may be limited due to low competitive skills. Also, keep in mind that the talent search procedure can be time-consuming!
Nearshoring
If you don’t want to deal with time zones and cultural differences but are still willing to venture outside your country, nearshoring is the way to go. Nearshoring presupposes that you can use the services of an agency that will fully implement your project on a turnkey basis, as well as an outstaffing firm that will find you the professional you need in the least amount of time.
If the project requires an experienced team of outstaffers, you can save time and money on hiring and still find a treasure of an employee. However, it is important to pay attention to the selection of human resources and their number. Talent is limited in some countries, and you may face problems you wouldn’t have to deal with if you expanded your options to more faraway nations.
Tips for successfully outsourcing software development
Now that you’ve assessed the pros and cons of outsourcing IT functions, particularly software development, you must be thinking of diving right in. When done correctly, software outsourcing can save you time and money while delivering high-quality results. However, if you’re not paying attention, there can be costly blunders.
Here are five tips for reaping the many benefits of software outsourcing.
Define business goals
Before you begin contacting possible offshore outsourcing partners, consider what you want to accomplish with your project. What problem are you attempting to solve? What characteristics are you looking for? What is your spending limit? Answering these questions will help you in finalizing the best vendor for your unique needs.
Check the outsourcing company’s profile
Once you’ve determined what you’re looking for, it’s time to begin your research. Check within your personal or corporate network to see if anyone has any recommendations. When you’ve clearly defined your requirements and flexibilities, spend some time reading online reviews and visiting your prospective vendor’s website and portfolio. This will give you an idea of their work style and whether they’re a good fit for your project.
Make a plan
Many business owners fail to develop a clear strategy for software development or business process outsourcing. Make sure you have a thorough project plan that describes your objectives, milestones, and deliverables before signing any contracts for outsourcing services. This will help you and your remote team get on the same page.
Follow every stage
Just because you’re outsourcing doesn’t mean you can ignore the project entirely – you still need to be involved to ensure that everything goes as planned. Set up meetings or virtual check-ins with your service provider to track progress and provide comments as necessary. Don’t be afraid to speak up if something isn’t going as you’d imagined – after all, it is your project!
Manage expectations
Last but not least, it is critical to manage expectations regarding both the benefits and drawbacks of outsourcing.
Make sure that your service provider understands what they’re getting themselves into and are realistic about what they can accomplish given your budget and schedule. Similarly, don’t expect any miracles – understand that there will always be some risk involved in software engineering outsourcing. Even when working with the most knowledgeable teams, sometimes certain delays are unavoidable. But everyone will be able to weather the bumps in the road (in case they do arise) if both parties enter the partnership with their eyes open.
Outsourcing experiences of big companies
Before we sign off, let’s talk about some real-world cases of companies that succeeded with software development outsourcing, and those who failed with it.
Software outsourcing success stories
GitHub
GitHub is a web-based platform for version control and collaborative software development. The company has used outsourcing to develop some of its key features, such as its mobile app and its desktop client. GitHub has worked with outsourcing partners from around the world, including in India, Romania, and Belarus, to develop new products and features quickly and efficiently.
Slack
Slack is a team communication platform that allows users to send messages, share files, and collaborate with colleagues. Slack has used outsourcing to develop its mobile app, which is available on both iOS and Android. The company worked with a team of developers in India to build the app, which has been downloaded millions of times and is a key part of Slack’s overall offering.
Liver Doctor
Sanofi, a worldwide healthcare organization, tasked Bamboo Agile with developing a mobile application to increase user participation in monitoring the state of their liver. Another goal was to enhance brand awareness for the Essentiale® Forte N product and offer consumers information on a variety of hepatological disorders and treatment options.
Based on the results of the patient’s tests, the software recommends the most appropriate type of therapy, with all medical suggestions validated by doctors. In most circumstances, a user does not need to consult a physician or a hospital; a proper diagnosis can be made using the app. As a result, the introduction of the Liver Doctor enabled patients to assess their symptoms and get advice on how to ease them, reducing the frequency of trips to local health centers.
Failed software outsourcing attempts
Boeing
In 2019, Boeing faced significant issues with its 737 Max aircraft, which experienced two crashes that killed a total of 346 people. An investigation into the crashes found that one of the causes was a faulty software system that had been outsourced to a team of developers in India. The investigation found that the outsourced team had not been adequately trained or managed and that communication and coordination between the team and Boeing’s in-house developers had been poor.
Los Angeles Unified School District
In 2013, the Los Angeles Unified School District (LAUSD) launched a $1.3 billion project to provide all of its students with iPads. The project was outsourced to a vendor, which was responsible for providing the iPads and developing the necessary software. However, the project faced significant issues, including problems with the software that made it difficult for students to access educational materials. The project was eventually canceled, and the LAUSD was left with a significant financial loss.
Conclusion
Ever since the digital transformation of society, most companies have realized that to keep up with the latest trends, they’ll need to consider application development. And when it comes to choosing how to manage a project like that, the best option is to rely on experts.
Many companies are already outsourcing development to great success. You just need to organize, prepare, and take the big step!
But of course, this method can’t be suitable for everyone. In that case, it’s better to combine in-house and offshore development teams or not risk it at all and just hire your own professionals.
The responsibility of weighing the pros and cons of in-house software development vs outsourcing your projects lies on you, and the final decision is yours to make.
Bamboo Agile can be your helping hand in software development. We’ve got a team of professionals excelling in various domains ready to help you. If you’re considering outsourcing software development services to reputable Estonian companies with competitive rates, get a free consultation from us after filling out the form.
