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August 30, 2022

In-House vs. Outsourcing Software Development: What to choose?

Outsource software development or opt for in-house software development? Check out the article to learn more about both options and make the right choice.

Mitya Smusin

Chief Executive Officer

Decisions on in-house vs. outsourced software development have far-reaching effects on project results, resource allocation, and company goals in general. Companies regularly confront the challenge of finding the most optimal and economical approach to fulfill their software development requirements, particularly in light of the perpetual evolution of technology. So, what option do you opt for? We’ve prepared a comprehensive guide to put an end to this forever struggle!

When it’s Important to Make the Right Choice

Building any type of software product requires a development team. Everyone from technical experts to user experience and interface designers to QA engineers to project managers and business analysts has a significant role in creating the final product. So, the logical question here will be, “How should I start working with them?” Two main choices for you include hiring an in-house software development team and partnering with an outsourcing agency. On the one hand, in-house development seems more secure, but on the other, a lot of companies from various sectors regularly opt for outsourcing. Both options have their advantages and disadvantages, benefits and risks. In this article, we will cover these topics and help you make the right choice.

What is In-house Development?

Building a functioning and efficient in-house team is a long process of trial and error. Each team member, from a project manager to a junior developer, will need to perform a specific task where they can apply their expertise. The chances that you will hire a perfect team right away are quite low. But if you will be patient and make the best use of your resources, your efforts will pay off.

What is in-house development

Pros of In-house Development

Before making any decision, one always weighs all the cons and pros. Thus, we’ve got your back with total coverage of all the cons and pros. Here we go with some key pros: 

1. More Control

In-house teams allow for direct supervision and immediate communication. This can be crucial for real-time adjustments and quick decision-making. What else? First off, you may easily adjust to evolving requirements or market demands by swiftly shifting development paths with your in-house team, demonstrating flexibility and agility. Secondly, you can protect the privacy of your customers and the integrity of your intellectual property by keeping it safe inside your company. You may modify the program to fit your company's needs and incorporate it with your current infrastructure without any hitches, as well as make judgments and modifications more quickly since you're close to the development process. Finally, you’ll have a clear picture of your team's strengths and weaknesses, which enables you to make more precise project estimates and take proactive measures to reduce risks.

2. Clear Communication

Team members are more likely to work together and communicate effectively when they are all in the same room at the same time. Moreover, you’ll experience reduced wait periods for answers and resolutions to problems thanks to instantaneous information sharing. Developers will quickly absorb the corporate context and company culture, resulting in more relevant solutions. Thus, having one-on-one conversations will make it easy to get comments and suggestions at any point in the development process.

3. Talent Nurturing

As far as in-house development goes, this is the toughest aspect. First off, you’ll have to keep in touch with all workers, encourage them, and turn them from just employees to loyal ones. On the other hand, the payoff is a more educated team where competent members may teach and mentor one another, leading to an ever-growing body of expertise. Undoubtedly, the most alluring aspect is the opportunity to get a competitive edge in the market. For ambitious projects or game-changing inventions down the road, an in-house team of specialists might prove to be an indispensable asset. Participating in meaningful initiatives that have an impact on the company's performance may increase employee happiness and ownership, which in turn boosts motivation and dedication.

Cons of In-house Development

It’s fun to talk about the positive aspects of hiring in-house specialists but to make an informed decision, you need to know both sides of the deal.

1. High Costs

Hiring and retaining skilled developers comes with a significant financial investment, including salaries, benefits, bonuses, and equipment. You need to provide office space, hardware, software licenses, and other infrastructure expenses. Moreover, finding and onboarding new talent can be time-consuming and costly, especially for niche skills. Take into account that during periods of project inactivity, developers may not be completely employed, which can result in suboptimal allocation of resources.

2. Lack of Expertise

Depending on the location and specifications of the project, it may be difficult to locate developers with the required expertise due to the scarcity of available candidates. It can be challenging to assemble an internal team with all the required competencies, which may result in knowledge deficits and delays. Finally, internal development partners may adopt new technologies at a quicker pace than in-house teams due to their greater exposure.

3. Mitigating Strategies

  • Freelancers and consultants: Utilize these options for short-term projects or specific skill gaps instead of hiring full-time employees.

  • Offshore development: Consider outsourcing to teams in regions with lower development costs while managing time zone differences and communication effectively.

  • Upskilling and training: Invest in training existing employees to acquire new skills and fill knowledge gaps within the team.

  • Partnership with external vendors: Collaborate with specialized tech partners for specific aspects of the project instead of building everything in-house.

When to use in-house development?

