Current State of Software Outsourcing Market

Outsourcing software development is becoming increasingly popular as competition grows and technology evolves at a break-neck speed. Organizations of all shapes and sizes are looking toward external partners to help them keep pace with the pace of innovation, ever-changing customer expectations, and a complex security landscape where one tiny vulnerability can take down a company.

Below, we’ll look at some of the top software development trends of 2021 and discuss their impact on the global software outsourcing market.

Outsourcing Forecast

According to Statista, global IT contracts are currently worth an estimated $66.5B, with that number expected to rise in the coming months and years.

So, what’s driving demand? Well, obviously, COVID is a factor.

The rise of remote work and the need to respond to changing customer needs/expectations have forced companies to seek out new solutions to help them navigate the new, all-virtual world.

The World Economic Forum predicts the number of permanent remote workers will double in 2021. Many organizations have been forced to innovate rapidly to keep up with new demands, maintain a competitive advantage.

At the same time, employers have some concerns about the “new normal.” A 2020 CGS report that looked at the impact of the pandemic on IT and outsourcing investments found that:

  • 47.6% of respondents changed their business strategy post-COVID
  • 42.9% said IT/technology problems were inhibiting employees’ ability to work from home
  • 41% said they had security/data privacy concerns with employees working from home

Another study from Gartner found that companies are redirecting resources toward new priorities: 76% of CIOs report an increase in demand for new digital products/services, and 83% say they expect demand to continue to rise in 2021.

A recent Futurum report found the following to be the top three barriers to digital transformation:

  • Lack of technical knowledge or skills (42%)
  • Lack of appropriate partnerships (36%)
  • Procurement or budget issues (36%)

Organizations looking to outsourcing companies to overcome these barriers: cut costs, stay innovative, and address the continued IT and software development skills shortage.

At the same time, it’s important to note that it’s not just COVID that’s behind the increased demand for outsourcing providers. It’s also converging technologies like artificial intelligence, the IoT, big data, the cloud, and countless others, the pressure of digital transformation, and customer expectations.

Part of what’s behind the move toward outsourcing is, organizations face a lot of pressure to do more in less time. Tiempo’s Juan Carlos Mena Osorio says, “These days, there’s more emphasis on delivering small functional modules (with Agile) and making incremental changes from the start of the project rather than building a working solution entirely without delivering small functionalities from the start of the project.”

Octavio Islas has also noticed a similar pattern. “over the last few years, I’ve seen software companies moving toward faster project implementation, with more customers embracing new methodologies like CI/CD.”

For outsourcing teams, that means they’re working closely with clients on an ongoing basis—focused on providing long-term business value vs. one-off services.

In these next few sections, we’ll take a closer look at the trends contributing to demand.

Software Development Trends: 2021

Today’s top software development trends largely focus on streamlining both the development process and other job functions and keeping systems and data safe and secure. Here are some of the major trends shaping the global software outsourcing market in 2021 and beyond.

Cloud

Tiempo’s Javier Trevino says there are several things companies can do to gain a competitive advantage. A big one is “modernizing applications by implementing new technologies, languages, and frameworks. This includes: automating existing software solutions via QA and CI/CD, breaking monoliths into event-driven and microservices architectures, as well as using data science and analytics to take advantage of big data.”

Cloud migration is now a prerequisite for modernization. Cloud powers the “anywhere” access required for remote work, enables teams to collaborate from any location, and ensures that everyone works from a single source of truth.

Cloud computing offers better data protection, flexibility, and business resilience than on-premise hosting. It’s also a demanding, costly process that requires serious expertise to get it right—firms are looking toward outsourcing companies for cost-effective solutions that align with business goals.

A couple of strategies we’re seeing more of these days:

  • Multi-cloud solutions are growing in popularity. This strategy spreads application and data support across multiple clouds, offering better connectivity and security than relying on a single provider—though it does present some security and interoperability challenges.
  • Distributed cloud vendors provide public cloud options to different physical locations under one account. Public cloud companies maintain and operate the services, but execute at the point of need. The benefits of this model include fewer latency issues and the ability to maintain compliance with regional privacy regulations.

Edge Computing

Due to the rise of IoT, smart devices, AI/ML, and just a general increase in online activity, edge computing is shaping up to be one of the biggest trends in 2021 and beyond.

Edge computing brings cloud resources like computing power, networking, and storage closer to devices, networks, and applications. This means data is processed at the point of capture rather than traveling to a cloud or data center hundreds of miles away.

In cases where cloud computing can’t keep up (e.g., IoT applications requiring constant connectivity like autonomous vehicles or industrial equipment with embedded sensors) edge plays a critical role—allowing users to capture actionable insights in real-time.

Forrester predicts that once 5G hits the mainstream, edge will be essential for even more businesses, as high speeds, scalability, and tight security are central to the next generation of mobile services.

We’re already seeing cloud providers offer edge solutions as part of their multi-cloud solutions. It’s allowing organizations to analyze time-sensitive data “at the edge” and send the rest to remote servers.

AI

According to Statista, the US AI market is projected to generate over $22.5B in revenue in 2021. Taking the long view, analysts project the global market to reach the $15 trillion mark within the next decade.

There’s an increased demand for intelligent chatbots and virtual assistants that streamline processes and enhance the customer experience, as well as the following AI applications:

While organizations now have access to a long list of user-friendly, often affordable AI tools that make their jobs easier, the AI talent shortage is far from over.

