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Buy or Build Software

Purpose: Evolve a framework for understanding costs related to buying/renting operations software at a business and evaluating whether to build the software internally using AI.

Costs and Requirements​

  1. Identify Business Needs
  2. Evaluate Options
  3. Cost-Benefit Analysis
  4. Compatibility and Usability
  5. Vendor Factors

Identify Business Needs​

  • Clearly define the core functions and features required by your business
  • Understand the specific tasks the software needs to perform and problems to solve

Evaluate Options​

  • Compare features offered by potential software solutions with business needs
  • Determine which features are included in base licenses vs. extra costs
  • Analyze actual usage patterns to avoid paying for unused features/capacity
  • Consider customization and integration capabilities and costs

Cost-Benefit Analysis​

  • Calculate total cost of ownership including upfront, recurring and hidden costs
  • Evaluate productivity gains, cost savings and business value enabled by the software
  • Compare costs and benefits of different options using matrices, charts, ROI analysis
  • Factor in long-term benefits like enhanced efficiency that can outweigh upfront costs

Compatibility and Usability​

  • Ensure new software integrates with existing systems to avoid custom development
  • Evaluate ease of use with existing workflows, processes and practices
  • Test options with end users to validate usability

Vendor Factors​

  • Research vendor reputation, financial stability, support quality and SLAs
  • For critical operations software, prefer established vendors in your industry
  • Understand vendor roadmaps and future development plans

In-House Development​

Evaluating In-House Development with AI

  1. AI Capabilities
  2. Costs and Timelines
  3. Risks and Dependencies
  4. Hybrid Approach

AI Capabilities​

  • Evaluate maturity of AI coding agents to autonomously develop needed software
  • Determine if AI can deliver full functionality and quality required by the business
  • Test ability of AI pricing agents to accurately model costs of software options

Costs and Timelines​

  • Estimate costs to engineer and train AI agents to develop the software in-house
  • Project timeline for AI development vs. implementing an existing software solution
  • Factor in ongoing maintenance and enhancement costs of AI-developed software

Risks and Dependencies​

  • Assess risks if AI is unable to fully deliver working software as expected
  • Determine any dependencies on external data, APIs or technologies for AI development
  • Evaluate compliance of AI-generated code with any industry regulations and audits

Hybrid Approach​

  • Explore using AI to develop non-core software components to reduce costs
  • Evaluate integrating AI agents with expert human developers for critical components
  • Continuously monitor and refine AI agents based on feedback and business needs

Vertical SaaS​

VSaaS refers to software solutions tailored to specific industries or verticals.

  • The first wave of VSaaS brought services online, while the second wave integrated fintech solutions, increasing revenue per customer by 2-5x.
  • The third wave of VSaaS, which combines cloud, fintech, and AI, is the most impactful. It expands the capabilities of VSaaS by turning labour into software.
  • AI enables VSaaS companies to take on tasks previously too complex for software, such as marketing, sales, customer service, operations, and finance.
  • By incorporating AI, businesses using VSaaS can significantly reduce internal and external labour costs for non-strategic roles.
  • As an example Mindbody serves fitness and beauty studios, to illustrate how AI can augment or replace various business functions.
  • AI is expected to further increase the revenue per customer for VSaaS companies by an additional 2-10x.
  • AI will not only increase revenue per customer but also open up opportunities in adjacent markets previously considered too small or not cost-efficient for customer acquisition.

See Future of Work for more related analysis.