In the watchmaking industry, there are only two fully vertically integrated companies, Seiko and Rolex. That Allows them to design and develop every component of their watches, as well as assemble, inspect and ship them. It allows for greater efficiency, decreases costs and most importantly, gives full control over the manufacturing and distribution process. On the other side of the spectrum, you might recall the big shortage of semiconductor chips back in 2021 and 2022. It led to many automotive manufacturers selling their products without different options, from seat heating, start-stop systems to even lack of Infotainment. Or, the most drastic measure, some car models were not even launched due to the supply chain crisis.

In today’s digital landscape, the process of building products has evolved significantly. A lot of products we use nowadays are actually tangible only through our interaction with the screen of a mobile phone or a laptop. The approach to creating digital solutions has become both complex and diverse. Whether you’re developing a mobile application, a software platform, or an online service, the decisions you make regarding development can greatly impact the outcome.

Let me go back to the automotive industry once again for example. We’d like to build a car, and we know that the expected building blocks would be chassis, shell, engine, transmission, rims and tires, seats,… More or less that would be required for your car to run. Things like multimedia, panorama roof, daylights, HUD, parking camera etc… All of that are bangs and whistles. Something that is good to have. But! What do you think of adding a machine gun or rocket launcher on the roof? Think of Mad Max or Twisted Metal… Yes? No? I know, who in his right mind would put a rocket launcher on a car, where it does not belong? 

The example from above sounds crazy I know. And we usually don’t see something similar when working with physical products. Yet, you would not believe me how often some type of abomination is created in the world of digital products. When things are made and put in a place where they don’t belong. 

After we understand what is that we want to build, and categorize the building blocks  into “must have” and “good to have”, important decisions ahead of us are concerning the ways how those specific features are going to be built.

In-House Development:

• Customization and Control: In-house development allows you to tailor the specific product precisely to your specifications. You have complete control over the features, functionalities, and user experience, ensuring alignment with your product vision.
• Security and Compliance: With sensitive data becoming increasingly valuable and regulations tightening, maintaining control over security measures and compliance standards is a must. In-house development provides greater assurance in safeguarding proprietary information and adhering to relevant regulations.
• Cost Efficiency (Long-term): Don`t get me wrong, initial investment for in-house development is significant. Still, it can often result in long-term cost savings. By owning the entire development process, you minimize dependency on external vendors and mitigate the risk of unforeseen expenses associated with third-party integrations.

Third-Party Integration:

• Time-to-Market: Integration of third-party solutions can significantly accelerate the development timeline. Instead of building functionalities from scratch, you can leverage the expertise and infrastructure of established providers, reducing development cycles and allowing for faster deployment.
• Initial Cost Savings: In many cases, integrating third-party solutions will be cost-effective in comparison to developing equivalent features in-house. By leveraging existing technologies, you avoid the expenses associated with research, development, and maintenance, ultimately lowering overall project costs.
• Scalability and Flexibility: Third-party integrations often offer scalability and flexibility, allowing your product to adapt to evolving requirements and user demands more easily. With access to a wide range of specialized services, you can enhance your product’s capabilities without extensive development efforts.

When weighing the decision between in-house development and third-party integration, it’s essential to consider the specific needs and constraints of your project. A direct comparison of the two approaches would look like this:

Still, both approaches come with risks that should be considered:

Risks of In-House Development:

• Increased Time-to-Market: If you`re not a software development company and that is not your wheelhouse, developing products in-house often requires more time due to the need to design, develop, test, and iterate on custom solutions. This prolonged development timeline can result in delayed market entry, which might be crucial if you`re trying to spearhead and dominate some niche.
• Resource Constraints: In-house development will definitely strain internal resources, including skilled personnel, infrastructure, and budget allocation. Failure to adequately allocate resources or address skill gaps will result in project delays, cost overruns, and compromised quality of the delivery/output.
• Technology Obsolescence: Building custom solutions in-house carries the risk of technological obsolescence. To use a simple example, you might recall that not so long ago, Adobe Flash was almost an industry standard to run multimedia on your website.Talking about millions of websites. At one moment, Adobe Flash came to its end of life and websites moved to HTML5. If not careful, rapid advancements in technology and evolving market trends may leave you with your in-house solutions outdated or incompatible with industry standards.
• Dependency on Internal Expertise: In-house development relies on the expertise of internal teams. In a nutshell, you need to have proper staff on payroll.  Staff turnover, skill shortages, or knowledge gaps can disrupt development continuity and impede project progress.

Risks of Third-Party Integration:

• Vendor Reliability: Dependence on third-party vendors introduces the risk of vendor reliability. Issues such as service outages, security breaches, or financial instability on the part of the vendor can disrupt operations and damage business reputation.
• Vendor Lock-In: Integrating third-party solutions may lead to something known as vendor lock-in, where switching to alternative providers becomes costly or impractical. Would it be data dependencies, contractual obligations, or proprietary technology, lack of flexibility might limit decision-making process during product development.
• Quality Control: Third-party solutions may not meet the quality standards or performance expectations of the organization trying to implement it. Variability in service levels, lack of transparency, or insufficient support from vendors can compromise product quality and user satisfaction.
• Data Security and Privacy: Entrusting sensitive data to third-party vendors poses risks to data security and privacy. Inadequate security measures, data breaches, or non-compliance with regulatory requirements can result in legal liabilities, financial penalties, and reputational damage.
• Integration Complexity: Integrating multiple third-party solutions into a cohesive ecosystem can be complex and challenging. Incompatibility issues, API changes, or version conflicts among different providers may require extensive customization, testing, and maintenance efforts to ensure seamless integration.

What should we build in-house and what we can integrate?

Towards the end, wanted to explore a few more use cases we developed in the previous years to illustrate the practical implications of in-house development versus third-party integration:

Conclusion