In-house vs Outsourcing Software Development | What to choose

Last Updated
February 20, 2024
 In-house vs Outsourcing Software Development | What to choose

There are several collaboration models, that you can get access to in the arena of IT. When you have to create an application, every developer is faced with two things, software outsourcing and product development. Many companies opt for software outsourcing, as it reduces costs and also gives access to specialized resources. 

When your project goals are certain, and you already know the kind of resources that you would require, then this model works best. The global IT outsourcing market size was valued at $565.2 billion in 2022 and the market is projected to grow at the rate of 9.3% from $565.6 billion in 2023 to $1416.3 billion by 2031.

On the other hand, product development in-house is a very comprehensive solution directed towards a new product. It covers the entire lifecycle of the product, from conceptualization to launching. When the company has the right resources to develop software, with adequate resources, it is termed in-house software product development. Different companies choose different models for software development, according to their means. 

So, let us delve into the intricacies, like features of both categories of software development, after which you will also get a sneak peek into the contrasting features. 

In-House Software Product Development

In-house team working on software development

Many large-scale and medium-scale companies utilize the oldest and most traditional model of software product development. It has many benefits of its own, which differentiates it from other forms of development. It is a model, which ensures the long-term security of the products that accompany this genre development. The model offers total control over the product, so many small start-ups are also going to take this route. 

In-house software development, a company utilizes its internal resources to develop software. In-house software products are largely developed for in-house use. According to many experts in the IT and software industry, in-house teams work on relatively easy software, rather than large, complicated, and hefty ones. 

Reasons Why Companies Build Software In-House


This is the first and most obvious benefit of in-house software development. You have complete control over the development life cycle in this kind of software development. It helps one avoid getting locked into expensive licensing agreements. Moreover, it can also help to prevent any situation, wherein the vendor stops support. There might be technical issues if you outsource the software development that are beyond your control. 

Better Understanding 

If you hire your own team of developers, there are significant advantages associated with it. Such developers will be closer to your goal. Moreover, they have a better understanding of the problems that lie within the project. Such developers also have a deeper commercial understanding, which leads to success for the developers. 

Stronger Communication 

In-house software product development benefits from better collaboration and communication between the team members and also the company. This translates into better speed of processing and quality. 

The management can communicate with the developers face-to-face. Additionally, internal project managers control such in-house projects. This leads to better accuracy and efficiency. The time-to-market is also reduced. 

Specific Skill Sets Utilization 

You can build the perfect team for you if you go for in-house development. Thus, you can shape the team according to your specific needs. Businesses can also be more selective about the soft skills and cultural fit with the company. 

Helps In Knowledge Retention 

In an in-house setting, you are in a better position to retain the knowledge resources. Moreover, you can maintain utmost secrecy. Most in-house developers work on any individual project for a good length of time, which is actually beneficial for the organization. You are also in control of information-sharing workflows, with in-house software development. 

Helps Manage Risks 

Many large organizations choose in-house product development, that as to manage different kinds of risks. They can be both organizational and cyber-related. These issues can be around vendor lock-in, end of support, overspending, or solution upgrades. In-house development helps to remove various organizational risks and helps it easy to manage technical ones. 

Cons Of In-House Software Development 

Although in-house development has its advantages, all of them may not be true for a few organizations. Some of the possible disadvantages include. 

Additional Labour Costs 

Hiring a whole team of developers can be a huge investment, as the salaries of competent personnel tend to be on the higher side. If you have a large list of requirements, then it can quickly cross your budget. 

Finding The Right Talent 

There is a shortage of skilled people in the IT/ software sector. So, it can take a lot of time to recruit the right people for the job. This can also lead to a delay in project initiation. 

Retaining Good Staff Can Be Challenging 

Even when you manage to recruit a competent team of developers, it can be quite a challenge to retain them. Most skilled developers may move on, sooner than you expected. 

Miscellaneous Resourcing Issues 

Apart from the payment of salaries, there are other expenses which you have to incur. You have to take into account rentals, office infrastructure, development costs, compliance payments, and other additional costs. Then, there will also be licensing issues, research and development time, and hosting. 

Developmental Delays 

Sometimes, the time required for development often crosses the demand timeline. A little backlog is perfectly normal. It is only a problem, when the developmental process gets out of hand. 


Sometimes, when you think that you have skilfully controlled one issue, another one crops up. Automation of a few tasks can increase the demand from stakeholders, for others as well. So, you need to be vigilant. 

