Has Death💀 Come for Custom Software Development Companies?
Custom software development is still a key part of the tech world, but a number of factors are changing the game and creating risks for businesses that depend on this model.
Let’s face it, these challenges aren’t exactly new, but they’ve definitely been accelerated by things like the COVID-19 pandemic, remote work, increased specialisation, and changing client expectations. At INDUSTRIA, even though we focus on several areas like enterprise blockchain, automation, industrial IoT, and process orchestration — we still end up doing quite a bit of the traditional “can you build us some software” type of work, which falls under custom software development.
Lately, though, we’ve noticed a dip in demand for this kind of work 😔. We’re seeing more calls, emails, and LinkedIn messages from competitors saying things like “Do you have any projects for us?” I’m not overly worried, but it’s clear there are several factors at play, and I’ve been thinking about the risks that businesses like ours face in this area. So, I’ve put together a list of key risks in an article.
Interestingly enough, I’ve been invited to speak at a risk management conference later this year 😀 — yes, me, talking about risk! I didn’t see that coming, but it was a nice surprise. So, I’m using this as a bit of practice to sharpen my risk observation skills. Bear with me if I stray off track now and then!
1. Commoditisation of Software Development
Off-the-shelf solutions and no-code/low-code platforms now allow companies to implement software without the need for custom development. These tools have become highly advanced, covering a wide range of business needs at a fraction of the cost and time required for bespoke solutions. Tools like my favourite Oracle APEX, which has been in production for over 15 years and is now at version 24, continue to offer a powerful platform for building apps efficiently. Competitors like Airtable, Microsoft Power Platform, Zoho Creator, and even big tech players such as Salesforce with their Lightning platform provide easy-to-use environments for developing functional software. For sure Microsoft Access and Excel are still common choices for low-cost, quick solutions that can get the job done.
Risk: As businesses move towards these faster, more affordable alternatives, demand for custom development could decrease, especially for straightforward or routine projects. When companies only need simple workflows or short-term solutions, these platforms can often meet their needs.
Counter-Argument: Custom development still holds its ground in areas of complexity, scalability, and specific industry demands. Sectors such as healthcare, finance, and industrial automation often require bespoke software to comply with stringent regulatory and operational standards — areas where out-of-the-box solutions or no-code platforms fall short. Businesses dealing with sensitive data or intricate processes often need custom systems tailored to their exact requirements, which is where the strength of custom development remains clear.
2. The Rise of AI in Development
AI tools are increasingly automating parts of the coding process, helping developers generate functional code more quickly. Developers are now turning to AI for assistance, often replacing platforms like Stack Overflow, as these tools not only provide code snippets but can actively help write and boost the coding process. In fact, a significant proportion of coding is now handled by AI, which poses a real threat to custom software development companies.
Risk: As AI tools become more capable, companies may reduce their need for custom development, especially for routine coding tasks. This could also put downward pressure on developer rates, as productivity rises and less manual input is needed.
Counter-Argument: However, custom software development is about much more than just generating code. Tasks such as system architecture, integration with existing infrastructure, security, and ongoing maintenance cannot be fully automated. For instance, AI-generated code often requires significant refinement or oversight when it comes to complex, large-scale enterprise systems — an area where human developers remain crucial. Custom solutions also need to address specific business requirements that AI alone cannot interpret or deliver with the necessary depth and understanding.
After All Is AI killing software development?
Yes, slowly.
AI is gradually changing the landscape of software development, particularly when it comes to routine and repetitive coding tasks. Developers are increasingly relying on AI to generate code, troubleshoot problems, and even optimise workflows. With tools now capable of handling a large portion of basic coding, the need for human developers in these areas is shrinking.
However, while AI is making inroads, it’s not replacing the entire software development process. Complex system design, architecture, security, and deep customisation are still very much human domains. AI can accelerate certain tasks, but it lacks the creativity, contextual understanding, and problem-solving capabilities that many bespoke projects require. So while AI is slowly reducing the demand for certain types of development, it’s not killing the field outright — at least not yet.
3. Globalisation and Price Competition
We’re seeing a noticeable shift in projects moving away from Central and Eastern Europe, regions that were once thriving hubs for outsourced software development. While this isn’t necessarily the death of custom software development in these areas, it is one of the main drivers of a significant transformation within the industry. The competition for lower-cost alternatives elsewhere is squeezing traditional outsourcing regions, forcing companies to adapt.
