COTS vs. Custom Software


Erik Olson

Erik the Founder & CEO at Array Digital. Companies come to us when their software holds them back from growing. We solve complex problems so they can compete at a higher level. Reach him at erik@thisisarray.com or on twitter at @erikpmp.


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All businesses need software to run their sales, customer service, and operations. Young businesses often start with a Commercial Off The Shelf (COTS) software to solve their business problems. They do so because COTS software products are already built and they can start using them right away. All they have to do is sign up and pay the monthly fee for their relatively small company.

Over time though, with more growth and employees being hired, companies typically find that  these COTS solutions covers only about 80% of what the company actually wants the software to do. Companies fill the other 20% that’s not fulfilled the old fashioned way – with spreadsheets.

COTS products are also built for the masses and naturally have a lot of features that individual companies just don’t care about. They are often referred to as “bloated” and cumbersome due to the extra, unnecessary, features.

Once the spreadsheets start to pile up, and the frustration over the bloat becomes too much, it becomes very inefficient for companies to continue to use the COTS product that once used to solve so many problems. Different people email around different versions of a spreadsheet, and there’s confusion about what the truth really is. It’s not only confusing, but can be highly inefficient and costly since the software is not quite a fit for the company.

But change is hard, and an 80% solution is often perceived as an easier option than finding a new software that’s a better fit. So companies limp along with their existing products as long as practicable. Search as they may, other COTS solutions tend to also be 80% solutions at best.

Companies looking to really excel in their field will launch a project to replace the COTS product with software that’s custom made for them. Like a bespoke suit, with custom software you can get exactly what you want with exactly the features and grade of craftsmanship that you’re after.

Custom software comes with many benefits:

  • Exactly as the company wants it to be.
  • Eliminates inefficiencies since it’s made for how the company wants its processes to work.
  • No per-user license fee.
  • The business owns the Intellectual Property.
  • They can modify it over time as they see fit.
  • The software can grow with the company.
  • The company has a unique product that none of their competitors or others have.

Price wise, commissioning custom software comes with a higher startup cost since the development needs to be funded. But over time, with limited to no licensing fees, the costs even out. Once development is complete the cost saving of custom software becomes more pronounced by avoiding potentially costly per user fees as the company adds more employees.

So in the beginning of your company, go with COTS products for software that does not directly provide you with a competitive advantage (ex: accounting software). If the software IS your company, if you’re reselling the software as a Software as a Service (SaaS) offering, then it needs to be custom otherwise you have no advantage over others that use the same COTS solution.

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