Shortage Of Work For In-house Teams 

Sometimes, you may have over-hired. So, most of the developers will be spending their time idle. It can quickly turn into a massive financial burden. 

Understanding Outsourced Software Product Development

In-house vs Outsourcing Software Development

Outsourcing has assumed tremendous proportions today, due to its many benefits. In this business practice, a company hires a third party for the development of its software. It usually happens on a contractual basis.

Such tasks that are often outsourced include app development, legacy system management, quality assurance, as well as testing. One also gets access to a broad category of resources. It also helps the in-house team to concentrate on more strategic goals. Other than outsourcing, you can also hire MERN stack developers to completely develop your website in Javascript on contractual basis.

Let us look into the reasons why companies outsource software projects. 

Reasons Why Companies Outsource Software Development 

Better Resources Access

You can gain access to a huge and diverse talent pool if you choose the outsourcing model. The contracting company, which you hire will have their own HR who is adept at recruiting the best candidates for the job. 

Cost Efficiency 

This is another important reason why companies hire third parties for software development. It helps in cutting both recruitment and developmental costs. Third-party service providers have a specialized pool of candidates along with infrastructure to address each task. Again, you do not have to worry about compliances and legalities. 

Companies also choose to outsource to offshore countries where salaries are much cheaper compared to onshore developers and this further saves on salaries. You can read about outsourcing to India and the benefits you can get.


When you hire an outsourcing company or agency, you can focus more on the marketing and commercial side of things. It also helps the company avoid long-term staff-related costs. When demands in the market fluctuate, you can be in a better position, with the outsourcing model. You can also easily end a relationship in the working arena if there is a market downfall. You are also not bound by any contracts. 

Get Access To Niche Skills With Retraining Your Staff 

It takes months to train and retrain internal employees. So, if you have to access specialized skills within a short while, outsourcing is always beneficial. 

Some of the most in-demand skills in the market today, like cloud migration, machine learning, data engineering, and extended reality (XR) technology are constantly upgrading, so the needs change constantly. By outsourcing, you get access to this pool of talent, when required. You also save on training and retraining costs of your internal employees. 

Cons Of Outsourced Software Development 

Language Issues 

The developers whom you work with, through third parties, should have communication skills and language skills. Building software is not an easy task, so the company has to communicate properly face-to-face with such staff. Moreover, the product that you get develop, must meet all the demands of the customer. Therefore, language skills should be there. 

Changes In Development Team Midway 

Sometimes, the agency may not have proper agreements with their developers. So, someone may leave the job before the development project ends. This can lead to project delays. 

Uncertain Project Outcomes 

When you outsource an entire project to another third party, you are transferring the complete responsibility. So, the outcomes are dependent on the team that the third party has hired. You also have zero control over the daily events. The agency handles everything, the way it deems fit. 

Failure To Understand Expectations

Before entrusting the job to another external agency, you must chalk out the deliverables. In spite of communicating the outcomes, the agency employees may fail to align their goals with those of your company’s. There might be disagreements about the product’s vision and functions. You have to take this into consideration, while outsourcing any project. 

In-House Software Development vs Outsourcing: 5 Key Differences

Now, to sum up. Let us go through the main differences between in house and outsourced software development. If you know these beforehand, you can make your company decisions, accordingly. 

  • In house development relies on the skills of the existing team members. Although, more reliable, they may lack skills. But outsourced teams have specialized talent that may benefit your project. 
  • In house development allows you to have a lot of control over the team and you can communicate well. In the case of outsourced projects, there is time zone difference, cultural difference and lack of communication, which can be detrimental. 
  • In house development can increase costs due to hiring of specialized staff, and compliance fee payments. Legalities are also huge. However, for outsourced teams, you can rely on the vendor for all such things. The costs are also under control. 
  • In house development offers less flexibility, as it may take time to recruit new people or start new projects on time. Outsourced development allows rapid scalability. Resources can be removed or added as the need diminishes or arises. 
  • In house teams are deeply integrated with the teams’ culture and goals. However, outsourced teams do not have that commitment. 


So, now that you know about the features, pros, and cons of the two types of development, make decisions accordingly. You have to measure the alternatives against one another and study the requirements of your company. Then only you will be able to arrive at the right decision. Your business is of utmost importance while selecting either development process. So, choose wisely.