For example, I recently met a guy at a conference in Vienna who runs a team of 120 developers in Hungary, and he was complaining about a sharp drop in work. It’s a sign that even well-established regions are feeling the pressure as companies seek cheaper options, moving projects to other areas like Central Asia or the Philippines.
Risk: This shift can pose challenges for custom development firms in higher-cost regions, like those in Central and Eastern Europe, as they lose out on price-sensitive projects to newer, lower-cost destinations.
Counter-Argument: However, this trend doesn’t spell the end for custom software development companies in these regions. The key for the vendor to deliver high value quality, specialisation, and strong client relationships. While customers will always come for low costs, they often prioritise trust, communication, and domain expertise, especially in sectors like finance, legaltech, and healthcare where the stakes are really high. Firms that can position themselves as trusted, high-quality partners will still find demand for their services, even in a rapidly shifting market.
4. Remote Work and the Rise of Small, Nimble Teams
The COVID-19 pandemic sparked a remote work revolution, which has fundamentally shifted the traditional model of large, office-based development teams. Talented developers can now form small, specialised teams and work remotely from anywhere in the world.
Risk: The rise of small, remote teams poses a challenge for larger development firms. These smaller teams can offer greater flexibility, lower costs, and a more personalised service. For instance, a company needing a custom CRM system may opt for a small team of remote developers, avoiding the overheads and costs that come with hiring a larger agency.
Counter-Argument: While these small teams have their advantages, they often lack the breadth and depth of expertise that larger development firms can provide. Projects that require cross-functional teams — such as those involving UI/UX design, DevOps, or cybersecurity — are often better suited to larger companies with more diverse capabilities. Custom software firms that can strike the right balance between agility and scalability are likely to thrive in this changing market.
On a related note, I’ve always had a bit of a distaste for many HR companies due to some of their questionable practices. Lately, I’ve noticed some are now ‘selling’ teams of people, which I found laughable. At a recent event, I jokingly pointed out to them that we used to call those teams ‘companies’, ones where we paid social security and taxes. The best part was watching them sheepishly agree, eyes down, as if they were caught red-handed. It was an amusing but telling moment about the evolving nature of the industry.
5. Client Distrust in Large Custom Software Development Projects
In recent years, there’s been a growing scepticism from clients towards large-scale custom software development projects. Due to a combination of factors that go beyond just technical expertise, these projects are increasingly viewed with more suspicion. They also span years and reqiure substantial resources. I’ve observed this firsthand in our work with banks and other financial institutions in the BFSI industry in London. It’s become almost a rule shared among CIOs and CTOs: Large, complex projects are increasingly seen as risky and inefficient. Start it cautiously, it’s too much complexity.
Risk: Overly Complex, Slow-Moving Projects
One of the core issues is the sheer scale and complexity of these projects. When a custom development project becomes too large, it starts depending heavily on the knowledge and availability of a particular consultants and internal teams (I call them ‘the sacred cows’ 🐮). TThe reliance on such individuals or groups leads to potential bottlenecks and delays.
Clients often feel that these projects take ages to deliver tangible results, which can erode trust in the process. Business needs and priorities evolve quickly, and projects that stretch on for months or years risk becoming obsolete before they’re even completed. In industries like banking, where agility and responsiveness to market shifts are crucial, these long timelines simply don’t align with the fast-paced environment.
Vendor Lock-In and Intellectual Property Concerns
Another major pain point for clients is the risk of vendor lock-in, both in terms of intellectual property (IP) and how the code itself is written. When a project is dependent on a specific vendor’s development team, clients often worry that they’ll be stuck with a proprietary system that they cannot easily adapt or transfer to another provider.
The way the code is structured, or the methods used, can be highly vendor-specific, making it difficult for another team to pick up where the original vendor left off. This often results in long-term dependency, driving up costs and reducing flexibility for the client. We’ve seen this play out within the BFSI sector, where many clients feel trapped by long-term vendor relationships that stifle their ability to adapt and innovate.
Business Needs Change Faster Than Development Timelines
A significant risk for large custom software development projects is that the business climate can shift more quickly than the project’s timeline. In today’s world, agility is key, and a project that takes too long to develop risks becoming irrelevant by the time it’s completed. This can leave clients feeling frustrated, after pouring a lot of time and resources into a solution that no longer aligns with their always changing needs.