Customers now expect AI to come standard in software solutions, yet many struggle to implement AI-embedded solutions correctly. In part because new online businesses (or the newly online) are testing multiple programs at once, resulting in communication and data issues.

But in many other cases, it’s a data literacy problem. To leverage these tools correctly, organizations need to start with a data-savvy company culture and have experienced data scientists on hand to guide the effort.

Tiempo’s Henry Martinez says, “data science will be used increasingly to automate low-value activities like language translation, QA, web browser-agnostic testing, managed services, UX data validation, and so on. This means we’ll continue to see demand for data science skills (both machine learning and data engineering) for the foreseeable future.”

According to a Deloitte survey, organizations considered “mature AI adopters” had little to no gap between AI needs and current capabilities, yet 23% reported having an “extreme problem” recruiting AI talent. As you might imagine, less experienced companies fared much worse.

Tiempo’s Paul Estrada says the AI talent gap “is becoming even harder to fix, as it’s an area that’s jumped from academic circles to the commercial sector in a very short time. Knowledge-sharing between both worlds remains a major issue, as does keeping pace with the innovations that help companies remain competitive.”

Cybersecurity

Cybersecurity has long been an afterthought for those operating outside of the IT function. Unfortunately, the status quo is no longer working.

Even pre-COVID, the rise of cloud usage, big data, and the internet of things (IoT) was rapidly increasing the size of the threat landscape, providing bad actors with more endpoints and vulnerabilities than ever before.

Now, due to the abrupt shift to remote work early in the pandemic, new concerns about cyberthreats and data security have emerged, further complicating matters. Hackers have been able to benefit from the pandemic; we’ve seen malware attacks targeting collaboration platforms, COVID-themed phishing scams, and an increase in attacks targeting users’ devices.

Data privacy and protection

Organizations are ramping up efforts to become truly data-driven—it’s now seen as a critical enabler to their future survival.

At the same time, consumers are becoming more aware of how companies use their data and demanding more regulatory oversight and transparency from the services they use. According to a recent Deloitte paper, 60% of Americans believe that it’s impossible to go about their daily life without having data collected about them, and over 80% say the risks of data collection outweigh the potential benefits.

Companies are increasingly seeing data privacy as an extension of the customer experience and are turning toward consent management tools and built-in protections to keep consumers’ information safe and avoid the costs associated with regulatory non-compliance.

Blockchain

Like big data, the buzz surrounding blockchain peaked a few years back, before the general public understood how it worked or why they should care. And, also like big data, blockchain is both back on the map and being leveraged for more “practical solutions,” with global spending projected to hit $16B annually by 2023.

Thanks to COVID, we saw a renewed interest in blockchain—including from Congress—for its use as a smart contracts mechanism/a tool for ensuring safety and trust. Short-term, however, we’ll likely see more pilot projects and small-scale initiatives than full-blown implementation. So, from an outsourcing perspective, that means, we’ll likely see an increased demand for small-scale blockchain products or prototypes before full-on adoption goes mainstream.

IoT

According to a recent internal survey of our clients, 30% say they plan on investing in IoT in 2021. The IoT has been on the rise, but other emergent trends like AI/ML, blockchain, and edge computing are fueling its growth—as is the increasing pressure to leverage big data to gain a competitive advantage, manage risks, and give customers what they want.

Organizations are looking toward outsourcing firms to help them create IoT applications, implement connected systems, and ensure that every endpoint is secured.

Low-Code Platforms

Low-code/no-code tools are on the rise and shaping up to be a big trend for 2021. These platforms promise to “democratize” development, making it easier for “citizen developers” (aka people with little or no development experience) to build applications using drag-and-drop tools similar to what you might see in an email marketing platform or landing page builder.

While low-code/no-code stands to make “anyone” a developer, we’re a long way from replacing skilled developers and software engineers. If anything, these tools are likely to help seasoned pros keep up with demand by streamlining workflows so that they can focus on other activities that demand more time and brainpower.

Native Apps

Native apps are installed via Apple’s App Store or Google Play. They’re developed for a specific platform (i.e., Android or iOS) so that they can best leverage the features the device has to offer. Native apps also work faster than most web-based apps as they’re able to access a device’s built-in GPS and processing power.

While native apps can be time-consuming and expensive, demand for better experiences has led many organizations to invest in mobile.

Progressive Web Applications (PWA)

PWAs are a type of app delivered through the web using technologies like CSS, HTML, JavaScript, React, and Angular. And while the concept isn’t exactly new, PWAs are one of the hottest software development trends of 2021. PWAs are on the rise due to their role in creating a seamless experience for end-users, particularly for news websites and e-commerce brands.

They eliminate the need for users to download dedicated apps and can be used to deliver push notifications, provide offline access, and offer the speed and responsiveness of mobile apps. Essentially, PWAs offer a mobile app-like experience from the browser.

Final Thoughts

Tiempo’s Ulises Beltrán Gómez says one of the top challenges businesses face is “migrating from old technologies to new ones. There’s a willingness to change, but at the same time, companies struggle to understand how things work after implementing the change. Often, they have trouble letting go of existing practices.”

In other words, it’s not enough to adopt the latest trends or update your data infrastructure. You’ll need to make sure your company culture and business strategy can support the change and guide both in-house and outsourced teams to successful outcomes.

Tiempo provides access to talented software engineers who follow mature Agile practices and focus on results over specific technologies and tools. Whether you’re hoping to tap into the latest software development trends or modernize a legacy app, we can help. Contact us today to learn more.