Thank you for your submission! We’ve sent a copy to your inbox Follow us on social media to stay up-to-date with Jaydevs!

Why Do Companies Outsource? Lessons Learned and Software Outsourcing Examples

article_img

With the advent of technology, time and money have become more valuable than ever. Therefore, it becomes reasonable for start-ups to search for qualified developers, aiming at saving time and cutting costs. For instance, junior developers get an average annual income over $65,000. Not all companies can afford to pay such an amount to developers. As an outcome, they delegate software development to a dedicated development team. This enables startups to cut costs, gain access to a pool of talented programmers, and focus on the core company activities.

Why do companies choose to outsource

As you can see, there are many reasons why companies outsource. In many situations, there may be a mix of elements, such as capacity and time to market or skill and cost.

Dedicated teams tend to be a common model for outsourced software development. These teams become an extension of your company being fully dedicated to your project, though being self-managed if needed.

Known companies have been hiring dedicated developers for years to grow their business. Let’s now illustrate the reasons to outsource with outsourcing examples. The list below is a selection of well-known technology companies and their case studies of strategic use of dedicated software development teams. These stories can inspire you, dispel some myths, or help create your own story of success.


Businesses that outsource IT: 10 best examples of outsourcing

1. WhatsApp

In 2009, former Yahoo! employees Brian Acton and Jan Koum launched WhatsApp — a service for messaging, calls and file exchange. The company started operations in 2009, but in 2012 it was still a small entity. At that time, the company had only 30 full-time employees. They used the app to maintain the company value while also leveraging competitive advantages and SMS technology in particular.

Reasons for IT Outsourcing: WhatsApp decided to outsource most of the development to a dedicated development team located in Eastern Europe. The first person hired by the company was iOS developer Igor Solomennikov. The reason was that Russia offered highly qualified IT specialists at a much lower price compared to the US. Later on, Igor joined the company on a full-time basis, but at the beginning he was a dedicated developer creating the first version of WhatsApp for iOS.

Outcome:
WhatsApp determined what they should do to cut costs and found a location where they could get the best value at the lowest price. The company rated first in Google Play and App Store after the first release. Since then, WatsApp has become one of the most popular chat apps worldwide. In just three years after the launch, the app had over 50 million downloads and later on was bought by Facebook in 2014 for $19 billion. Today it is the undisputed leader offering free, reliable communication regardless of the subscribers’ location. According to Statista, more than 2.44 billion people use WhatsApp.

2. APPLE

In 1976, S. Jobs and S. Wozniak created a corporation producing the largest number of computers and smartphones. Apple manufactures iPhones, iPads, iMacs, MacBooks, AirPods, Apple TV+ services, Apple Arcade, etc. After decades of being one of the most successful companies in the world, Apple’s market price in December 2021 was close to $3 trillion. To compare, this is more than the UK national economy.

Reasons for IT Outsourcing: Production scaling. The back of the iPhone says “Designed in California, Assembled in China” (which means that Apple products are designed in the US but assembled and tested in China). China’s main iPhone manufacturer Foxconn can hire 7,000 workers overnight by convincing them to work 11-hour shifts, six days a week, for $280 a month. The US does not provide the desired talent pool. It can take up to nine months for a company to find top-notch developers capable of building Apple products. You can do it within a week in case of hiring a dedicated developer.

India has become another top country for hiring dedicated Apple developers. In 2012 Apple announced their decision to partner with software developers in India. A part of Apple’s $100 million budget went to India to develop software for the company’s products, and investment at least quadrupled over the next few years.

Outcome. Dedicated developers helped Apple to easily scale their production and avoid additional risks for the company. Analysis of increasing revenue rates proves that Apple is on the right track. Currently, it is the most innovative and valued company in the world.

3. Google

L. Page and S. Brin founded Google in 1996, and at the end of the summer of 2004 started selling their shares. From the very beginning, the company was working on creation of the global information space, providing any user with free access to the Internet. Today, Google is the verb everyone uses when they talk about web search. Learn more about the development of Google and the achievements of the founders in The Verge

Reasons for IT Outsourcing: over 89,000 Google’s full-time employees couldn’t handle the huge workload. That’s why Google hired and continues to hire global talents and partners with dedicated developers. According to Bloomberg, 2018 was the first year that Google’s contractors outnumbered full-time employees. Main reasons to hire dedicated developers included:

  1. Access to global talent and know-how pool that Google lacks internally; 
  2. Reduction of labor and operational costs by the company.

Outcome: Understanding what work can be outsourced to a dedicated development team and what should be done in-house, Google managed to make the most of its budget. By doing so, they cut costs on office space and equipment, rent, etc. 