For instance, a bank may initially require a specific platform for regulatory compliance, but after two years of development, new regulations or market conditions may make the original requirements outdated. We’ve even come across RFPs and RFIs where vendors are expected to cover the cost of any changes if a new regulation suddenly comes into play. Can you believe it!? Therefore businesses (particularly in sectors like finance) need flexibility to adapt to new trends, regulatory changes, or market opportunities on the course of product development. Lengthy development cycles or unflexible development fail to accommodate these shifts.
Counter-Argument: The Need for Agile, Incremental Delivery
The distrust clients have in these large, monolithic projects highlights the need for custom software development firms to rethink their approach and become more flexible. Clients today want faster results and flexibility, which calls for adopting agile methodologies (apropos, ⚠️ clients still think of Gantt charts and waterfall projects but say ‘agile’, however this is a topic for another article). Agile development allows for incremental delivery, where clients can see tangible progress early on and throughout the project. This not only builds trust but also allows for changes and adaptations to be made as business needs evolve.
Focusing on open standards and ensuring that the intellectual property (IPR) remains with the client can ease fears of vendor lock-in. Offering modular solutions that can be easily transferred or adapted by other developers increases client confidence, knowing they aren’t permanently tied to one vendor.
Clients’ scepticism towards large custom software development projects is rooted in legitimate concerns. Long timelines, dependency on specific vendors, and the fear of vendor lock-in are real challenges that affect their willingness to commit to such projects.
6. Clients Forming Their Own In-House Development Teams
It’s not just start-ups and tech-savvy businesses forming their own in-house development teams — banks are doing the same, often building teams with hundreds of developers. I remember meeting a Russian banker a few years ago who looked me straight in the eye and said, “We are an IT company with a banking licence.” That really captures the shift we’re seeing across industries.
Risk: Clients, especially those with tech-heavy business models, as well as major financial institutions, are increasingly forming their own in-house IT development teams. For instance, a fintech start-up might develop its entire product internally to maintain tighter control over intellectual property and technical direction, while banks are assembling vast teams to drive their digital transformations, reducing reliance on external custom software firms.
Counter-Argument: Custom software firms can still carve out their niche by positioning themselves as strategic partners, offering expertise in areas where in-house teams may not have the necessary experience, such as scaling large systems, handling complex security challenges, or navigating industry-specific regulations. Even banks and tech-driven businesses often outsource critical parts of their development to external firms, especially for specialised tasks like security audits or compliance work, where external expertise is often required.
An interesting contradiction has also emerged, which we hadn’t anticipated. Some start-ups and even larger companies initially turn to custom software development firms, even when their long-term goal is to build an internal team. The challenge often revolves around control and cost. Custom software firms, by nature, charge for their teams and value-added services, whereas many start-up owners, and even some larger businesses, expect full control, extra after-hours effort, and prefer to pay basic salaries without factoring in the added value that external firms bring.
The truth is, working for start-ups — and even for large clients like banks — isn’t just challenging; it’s incredibly tough. And, in many cases, it’s far from lucrative 😔. The expectations versus the compensation create a difficult environment for custom software firms, highlighting that while these industries present opportunities, they also come with significant challenges.
7. Client Demand for Speed and Agility
Clients today expect faster turnarounds and greater agility in the development process. Traditional models, particularly those following waterfall approaches, have lost their appeal in an environment where businesses need to respond rapidly to changing market conditions.
Risk: Firms relying on longer development cycles risk losing clients to more agile competitors who can deliver MVPs (minimum viable products) quickly. In a world where speed and adaptability are critical, these firms may struggle to meet the demand for fast, iterative development.
Counter-Argument: Custom software firms can adopt agile methodologies to cater to these new demands. Providing incremental delivery, frequent client feedback, and continuous iteration is essential. Many start-ups, for instance, prefer working with firms that can offer early-stage prototypes, allowing them to test and pivot quickly, rather than waiting for a finished product months down the line.
I recently heard a colleague mention that a company was even closing opportunities based on nothing more than a Figma prototype and Google Forms — it shows just how agile some clients expect things to be.
While this demand for agility can tie into the broader issue of distrust in large custom software projects, it’s a separate challenge. Clients are not just wary of long-term, resource-heavy projects; they also want faster, more flexible solutions to meet their immediate needs. The ability to adapt quickly and provide value early is becoming a key differentiator for custom software firms.
