Forrester’s Jeffrey Hammond recently posted some really interesting data on custom software spending based on a survey of 1,138 IT professionals in North America and Europe in Q42009.

According to Forrester, companies will spend, on average, 27 percent of their software budget on custom software development.  An additional 35 percent of their software budget will be spent on packaged applications while the remaining 37 percent will be spent on platform and infrastructure software.  Keep in mind that this data is specifically focused on software budgets, not personnel costs or hardware.  Purchasing software such as application servers, IDEs, design & modeling tools or testing tools, make up the 27 percent.  In essence, companies will spend, on average, 27 percent of their software budget to purchase software that will enable their developers to build custom applications or customize packaged applications.

I was most surprised to learn the types of applications that are being custom developed.  Not surprisingly, industry-specific applications tops the list.  However, information and knowledge management, CRM, Finance & Accounting, Order Management and ERP applications follow closely behind.  Jeffery explains the findings:

“It may seem a bit surprising that CRM is the third place category when it comes to custom development – after all CRM is a solved problem with packaged app options like SalesForce and Siebel – right? Well, not necessarily – as firms double down on keeping their existing customers and finding new ones they are investing in a larger concept of customer relationship management, including enhanced self service, improved user experiences, and customer-centric integration of the systems that run their businesses – that’s pretty hard to buy out of the box.”

I agree packaged software often has its limitations versus custom software.  However, there is no reason that capabilities that deliver, for instance, enhanced self service or customer-centric integration, could not be layered onto a packaged application.  The build versus buy discussion suggests a binary choice. The reality is customers do both, they buy packaged applications and build extensions and tailor the packaged application to their needs.  This points to the importance of tailorable and extensible software building blocks.  It could be suggested that source code availability delivers a more tailorable and extensible application starting point than closed source products can provide.  However, open and extensible APIs have a significant role to play in allowing developers to take a piece of software, open source or not, and use it as the basis for an application that their business or customer requires.

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