When considering software development, in-house teams are a good fit if:

  • Everything about the development process—decisions, directions, and communication—is under your exclusive supervision. If the project requires special attention, is very secretive, or has complicated integrations, this can be vital.

  • You can afford to keep an in-house staff running strong because of your steady stream of projects or continuous maintenance requirements. However, there are cases when it could be more economical to outsource some tasks.

  • Due to security concerns or confidentiality requirements, the project cannot entrust sensitive data or intellectual property to external teams.

What is Outsourcing Software Development?

Outsourcing software development means you don’t hire an entire team as part of your staff. Instead, you sign a contract with a software development company that develops and releases your website, mobile app, or other types of software.

What is outsourcing software development

Thanks to the Internet, finding the right partner won’t be a problem. There are services like Clutch and GoodFirms that list thousands of agencies, so you can take a look at them, compare them, and contact those who fit you best.

Pros of Outsourcing

Outsourcing software development to third-party providers offers several advantages that can positively impact a company's operations. Here are some key pros of outsourcing:

1. Flexibility and Scalability

  • Rapid team assembly: You can quickly find and build a team with the exact skills and experience you need for your project, unlike waiting to hire and train in-house developers.

  • Effortless expansion: During peak development phases, scaling up the team size to meet increased demands and scaling back down again when less manpower is needed is easily achievable.

  • Reduced project risk: You can adjust the team size and expertise depending on project milestones and changing requirements, allowing for better risk management.

2. Cost Savings

  • Pay-per-use model: You only pay for the developer hours you utilize, avoiding the burden of full-time salaries, benefits, and overhead expenses.

  • Minimal infrastructure investment: You don't need to invest in expensive hardware, software licenses, or office space, as the third-party team provides these resources.

  • Reduced recruitment and training costs: No need to spend time and money on searching, interviewing, and onboarding new developers.

Global outsourcing rates
Source: Accelerance

3. Quicker Start and Increased Efficiency

  • Ready-made expertise: You tap into a pool of experienced developers with specialized skills immediately, eliminating the need for training and knowledge transfer.

  • Proven project management: Third-party teams often have established project management methodologies and tools in place, ensuring efficient workflows and smooth project execution.

  • Faster time to market: With a pre-assembled team and streamlined processes, you can launch your project to market quicker, gaining a competitive edge.

Cons of Outsourced Development

Outsourced software development also has some downsides that you should know about before signing a contract:

1. Lack of Control and Communication

  • Remote team management. Implementing clear communication channels and regular progress updates is essential to maintain oversight and control over the development process.

  • Establishing trust and fostering open communication with the development team is crucial for effective collaboration and ensuring project alignment.

  • Bridging cultural gaps and managing communication across time zones can be challenging, requiring proactive planning and flexible communication strategies.

2. Security Risks

  • Choose a provider with robust security measures and clearly defined data security protocols to minimize the risk of data leaks or breaches.

  • Intellectual property (IP) ownership: Carefully review and negotiate contracts to ensure clear ownership and protection of your intellectual property throughout the development process.

  • Third-party access and vulnerabilities: Limit access to sensitive data and code only to authorized personnel and conduct regular security audits to identify and address potential vulnerabilities.

3. Mitigation Strategies

  • Detailed contracts and SLAs: Define clear project expectations, deliverables, communication protocols, and security measures in formal agreements.

  • Establish a single point of contact within the development team for smooth communication and progress tracking.

  • Regular progress reports and code reviews: Implement ongoing feedback loops and code review processes to maintain control over the project’s direction and quality.

  • Security audits and penetration testing: Invest in regular security audits and penetration testing to identify and address potential vulnerabilities in your code and infrastructure.

When to use outsource development?

Whether you wonder how to create a hotel management system or how to build a mobile banking app, both insourcing and outsourcing can be useful. It’s hard to make a statement that one option is better than the other, but there are situations where each of them fits best. For example, PA Consulting (UK) claims that 71% of companies choose to outsource for cost reduction and 50% want to improve service quality. At the same time, control over intellectual property and faster time to market make them go in-house (63% and 88% respectively). So, what to choose? Here is the answer.

  • If you have a one-off project or a temporary surge in workload, outsourcing allows you to quickly scale up and down without long-term commitments.

  • Outsourcing can be significantly cheaper than building and maintaining an in-house team, especially when your budget is limited.

  • Lacking the specific expertise required for your project? Outsourcing offers access to a broader pool of talent with specialized skills you might not find locally.

  • If your in-house team is already juggling multiple projects, outsourcing helps prevent burnout and ensures timely delivery.

