A product company vs. an IT outsourcing business

7 months ago - 2 minute(s) read

 

Are we a product company or an IT outsourcing busines? More often than not we find ourselves explaining to potential clients that we use the later of the two models above. Understanding this distinction is paramount for business, so we’re laying here some fundamentals on these two different business models.

A product company is focused on developing and selling its own software, hardware or technology-based products to customers. On the other hand, a software outsourcing business provides technology services to other businesses. The products of the first could range from applications and software solutions to physical devices and gadgetswhile the second provides services such as software development, web development, IT support, cybersecurity or data management. Let's have a look below at the way they function in relation to some popular business aspects such as business model, revenue, IP ownership and more. 

 

The core business model

A product company develops their own software product and sells it, while we offer IT services to a wide variety of companies in need of software development, application maintenance, IT support, consulting or other IT related services.

 

Ownership of intellectual propery

In a product company the IP rights of the software product stay within the company and they have full control over features, roadmap or distribution. In the outsourcing business, the IP rights usually belong to the client.

 

Revenue model

While product companies sell their software products, an IT outsourcing business charges a fee per services, which are billed based on an hourly rate, project scope or service-level agreement.

 

Risk and reward

Usually, product companies take on more risks since they need to invest heavily in research and development, marketing and product improvement.

 

Now, these are just some of the many differences between these two business models.

 

Expertise

A product company specializes in product innovation while an outsourcing IT company offers specialized tech services. 

 

Control

A product company controls the product roadmap and direction, while the other will adapt to the client project requirements. 

 

Resource Allocation

A product company allocates resources for product development while the outsourcing IT company manages resources for diverse client projects. 

 

Do they ever interlap?

 

Yes, a company may be tempted to buy an off the shelves software product, hoping it would serve their digitizing needs accordingly.

Sometimes it works, most of the times it does not, so they turn to an outsourcing company to craft a custom software for their specific needs.

However, the two models mostly cater to different needs in the technology sector.

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