8. Ecosystem Lock-In via Platforms
Major tech platforms such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud are making it increasingly straightforward for businesses to build software directly within their ecosystems. These platforms offer integrated tools, reducing the need for custom-built solutions.
Risk: Businesses may increasingly turn to these platforms, as they provide fast, scalable solutions that meet a wide range of needs straight out of the box. With so many ready-made options available, the demand for bespoke development may decline.
Counter-Argument: However, custom development firms can still add significant value by specialising in platform integration and optimisation. For example, assisting businesses in maximising the efficiency of their AWS setup or building tailored add-ons for Microsoft Dynamics can continue to drive demand for bespoke services.
From my own experience as a customer, I can confirm it’s often far easier to work with a tool from a proven vendor like AWS. While I’ve heard some negative feedback about certain aspects of their developer user experience, most of what I’ve seen has been well thought-out. Their tools are positioned effectively, easy to use, with minimal coding required, and solutions tend to work seamlessly within their ecosystem. The company itself is stable, so you might ask: why go through the hassle of developing costly custom software when these platforms offer so much?
9. Cybersecurity and Data Privacy Regulations
As global data privacy regulations continue to evolve, ensuring compliance has become an increasingly significant challenge for software developers. While off-the-shelf software may offer general compliance, many industries have unique requirements that necessitate custom solutions.
Risk: The complexity of meeting these regulations could discourage clients from pursuing custom development, particularly due to concerns around liability. Obtaining the necessary licences or ensuring compliance with specific regulations in areas such as data protection, consumer rights, medical protection, environmental sustainability, and cybersecurity can be a lengthy and complex process. This may deter companies from opting for custom software, preferring established, pre-compliant solutions instead.
Counter-Argument: Custom development firms that position themselves as experts in security and regulatory compliance can offer highly specialised services, which are particularly attractive to clients in heavily regulated industries such as healthcare, finance, or legal. Firms that can ensure compliance with key regulations like GDPR, HIPAA, or the CCPA can become indispensable partners for businesses in need of tailored, compliant software solutions.
Although the process may be complex, custom firms that excel in navigating these regulatory landscapes can provide significant value by delivering solutions that off-the-shelf products simply cannot offer.
The Slow Death of Custom Software Development Firms💀
Custom software development companies can be likened to the print houses or bespoke tailors of the past. Just as print houses provided personalised solutions — crafting unique books, invitations, or marketing materials to meet specific client requirements — custom software firms tailor their solutions to fit a business’s exact specifications. Similarly, bespoke tailoring involved handcrafting suits to the unique measurements and preferences of a customer, ensuring a perfect fit that off-the-shelf clothing could never quite match.
In the same way that mass production and standardisation eventually replaced many of these personalised services, today’s businesses often turn to off-the-shelf software for quick, cost-effective solutions. However, much like bespoke tailoring continues to hold value for those who seek quality, individuality, and a perfect fit, custom software development remains essential for businesses with unique needs that cannot be met by standardised solutions. Just as a bespoke suit offers unmatched precision, custom software offers flexibility, scalability, and integration that pre-built platforms simply cannot provide.
Both fields — whether tailoring or print — are reminders that there will always be a demand for personalised, expert craftsmanship, even in an age of automation and mass production. The key, as with bespoke suits or custom-printed works, is in delivering something truly unique and tailored to the client’s needs.
That said, a slow death is coming for custom software firms that fail to evolve. With the rise of remote work, global price competition, and the increasing ease of forming in-house development teams, clients are demanding speed, flexibility, and more focused solutions. Firms that continue to offer only programming services without added strategic value are on borrowed time.
Death💀, death💀, death💀 to those offering little more than coders plugging away at programming languages without understanding the broader business landscape or providing value beyond the code itself.
To survive and thrive, custom development firms must adapt by embracing agile practices, diversifying their offerings, and positioning themselves as strategic partners who deliver real value. Those that fail to evolve will be overtaken by smaller, more nimble competitors or automated, pre-built solutions. Success will ultimately depend on how well firms can navigate this increasingly complex landscape, balancing specialisation with the ability to deliver broader value to clients who expect more than just lines of code.
Feel free to share your thoughts in the comments below. Do you think ‘the death’ of custom development companies is an overstatement? In the meantime, feel free to visit my company website or schedule a call with me if you’re looking for digitalisation advice.