Outsourcing Stats
Source: Computer Economics

In-House Developers vs Outsourcing

There are several benefits and drawbacks to the endless war between in-house vs outsource software development. The project's specifics, available resources, and overall objectives are just a few of the considerations for deciding whether to handle it in-house or hire a third party. When it comes to software development, let's have a look at the main differences between in-house and outsourcing:

FactorIn-House DevelopersOutsourcing
RecruitmentTime-consuming & expensive, requires internal expertiseFaster & cheaper, access to specialized recruitment agencies
CostHigher overall cost (salaries, benefits, overhead)Lower hourly rates, but potential hidden costs (management, communication)
Talent PoolLimited to local market & available skillsWith access to a wider talent pool globally, specialized skills may be easier to find
Flexibility & SpeedCan quickly adapt to changing needs, direct communication facilitates fast decisionsMay be slower to adapt, potential communication delays
CommunicationProximity ensures clear communication, shared company cultureTime zone differences and cultural barriers can lead to misunderstandings
Process ManagementFull control over project development, direct influence on teamLess control, the potential for communication gaps and misalignments
SecuritySensitive data remains within the company, easier to control accessPotential security risks if data shared with external teams
Business FocusDevelopers dedicated to your company's goals & prioritiesMay have competing priorities with other clients

Additional factors to consider:

  • Project size and complexity: In-house developers may be the best option for large, complicated projects that need extensive knowledge of your company.

  • Technical expertise: If you need specialized skills unavailable locally, outsourcing can be a good option.

  • Your company must be prepared for potential security and communication risks associated with outsourcing.

  • Risk tolerance: Outsourcing carries potential security and communication risks that your company must be prepared for.

Why you should choose Yellow

Developing our products means a lot to us. The expertise we gain in creating our apps improves our skills and broadens our vision of app development. Here at Yellow, it means we don’t just help with programming your app. We can also help make your app a successful business.

Some stats to prove the point:

  • 7+ years on the market

  • 5+ years of building in-house products

  • 100+ client projects delivered on time and within budget

  • 70+ experienced engineers

To top it all off, we pay close attention to the client's participation in product development. We don't disappear only to come back in six months with a product you didn't want. Yellow values transparency and our specialists always keep in touch with our clients. We regularly ask for feedback and work with it efficiently to stay agile and deliver the right product.

Tips and Considerations

If you decide to stick to outsourced development, here are some tips to remember when choosing a service provider:

  • Pay attention to the region: Developers from various parts of the world can have the same hourly rate but different reputations.

  • Study their portfolio. You can ask them to send you case studies with specific projects from your industry to see their quality of work.

  • Sign the NDA. And make sure the company you work with follows the EU General Data Protection Regulation (GDPR).

  • Ask for transparency. You and the outsourced team should use tracking software like Jira or Trello to see the progress and always stay in touch via email or chat apps like Slack.

When Yellow was just starting, our team wasn’t expecting to create any in-house products. We were happy with outsourcing – helping our clients get their work done.

But this all changed when we took the plunge on our first self-created app. We went through the whole cycle, from the general idea to launching the app itself. The final result satisfied the entire team, and ever since, we have continued creating in-house products. How can knowledge from in-house app development help you? We’ll tell you about that right now. 

Source: Fairy


There is no silver bullet in the age-old dispute over in-house development vs outsourcing. Every strategy has its pros and cons, therefore it's important to carefully weigh them in light of the project's unique requirements, available resources, and strategic imperatives. Although there may be a greater initial investment, in-house creation provides unmatched control, personalization, and cultural fit. However, outsourcing demands careful control of external elements but offers scalability, access to talent throughout the world, and cost savings.

In the end, the choice is dependent on a delicate balancing act including project complexity, financial limitations, deadlines, and risk management. Instead of seeing in-house and outsourcing as two extremes, successful businesses see them as points on a continuum. Finding the sweet spot where all the moving parts meet both the specific requirements of individual projects and the overarching goals of the company is the key. Strategies for software development will also change as technology does, to help businesses adapt quickly to new circumstances and remain competitive.

🖱️ What is the difference between in-house development and outsourcing development?

The activity of creating and maintaining software or products internally by the staff of an organization is known as "in-house development." Hiring third-party organizations or people to oversee the production and maintenance of software or products is an example of development outsourcing.

🖱️ Is in-house better than outsourcing?

In the battle of in-house vs outsourcing software development, the choice between in-house and outsourcing depends on factors like expertise, control, and cost. In-house offers more control but can be costlier, while outsourcing may be more cost-effective but requires managing external teams. It's up to project requirements and organizational objectives to determine the optimal option.

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