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IPOs, IT, and the Future of the Product Development Services Market

Why would companies like Google and Expedia rely on product development partners to bring their software products to life?

For a number of years, analysts at Forrester, Gartner, and other research firms have heralded the growing importance of the product development services (PDS) market in helping companies accelerate time-to-market and product innovation. Forrester analysts John McCarthy and Charles Green published a report last year on a growing trend - that of non-tech companies becoming more and more reliant on software products to connect with consumers.

In 2013, IPOs from PDS companies like Globant and Epam brought the growth of the relatively nascent PDS market further into the public spotlight. Globant, which provides outsourced software development services for companies like Google, LinkedIn, and Orbitz, filed for an $86 million IPO in August of last year. Epam, the subject of a Bloomberg article on the proliferation of "Eastern bloc" software development companies, builds software products for companies like Expedia, Sephora, Coca-Cola, and Adidas.

Why would companies like Google and Expedia, either of which could surely attract some of the world's most talented engineers and developers, rely on product development partners to bring their software products to life? For one, the competition for development and engineering talent has never been greater. Product development partners can provide a steady flow of on-demand talent to help companies turn their product visions into reality, without those companies needing to continually hire talent that possesses the latest and greatest technological expertise.

Another contributing factor toward the rise of product development services has been the acceleration of consumer technology. The massive impact of technology on our lives that started with the PC era has become even more pronounced in the era of the smartphone and the tablet. The consumerization of IT has led to increased expectations for the user experience of software products at work and at home. This means that the most successful software development partners will possess expertise in a wide array of disciplines, including creative/UX, product engineering, quality assurance testing, and long-term support. One-stop shops for PDS will soon become the norm rather than the exception to the rule.

The Innovation Age we live in today requires companies to demonstrate agility in adapting to the changing shifts in technology. Customers no longer pledge allegiance to any brand when superior competition comes along. Look no further than BlackBerry's long, slow march toward obsolescence for indisputable evidence of this fact. If your company is not leveraging emerging technologies to drive business results, chances are your competition is. To truly succeed in the business marketplace today, companies need to look not just 12 or 24 months ahead, but 84 months into the future. A recent HBR article on Bally Technologies' Innovation Lab supports this point exactly.

Some important questions to ask include: Where do you want to be in 5 years, and what will technology look like at that time? How will consumers be interacting with their devices by that point? Or will they be interacting with them at all? How can you start planning for that now?

The growing trend of established companies forming strategic partnerships with outside vendors for core product and technology development services is a telltale sign of things to come. I predict it won't be long before we find ourselves in a world where the PDS space mirrors the world of "traditional" advertising and its agency model. When it comes to advertising, Nike doesn't "Just Do It" - Wieden & Kennedy does. I envision a world where in 5-10 years, many major corporations will have "agencies of record" that are focused on continual improvements in the software development space and are as essential to a company's success as their "brand" agencies of record in decades past.

More Stories By David DeWolf

David DeWolf is the founder and CEO of 3Pillar Global, one of the Mid-Atlantic’s fastest growing technology companies. In this role he has guided 3Pillar to a leadership position within the Product Development Services sector, establishing 3Pillar as the go-to innovator for content, information, and data-rich companies looking to grow revenue through software.

In 2012, David was named one of SmartCEO Magazine’s “Future 50.” In 2011, he was recognized by the Washington Business Journal as one of “40 Under 40” who are Washington, D.C.’s brightest young business leaders. In 2010, he was selected a winner of the Franciscan University of Steubenville’s Outstanding Young Alumni Award.

David earned a Bachelor of Arts from the Franciscan University of Steubenville, where he studied Communications and Theology. He and his wife, Teresa, have six children.

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