When marketers and IT folks think about whether to build or buy a customer experience (CX) platform or capability, there are usually obvious reasons to do one or the other.
As an economist by training, I tend to think of this choice in terms of what kind of market exists for a capability.
When to Buy:
If the market is mature and there is a clear market leader
- The market is highly saturated with many vendors
When to Build:
- If the technology on the market cannot meet the needs of the organization, because it is highly specialized to the organization
- The tech simply does not exist
But, when there is not a clear choice, what factors should marketers consider?
First, it helps to think of homegrown versus off-the-shelf platforms and capabilities as less of a trade-off between internal resource costs and software licensing costs and more as a spectrum of customization. Ask yourself the following questions:
- How much customization is possible using the current vendors in the market?
- Which vendors are highly customizable (Drupal for example) and which function best out of the box?
- Is the capability you need not something that could truly function well on an existing vendor platform?
If the function can be performed by customizing an existing technology, buying that technology will likely be easier and the most cost effective in the long run. Hiring specialists to customize the product, either as full-time employees or as a professional service will also be necessary. If the function cannot be performed adequately by an existing platform, building should be considered. However, there are more topics to consider before choosing to build.
Almost every platform in the martech stack will require some customization, including setup, connections to other systems, schema, and adjusting for the data itself. Therefore, customization should always be measured in relative terms (i.e., this content management system requires more customization than that one, etc.).
If that previous line of thinking led to “build”, then there is another important factor to consider: will this new capability or platform form a key part of your organization’s competitive advantage? For example, if you are a direct-to-consumer retailer, an ecommerce engine may be your bread and butter, but your competitive advantage is the product you sell and/or the customer service you provide. For an online travel agency (OTA), however, the booking engine is the competitive advantage, and thus, should be a custom-built solution. Additionally, if you are also thinking about selling or spinning off this new technology as a revenue driver, it makes sense to build.
It is never a good idea to reinvent the wheel, no matter what your IT department or developers say. In the long run, the focus of every martech vendor is on making money (and, thus, improving and supporting a good product) and will provide more value than any resource cost savings that you may gain in the short-term.
The Sunk Cost Fallacy
If, after all these considerations have been weighed, you do decide to go down the path of building your own tech, it is important to regularly reconsider the vendors in the marketplace or any available services that could replace your built tech. This can help to avoid the sunk cost fallacy, which companies with built tech are especially susceptible to.
The sunk cost fallacy is a behavioral bias towards valuing something you have already invested in more than something else that is better and will cost just as much in the future. This behavior occurs especially with legacy technology that may have at one time been a competitive advantage to the business and/or market leading. But, the sunk cost fallacy can also happen with newer tech (built or bought) if it is not compared regularly to competitors.
The sunk cost fallacy can lead a business to continue to customize existing platforms even when better platforms can be bought in the marketplace. The upfront cost of switching to a new platform is perceived as greater than the incremental costs of maintaining the existing platform. In the long run, the existing platform maintenance costs, as well as lost opportunities from working off an outdated platform, will likely outweigh the cost of implementing a new solution.
Aside from being aware of this bias, you can prevent your company from falling prey to it by making sure to measure costs and benefits in the long-term, and only considering future costs and benefits (rather than already-spent budget, aka sunk costs) when comparing existing tech to competitors.
Measuring New Tech
Another important measurement needs to be the effectiveness of this new platform. Typically, businesses perform a cost-benefit analysis before undertaking the implementation of new technology, but these measurements can be important to gather both during and after implementation as well. They not only tell you how accurate your cost-benefit analysis was, but whether you are still on the right track to achieve what you set out to do. Knowing what margin of error is valid for future projects can help improve future cost-benefit estimates and there are certain qualitative “lessons learned” that may speed up future implementations.
Finally, I think it’s important to talk about emerging martech – it is a risk vs. reward trade-off that you must judge for your own organization. Knowing what risks exist before implementation is not unique to emerging tech but it is much harder to gauge. So, unless you are willing to take that risk, my advice is to neither build nor buy, but wait until you’ve reached the part of the hype cycle with which your business is comfortable.
The Hype Cycle
If you’re still not sure whether to build or buy, the Merkle Marketing Technology Consulting team can help. Reach out to us at [email protected] to chat with our experts!