In June 2021 Google ranked first among popular multi-platform websites in the United States with over 270 million visitors. Recent fiscal year demonstrated Google generating $256.74 billion revenue.

4. Opera

1995 was the year of the first public release. Opera is a web browser resulting from a research project by Telenor, the largest Norwegian telecommunications company. The Economic Times shares the story of Opera’s founder Jon Stephenson von Tetzchner, telling how having started with a team of two people, he and Geir Ivarsoy managed to bring their creation to the leading position.

Reasons for IT Outsourcing: At the very inception creators of Opera had no idea if it would become a successful project. To save on a risky initiative half of the development was outsourced to dedicated software developers to build and deploy their platform.

Outcome: Access to an international talent pool has enabled the company to increase efficiency and reduce costs. Hiring dedicated developers led the company to the successful release of the Opera. Today, Opera has over 380 million subscribers and is actively expanding into Asian markets being a promising initiative.

5. Skype

The company was founded in 2003 by two Europeans, one from Sweden and the other from Denmark. Together they created an application known by nearly everyone. Back in the days such features as video chat, voice calls, instant messaging and file transfer made Skype an irreplaceable product on the market.

Reasons for IT Outsourcing: Instead of developing the software themselves, Skype team from the very beginning hired three professional developers from Estonia. It was them who developed the entire internal interface of the application.

Outcome: Such an approach has let Skype gain access to high-tech developers, and reduce costs. Skype demonstrates  the same as WhatsApp: the presence of developer skills is more essential than geographic location. As per a Financial Times article of 2008, Skype managed to capture the majority of international phone traffic. It handled more than 33 million phone calls, bringing a pretty penny to the company. Every year, international telephone traffic increases by approximately 13% ensuring stable revenue growth.

6. Alibaba

The company was initiated by Jack Ma in 1999. Alibaba.com provides three core services: 

  • Alibaba.com being the English-language portal processing sales between suppliers and wholesale buyers from over 240 countries and regions;
  • 1688.com — the Chinese portal managing domestic B2B trade in China;
  • AliExpress.com, which allows customers to purchase single or small quantities of goods at wholesale prices. 

Vendors publish information about themselves and their products: photos, detailed descriptions, specifications, delivery terms, and more on the Alibaba.com portal. Buyers search for products and suppliers on the site, send requests for prices, and negotiate deliveries.

Reasons for IT Outsourcing: Attracting experienced professionals. Starting as a small Internet business, the company decided to create a website that would appeal to domestic and English-speaking audiences. In his book “Alibaba: The Inside Story Behind Jack Ma and the Creation of the World’s Biggest Online Marketplace”, Jack Ma said that in those days, finding software developers in China was not an easy task. The Chinese economy was mainly based on manufacturing, there were few software developers, and Internet limitations made it challenging to find them.

Outcome: The main purpose of hiring a dedicated team was to access a talent pool not being available in China. The second hiring goal was to find ways to scale while avoiding government internet restrictions. So, the site managed the loads of traffic coming from visitors, was able to effectively serve visitors from different geographical locations, and began to develop faster than competitors. 

The China Daily article describes the positive effect of attracting young talented engineers on the development of Alibaba. By now Alibaba has become one of the biggest e-commerce players. The website has generated $109 billion for the company as of 2021.

7. Basecamp

The company was founded in 2004 by Jason Fried, Carlos Segura, Ernest Kim. Basecamp is a web-based management and team collaboration tool. The most famous products of the company are the Backpack organizer, the Highrise CRM system, etc. 

Reasons for IT Outsourcing: At Basecamp, they realized that trying to do everything on their own was the wrong organizational strategy. They witnessed issues with internal workflow and customer support. Business owners had no time to structure the goals of the company and organize control over their achievement. They also faced problems with quick feedback and addressing customer problems on demand. To resolve this, Basecamp decided to outsource development of some features to a dedicated development team.

Outcome: The dedicated development team gave Basecamp the opportunity to improve its product and focus on the internal operations, and company management. In his interview to WWR J. Fried said “It’s naturally human reaction to be like, “Whoa, wait a second, I don’t trust that way. Or I don’t know that way, I don’t believe that way. Or Why should I do that? Let them do that.” I get it, totally just a human thing. I think the best way to do that is just to try it. And that’s the thing, I think the scary thing is hiring a remote employee first time. But if you have local employees, just make them remote employees for one day a week, one day a month even, just 12 times a year, let people work from home. Just kind of get used to it go, you know what, the sky is not falling, the company is not going out of business.”

8. AppSumo

The platform has been providing its users with the opportunity to buy software at competitive prices since 2010. N. Kagan founded his trading platform for only $50. The platform offers daily deals on web applications, digital tools and online services. You can learn the features of AppSumo and the biography of the platform by reading the Jobsage online resource.

