Types of Software

There are three types of software your company can use.

1. Off-The-Shelf

It is unlikely that you will buy an actual box containing a CD with your business software. The name still remains, however. The term boxed/off-the-shelf covers applications that are already completed and sold as a product or service.

The most popular distribution model is SaaS (software-as-a-service) which gives you access to the program in exchange for subscription payments. However, the on-premise software (installed on the hardware belonging to your company) can sometimes be sold under a perpetual license allowing you to pay once and use the application forever.

This is what goes in favor of them:

  • Low initial investment. The monthly licenses are relatively cheap. Even small businesses can afford them.
  • Predictable expenses. Once you know how many licenses you need and how much does one cost, you can easily plan your budget in advance.
  • Quick to start. You can start using boxed software pretty much as soon as the payment clears. Some vendors also offer free trials so you can get check out their product and learn how to work with it.
  • Community support. Off-the-shelf software tends to have a user community around it. This could be a great source of learning how to use the program better or how to solve any problems you might run into.
  • Many options. No matter what type of system you need — CRM, HRM, ERP, EHR, etc. — there will be many companies and products vying for your attention and business. You will be able to check them out, read the reviews, and make an informed decision.
  • No maintenance. The vendor is responsible for keeping their product in working order, you just have to pay them regularly.

However, there are also disadvantages:

  • High long-term cost. Over the years, the subscription payments will add up and lead to a higher total cost of ownership (TCO). This is especially true for large companies that need many licenses.
  • Lower security. Popular applications are reasonably safe. However, the popularity also makes them more attractive to hackers, who can compromise many companies through one vulnerability.
  • Vendor dependence. There is a risk that all the data you have in the system can disappear if the vendor goes out of business or if you miss your license payments.
  • Inflexibility. In the boxed software there usually is some room for customization. However, it is very limited because major changes can’t be implemented for a single company without affecting the rest of them.

Boxed software works best for SMEs that don’t have any outstanding requirements. Their common needs will be covered and they will be able to afford license payments. Moreover, they won’t have to deal with technical matters, as pretty much all of them will be handled by the vendor.

2. Custom

Custom software is made to the requirements of the specific customer, hence the name. It is either developed in-house or by a software development company.

This is what turnkey applications have going for them:

  • Lower long-term cost. Maintenance costs for custom software are much lower than license payments. Eventually, your program will pay for itself.
  • Flexibility. If you have the budget for it, your vendor will be able to deliver any reasonable functionality in any configuration. The other side of it is that you won’t have to pay for features that you don’t need.
  • Higher security. Custom software has a higher potential security level than boxed one. Firstly, it is used in your company only, so the hackers have fewer opportunities to study it and fewer incentives to attack it. Secondly, if you have the funds, you can pay for more stringent security measures than the boxed apps use.
  • Integrations. Turnkey applications can be made to interact and exchange information with other systems that your business uses. Not every off-the-shelf system will have all the necessary integration options.

And these things go against it:

  • High initial investment. Making custom software costs money. Eventually, it will pay for itself, but in the beginning, it requires a serious funding.
  • Time needs. No matter how many people you throw at it, there are limits to how fast you can launch a new application. Expect at least 3 months before even the basic version is done. Further you scale your project step by step with clear plan and budget forecast.
  • Vendor-related risks. There are plenty of examples of failed projects, IP theft, holding the source code hostage, or other unprofessional behavior on part of the software development companies. This can be mitigated by picking a reliable development partner, with verified reviews (e.g. on Clutch) or references that you can check for yourself.
  • Miscommunication risks. If you and your contractor misunderstand each other, this could lead to project failure. Such a risk is especially high if you come from largely different cultures.

There are two main cases when a company needs custom software: unique requirements and long-term cost savings. This makes turnkey applications more suitable for medium-to-large enterprises which have needs that no boxed system can cover or that want to invest now in order to benefit in the long run.

3. Customized

This is the middle ground between the off-the-shelf systems and custom software.

There are many open-source applications with licenses that allow modification. You can hire a company to adapt these systems to your needs, make some systems integration or just install them yourself. In the latter case, the benefits and drawbacks would be pretty much the same as with boxed software.

Note that “open-source” doesn’t always mean “free”, although it is often true.

This is what favors bespoke software development:

  • Less expensive than fully custom. If your vendor takes the existing software and builds only the features that it doesn’t have, you save money on the pre-made functionalities.
  • Community support. Just like boxed applications, open-source systems tend to grow helpful communities around them.
  • Lower long-term cost. Free open-source software doesn’t require license payments, so in this respect, it is no different than a turnkey one.

But there are drawbacks too.

  • High initial investment. No, we aren’t contradicting ourselves. The thing is, some open-source applications are notoriously difficult to modify properly. So difficult that it becomes as expensive as developing the program from the ground up.
  • Time requirements. Unless you use the software as-is, you still need time to modify it.
  • Vendor risks. Same as with fully custom software, there is always a risk of working with less-than-honest companies.

Whether you need customized software should be determined on a case-by-case basis. Some domains have popular open-source systems to build upon, others don’t. Some customization is limited enough to make it worth the time and effort, while another can take even more money than a fully-custom project. Talk to your vendor to discuss this in-depth.

Conclusion

Should you have unique requirements or a goal of long-term savings in mind, custom software is your best bet. Customization of an open-source system presents a valid alternative, depending on your industry, specific needs, etc. And if you are just starting out and tight on cash, you will do well with pre-made software.

In case you still have questions (or want some help with making custom systems/customization) don’t hesitate to drop us a line.

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