The increasing competition is pushing software vendors to enhance their products to ensure customer satisfaction. Embedding third-party software solutions is becoming a fast and reliable way to deliver more value to help ISVs retain customers and conquer new markets. In fact, bridging the gap between you and your competition cannot always be done by your in-house development team alone, and there are many benefits of working with a third-party vendor.
But the buy versus build argument should never be taken lightly. Weighing the pros and cons of both choices is essential before taking the plunge in either direction. Having a partner that is more knowledgeable than you are likely to be over specific business or technical areas can be a big advantage; if their expertise has created a best-of-breed solution, it’s unlikely that your in-house team will be able to create features that can rival theirs in any reasonable timeframe.
The Risks
There are several risks associated with integrating a third-party solution into your software product. Of course, there is always a difference between embedding a third-party solution from a top tier vendor versus a commoditized piece of technology. But some of the common risks include:
- Partner sustainability: If the third-party vendor goes out of business, discontinues the project and/or service, or drastically materially modifies the terms of the license since the consequences could poorly reflect upon your product. Implications of the tech integrated in your solution
- Source code accessibility: Integrating a third-party solution that is a strategic piece of your value proposition creates a dependency. In most cases you won’t have full access to the source code, creating a black box when something goes wrong and technical intervention is required. The need to collaborate with your partner to work around the lack of access and visibility can prolong trouble shooting efforts.
- Security: The third-party solution may contain vulnerabilities that could be exploited by hackers, leading to data breaches or other security incidents. If you are in sensitive verticals (military for example), you may not be able to embed third-party solutions at all because of the potential security risks that could arise.
- Technical Compatibility: The third-party solution may not be fully compatible with your existing software infrastructure, leading to integration issues that will need to be solved so as to avoid system failures.
- Portability: While platform agnostic technology may accommodate deployment across cloud platforms, proprietary technology might limit you in deploying from one platform to another. Limitations in infrastructure and cloud platforms means limiting your potential target market (e.g. AWS specific technology that is not compatible with Azure)
- Legal: The third-party solution may violate intellectual property rights or licensing agreements, leading to legal disputes and financial liabilities.
- Compliance: Embedding foreign technology into your product could limit your ability to remain compliant with government-imposed rules and regulations. It is important to fully understand the compliance guarantees your third-party vendor has in place so that you are not limiting yourself from selling your product to certain markets due to non-conformity issues.
- Performance: The third-party solution may not meet the performance requirements of your software product, leading to slow processing times and a poor user experience. It also makes you less nimble to make certain changes down the road as you are locked into an (OEM) agreement which makes it hard to switch to something else.
Another point worth noting is that price is also an important factor when embedding a third-party solution. It’s not necessarily a risk, but certainly a consideration in the buy versus build analysis since the higher the price of the features, the more interesting it may be to consider building them yourself (or not adding those features to your product at all).
How to Mitigate Those Risks
So what can be done to mitigate the risks of a third-party integration going wrong? Here are several steps you can take:
- Conduct thorough due diligence: Research and vet the third-party solution provider, including their reputation, security practices, and compliance with industry standards. You can also ask to speak to current OEM customers or partners to ask them about their experience.
- Test the solution thoroughly: Before integrating the third-party solution into your software product, conduct comprehensive testing to ensure compatibility and performance.
- Review and negotiate contracts: Review the terms and conditions of the OEM agreement and specify a Service Level Agreement (SLA) with the third-party solution provider to ensure provisions for security, compliance, and support. You may want to consult a specialist lawyer to make sure all aspects are covered.
- Implement security measures: Implement additional security measures, such as encryption, access controls, and monitoring, to protect your software product from potential security risks.
- Leverage source code to hedge risk: The more strategic the solution, the more you will need to hedge your the more you will need to hedge your risk of a third-party vendor closing down or restructuring their business. You may be able to negotiate access to the source code so that you can fix, edit or enhance it as needed, or take it over should the vendor go out of business. For example, you could put source code in “escrow” to get access, but not ownership, if something goes south.
- Keep communication open: The success of embedding and (up) selling ultimately depends on a healthy and supportive relationship with your partners. Maintain open communication with the third-party provider to ensure a timely integration process and smooth customer on-boarding.
Conclusion
In short, before entering into an OEM partnership with a third-party solution provider, it is important to educate yourself and take the necessary precautions. By following these steps, you can mitigate the risks associated with integrating a third-party solution into your software product and ensure a successful integration process and provide sustained value to your customers.