Rent Before You Buy Into Offshoring

By Andrew Binstock

June 1, 2006 —

Despite the fond hopes of many developers, the outsourcing and offshoring trend that began a few years ago is clearly a permanent fixture. Although there have been a few highly publicized failures, the basic premise of lower-cost software produced overseas has been validated. The original glitches have been worked out as U.S.-based companies have learned to manage such projects.

Developers in the United States have basically three responses to outsourcing: work for an employer that does not outsource yet, move to higher-value work or into management of outsourced projects, or leverage outsourcing themselves.

In previous columns on this topic, I have discussed the first two options. In summary, the first approach has a whiff of sticking your head in the sand. Companies that don’t offshore today are likely to do so tomorrow, as I’ll explain shortly. Working for them is a temporary solution—fine as you approach retirement, but not exactly the basis for a career decision.

The second approach of acquiring more skills is clearly a winner and is an active response, not a flight to temporary safety.

The third option is for you to leverage offshoring. This seems crazy at first blush, because the general view is that only big companies go offshore. This view is nonsense. And as more firms see how easy it is to outsource part of their work, there will no longer be safe havens for the head-in-the-sand types.

One way to outsource development is to use RentACoder (www

.rentacoder.com) as described by my colleague Allen Holub in his May 15 column (“The Clearinghouse Model,” page 37). This is a site that works similarly to eBay. Companies post projects and a rough estimate of how much they’re willing to pay. Coders bid on the projects. Money is placed in an escrow account and freed by the contracting company as milestones are met.

Both companies and coders are rated on a 10-point scale. The top developers are listed in descending order of their ratings, so companies that want to contact or contract with the best of the available pool can do so directly. Of the top 10, three are located in the United States (including the top two spots), with India and Romania taking most of the remaining places.

I spoke with a user of RentACoder, who was himself a former developer but is now successfully running a direct-sales organization. He needed a fresh corporate design, including a new logo, an interactive Web site, a shopping cart and all the requisite security mechanisms. He placed his bid on RentACoder, and 45 days later he had a new look, a new Web site, and he was steadily taking orders via the Web. Total cost: US$1,000. And, as he points out, it would have cost less, but for the fact that the first designer was not as good as he wanted. So the figure includes two designs of the corporate look.

At these prices, it makes lots of sense for even small firms to consider outsourcing projects. As the user confided to me, “I know C++, and I’ve done assembly language development, so I could have learned PHP and set it up myself. But I could not have done it as fast, as well, or as cheaply as by outsourcing it this way.” Web sites and database work hugely predominate the kinds of projects for which companies use RentACoder. This makes sense as those projects tend to be one-time efforts that call upon skills that might not exist in-house.

Suppose that you are a developer in charge of a similar project (and which does not require exposing existing code to an outside entity). Does it make sense to hire those skills or outsource them? And if

you can be assured of high-quality work, doesn’t it make sense to get that work done at the lowest possible price? I think so.

Moreover, I believe that as companies identify developers whose work is consistently superior, they will integrate them into the team on a contract basis, and the offshoring model will work its way into all the nooks and crannies of U.S. commerce. You can and should leverage this resource rather than fighting back in a losing struggle.

Outsourcing could well branch out beyond this point. For example, TopCoder (www.topcoder.com) sponsors worldwide programming competitions in which developers design reusable components. The best-implemented of these components are then made available on the company’s Web site and royalties are paid to the developers. Offshore component development—especially of reusable components—is a natural evolutionary step.

Whatever the future holds, it’s clear outsourcing and offshoring will expand into new niches. And smart folks will figure out how to exploit the benefits to their professional advantage.

Andrew Binstock is the principal analyst at Pacific Data Works.

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