Custom and off-the-self Industry background :
The custom software industry grew rapidly during the tech boom of the late 1990's. When the economic downturn hit, however, business spending on equipment and software contracted even more than the overall economy. Business spending on computer equipment and software rose 6.4 percent in 2003, eight percent in the first quarter of 2004, and ten percent in the second quarter. Unlike the prepackaged software industry, which sells to consumers as well as corporate users, the custom software industry relies almost exclusively on corporate demand.
Whether demand for custom software services will continue to rise is far from certain. The present financial crisis is leading to lot of problems in custom software industry. Consumer confidence is declining, as is the rate of job creation. As businesses become more uncertain of the economic climate, they will be likely to control spending and be less likely to initiate new information technology projects. Businesses may be expected to continue to invest in ongoing IT projects and new projects that they believe will help them reduce costs or gain a competitive edge.
Seeking New Markets
In order to remain competitive, the custom software industry must expand into new markets. Fortunately, as long as the business world continues to grow and change, there will be a demand for new systems to keep up with the demands of the current business climate. New challenges facing the business world are often new opportunities for the custom software industry.
One challenge facing the corporate world is the increase of government regulation in the wake of recent accounting scandals. Compliance requirements with new Federal and state regulation can be expected to drive capital spending in the information technology fields of data storage, automation, architecture, and services. New regulations require companies to not only store data for several years, but to be able to retrieve the records quickly at the request of a regulator or auditor. While the regulations rarely require specific technologies, compliance essentially demands sophisticated programs for indexing, tracking, archiving, backup, and retrieval. Many companies are turning to customized software solutions to meet these demands.
Another market opportunity for the industry is the rise of consumer-driven healthcare (CDH), a concept in which consumers make more choices in their healthcare and health coverage. For example, under the CDH paradigm it is sometimes possible that a prescription for a given drug may be charged as either a preventive drug or a treatment for a chronic condition, with the medical coverage being different for each option. The consumer would make the choice, which would need to be tracked by either the consumer's employer of care provider.
Employers instituting more consumer-centric initiatives into their employee health care programs will need to make a number of strategic, operational, and IT decisions. The CDH market has a wide range of variation among regional and employer-specific models, making it ideal for providers of customized information technology solutions. It's also a developing market with little standardized software support in place. Even as prepackaged software solutions are developed for the CDH market, it is likely that they will need to be complimented by custom development in order for companies to create a total IT solution.
Competing with Off-the-Shelf Software
Prepackaged business management software has grown more sophisticated, providing more competition to the custom software industry. Prepackaged software is generally less expensive to acquire and requires less time to implement.
There are still advantages to having custom designed software. Few companies require all the features and functionality that come with off-the-shelf software and often end up adapting the software package to their needs. In many cases, a smaller, simpler application designed to meet the company's needs is more efficient.
Businesses must weigh the pros and cons of each option. Some companies argue that using packaged software forces workers to adopt standard processes that improve overall business performance. Others argue that if the company must change the way it operates to fit a prepackaged software model, such a change may rob it of its competitive advantage.
While economic indicators are uncertain, corporations will likely remain cautious about new information technology projects and investments. It is likely that demand for custom software development will continue, however, as corporations strive to meet new regulatory and business challenges.