Build vs. Buy: The Product Manager’s Dilemma
As a product leader or startup founder, one of the most critical decisions you’ll face is whether to build a custom solution in-house or buy an off-the-shelf product. This isn’t just a question of technology-it’s a question of strategy, speed, resource allocation, and long-term vision.
Let’s dive deep into the build vs. buy debate and explore how to make the best decision for your product and company.
Build: The Road to Customization and Control
When you choose to build, you’re taking on the challenge of crafting a solution that fits your product’s needs perfectly. This path is often tempting, especially if the solution is core to your product’s value proposition or if there isn’t a readily available tool in the market that meets your needs.
Example 1: Building a Custom Recommendation Engine
Take, for instance, a project I led in a B2C delivery platform. We had a decision to make regarding the recommendation engine, which was pivotal to the customer experience. The off-the-shelf solutions we explored lacked the flexibility we needed to offer highly personalized recommendations. Building in-house meant we could design the engine to use unique customer data in ways that off-the-shelf solutions simply couldn’t.
The result? After months of development and optimization, our custom-built recommendation engine increased user engagement by 25% and drove repeat orders up by 18%. However, this success didn’t come without challenges. The project consumed significant development resources, required ongoing maintenance, and delayed other product features.
Case Study: Netflix’s Content Delivery Network (CDN)
One of the most famous examples of “build” in action is Netflix’s decision to build its own content delivery network (CDN), Open Connect, rather than relying on third-party solutions. Netflix initially depended on third-party CDNs like Akamai but soon realized they needed better control over how content was delivered to provide a superior streaming experience.
Building their own CDN gave them control over quality and efficiency, which was core to their product’s value proposition-streaming high quality content without interruptions. This move improved performance, reduced latency, and ultimately enabled Netflix to serve content to over 231 million global subscribers, making it a clear strategic win. However, this wasn’t an overnight success. It took years of engineering effort and cost millions of dollars in infrastructure investment.
When to Build: Key Considerations
Core to Your Product: Is the solution a fundamental part of your product’s value proposition? If it’s central to what sets your product apart, building might be worth the investment.
Need for Customization: Off-the-shelf products often have limited flexibility. If you need a solution that’s highly tailored to your business model or user experience, building might be the best option.
Long-term Vision: Building is a long-term commitment. Consider the cost and time to maintain, scale, and optimize. Netflix didn’t just build its CDN and move on-it continues to invest in it to improve streaming quality.
However, these advantages come with significant downsides-particularly in terms of time and resource allocation. Building in-house takes months, if not years, and requires heavy upfront investment in both time and money. If your company is in a hypercompetitive market, the delay could mean falling behind competitors.
Buy: Speed, Reliability, and Focus
On the other side of the coin, buying an off-the-shelf solution offers speed, reliability, and cost efficiency. This option is often the best when you need to deliver quickly and when the problem you’re solving isn’t unique to your product.
Example 2: Purchasing an Insurance Claims System
When I worked on a healthcare marketplace, we faced the dilemma of building or buying an insurance claims management system. The core of our product was around healthcare services, not claims processing, so we decided to buy a prebuilt solution. This decision allowed us to reduce claims turnaround time by 33% and saved us months of development time. It also freed up our engineering team to focus on improving the core features of the product.
Case Study: Slack’s Decision to Buy for Video Conferencing
A well known example of buying is Slack’s decision to integrate with Zoom rather than building its own video conferencing tool. As Slack CEO Stewart Butterfield explained, they could have invested time and resources to build an in-house video solution, but buying and integrating Zoom allowed them to focus on what they do best-building the best communication platform for teams.
This decision paid off, as Slack was able to meet customer demands for video conferencing immediately without delaying other core product updates. It was a prime example of how buying can accelerate time-to-market, enabling businesses to stay competitive.
When to Buy: Key Considerations
Speed-to-Market: In fast moving industries, time is of the essence. Buying a solution allows you to get to market quicker and can be the difference between leading or lagging behind competitors.
Proven Solutions: Off-the-shelf products are often battle tested and come with support, documentation, and best practices. You’re not reinventing the wheel, which can save both time and headaches.
Non Core Functions: If the solution isn’t central to your product’s unique value, there’s no need to build it. Focus your resources on areas where you can innovate.
However, buying is not without its limitations. Off-the-shelf solutions can lack the flexibility to evolve with your product’s growth. You may also become dependent on a vendor’s roadmap, limiting your control over the feature set and future updates.
Metrics, Statistics, and the Real Costs of Build vs. Buy
The choice between building and buying often comes down to cost-not just the upfront cost, but the total cost of ownership (TCO). According to a study by Forrester Research, companies that opt to build in-house often underestimate the true cost by as much as 50%. This is due to factors like ongoing maintenance, unexpected complexity, and tech debt.
On the other hand, buying can appear cheaper initially but can become more expensive over time due to subscription fees, vendor lock in, and limited scalability. Forrester also notes that companies using off-the-shelf solutions experience increased agility, with 78% reporting faster time-to-market.
The Hidden Costs of Building
Development Costs: Engineering resources are expensive. Building a custom solution often requires hiring specialized talent and can cost upwards of $500k for even relatively simple applications.
Maintenance: Once you build, you’re responsible for ongoing maintenance, security updates, and scalability improvements, which can add another 2030% to the total cost annually.
The Hidden Costs of Buying
Vendor Lock In: Once you integrate an off-the-shelf solution, switching can be difficult and costly. 85% of businesses report challenges in migrating away from third-party solutions once deeply integrated.
Customization Limitations: While buying gets you speed, it can come at the expense of flexibility. If your product scales or evolves, off-the-shelf solutions may no longer meet your needs, forcing costly workarounds or integrations.
A Strategic Decision
Ultimately, the decision to build or buy should align with your company’s long-term strategy. Here’s a framework to guide your decision-making process:
- Core Competency: Is this solution integral to your product’s core value? If yes, building might be the right choice.
- Time-to-Market: Do you need to move fast? Buying may help you gain a competitive advantage by launching quicker.
- Cost: Consider not just the upfront cost but the total cost of ownership over time. Factor in both development and maintenance for building and vendor fees and limitations for buying.
- Scalability: Will the solution scale with your business? Both custom-built and off-the-shelf solutions have limits, so plan for future growth.
As a product leader or startup founder, the build vs. buy dilemma is one you’ll encounter frequently. Each option comes with tradeoffs, but the decision should always tie back to your product’s long-term goals and business priorities.
Building gives you control and customization, making sense for core, innovative features. Buying offers speed and reliability, allowing you to focus on your product’s unique value. The key is to balance innovation with efficiency, making the choice that will best serve your product, team, and customers.
So, how will you approach your next big decision-will you build or buy?
What’s your take? Let’s discuss in the comments below.
Originally published at https://jainvarun.com on October 9, 2024.