Reasons for IT Outsourcing: Noah saw a niche for business, and he needed to confirm his hypothesis. To do this, he hired a dedicated developer for $50 to code the PayPal integration for him. It enabled collection of payments through his new website. He started by selling subscriptions to Imgur PRO, an image sharing and image hosting website. Following that, he added it to a wider list of paid web applications, software, and courses. 

Outcome: Dedicated developers helped AppSumo team to create the resource from scratch at low inception costs and scale it over time. AppSumo expanded business up to over $1 million monthly having now external funding while overtaking the largest global tech companies such as Facebook, Apple, Google, Amazon in terms of income per employee.

9. Fab.com

Fab — a well-known online store for furniture and interior details, founded in 2010 by Jason Goldberg and Bradford Schellhammer. The peculiarity of the site was the possibility to find goods for every taste and budget: home lamps, jewelry, furniture, etc. Prices ranged from a $5 bagatelle to Swarovski crystal jewelry worth several thousand dollars.

Reasons for IT Outsourcing: Fab’s founder Jason Goldberg hired a dedicated software development team in India to create his initial website. Realizing that US engineers were out of his budget, Goldberg hired a remote development team. Apart from that, he devoted his own time to manage this team. “Jason ensured that the team in India truly felt like a part of the Fab team and not simply a bunch of code monkeys solely contributing code. Instead of only sending specs and expecting code, he involved them in the decision process and the product strategy.”

Outcome: By hiring a dedicated development team, Goldberg and the co-founders reduced costs and saved time. Goldberg and his team got 45,000 pre-registrations and unveiled the Fab website on June 9, 2011. A few weeks later, Ashton Kutcher and Silicon Valley investors donated $1 million to Fab. On August 11, 2011, investors provided Goldberg with $7.7 million of investments as an “A” round. (Investment rounds are the stages of raising funds for the development of a startup. The goal of “A” series funding is to provide additional capital to help new companies grow). In 2013, the startup value was $1 billion.

10. GitHub

The project was created by software developers T. Preston-Werner, C. Wanstrath, S. Chacon and P.J. Hitt in 2008. Now it is the largest platform for shared coding with open source code. Programmers leverage GitHub to store their projects in the cloud, share their code, and collaborate on a project with other peers. 

Reasons for IT Outsourcing: The company decided to hire Scott Chacon to write the back end of the website. As Tom recalls, “The bootstrapped startup had no means to hire such a professional full time. There was only one way to achieve their goal of simplifying their product and pushing it further: they hired Scott as a contractor to build out the first iteration of Gist backend, which is a sharing feature inside GitHub.”

Outcome: The platform has expanded its capabilities by becoming one of the most popular resources. It has become mandatory for any software developer in the world. In 2018, the project was sold to Microsoft for $7.5 billion. As of November 2021, 76 million users leveraged GitHub for version control, source code management, bug tracking, etc. GitHub’s value is $2 billion.


What do these outsourcing examples mean

For many startups and companies, hiring a dedicated development team can seem to be a confusing process, unnecessary costs, or wasted time to establish external relations.

Nevertheless, all these stories should have demonstrated that outsourcing IT and hiring dedicated developers can actually have a positive impact on your business: increasing the pool of talented developers, reducing costs, etc.

Outsourcing your business or some of its processes allows you to break the geographical boundaries. After all, why focus on the local developers when you aim to reach the global market? Asking questions about whether you should hire a dedicated development team or not is as senseless as asking Google if it is successful. 

The above examples of large tech companies have proven effective, and now it’s your time to do the same. If you have no idea where to start, Jaydevs here to help. Please fill out the contact us form and get a free BPO consultation.

Tags:

Frequently Asked questions
What is software development outsourcing?
Software development outsourcing is the process of getting a company to develop software for you. This is usually done by hiring dedicated developers or designers from a software company with relevant knowledge and experience.
Is outsourcing good or bad?
Outsourcing can help companies reduce costs significantly, fill a talent gap and focus on core processes. However, poor quality outsourcing partners could provide a bad service and damage the firms overall reputation. So of course, a lot will depend on the kind of partner you choose and the kind of partnership you develop.
What are the outsourcing models?
There are three main types of outsourcing: 1. Onshoring — outsourcing work to another location in the same country; 2. Offshoring — sending work to an international or overseas nation; 3. Near-shoring — a form of offshoring where a company sends work to a neighboring nation.
Why do businesses outsource their IT?
There are four main reasons: 1. Reduce operating costs; 2. Skill augmentation; 3. Focus on business; 4. Need-based hiring.