I just read a recent article titled Bottom of the Barrel in Newsweek about the problem of forced labor in Asian countries where many computer products are made. Poor people are being duped into taking manufacturing jobs in wretched conditions with little pay. It’s basically slavery.

The criticism that “low rates = slavery” is sometimes leveled at offshore software development too. Displaced American programmers may feel that to work at the rates that some offshore vendors must mean their offshore programmer replacements must be earning only slave wages.

But it’s not true. Rising salaries in India are the evidence.

Anyway, software development is a creative process. You can’t get it done with an uncooperative and unmotivated programmer chained to a computer.

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In general, I agree with most of the points in an article published in InformationWeek about How To Select An Indian Outsourcing Partner. The author takes a sober view about outsourcing that comes across a bit negative.

I wouldn’t write off Indian or global software development just yet. My experience with global outsourcing of software development shows two major pitfalls that people run into:

1. Selecting the wrong kind of vendor
2. Not providing the right kind of specifications

By wrong kind of vendor, I mean one that is happy to charge you for some junior programmers put in a room for you, and even give them computers and an Internet connection, but then fails to follow through with any kind of supervision, management or professional software development process.

This kind of vendor is what I call a “body-shop” and is only acceptable if you have the time and experience to manage these programmers remotely. It’s an easy mistake to make if you can’t hire programmers locally. You think you’ll just hire them over there.

A better approach is to select a vendor that can offer you a combination of junior and senior programmers and experience with a software development process

Other vendors may be great at executing fixed-price projects but only if they are given very detailed specifications. And the author says you should have detailed specifications, but this is where I disagree a little. Anyone that develops software, especially new applications, knows detailed specifications are just not completely practical.

New Agile software development methods have become more popular lately for the development of new software. But this highly collaborative approach is difficult (but not impossible with the right vendor) to do at a long distance. That’s why many U.S. companies are now looking at outsourcing to Latin America where there is more workday and cultural overlap.

In summary, I think a key mistake people make is treating software development only as a financial transaction rather than recognizing it as a collaborative and creative process. If all you hire is cheap programmers without experience, no matter what country they are in, then you will get what you pay for.

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An article in Global Services website says the Offshoring Trend May Reverse mainly because of the decline of the dollar’s value. Clyde Prestowitz, President of the Economic Strategy Institute, keynoted at the Global Services Conference 2008

Prestowitz says that Tom Friedman’s concept of world “flatteners” is too simplistic.  Improved global communications and a dynamic foreign exchange market that has seen recent dramatic declines in the value of the dollar have an impact on globalization and the decisions companies are making.

“Tom uses the concept of flatteners to give a scalar view of the globalized world whereas Clyde uses the concept of asymmetries to give a vector view borne out of the direction of international trade movements.”

If the dollar value declines by 50% then Prestowitz says, ” Most of the business arrangements around the world will change; the dollar would be replaced by some other as the world currency…”

What will happen to the value of the dollar over time? It depends on which crystal ball you look in. Perhaps the best thing to do is use existing financial tools to guard against wild swings in the dollar’s value.

Silicon Valley Bank is presenting a series of webinars on foreign exchange and strategies for foreign exchange best practices. The tools of foreign exchange options and contracts may be necessary to protect your interests when using a significant number of global software development resources with a partner or at your own offshore operation.

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A report from Dow Jones VentureSource described in a post on the Webguild blog here in Silicon Valley warns the party may soon be over for many Web 2.0 startups.

The blog post says, “Venture capital investment has been sustaining many Web 2.0 startups, which are often chasing the same users. When the money dries up so will most Web 2.0 companies unless they find a new source of revenue.”

Scary!  In the last bubble I thought we learned that venture funding is not the same as revenue!

Better close your funding quickly, and then use a global software development team to create your Web 2.0 application ASAP and minimize your time-to-revenue.

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I just finished reading Wikinomics – How Mass Collaboration Changes Everything by Don Tapscott and Anthony D. Williams. I read Tapscott’s earlier book Digital Capital: Harnessing the Power of Business Webs back in 2000 when it was first published. Wikinomics updates many of the same ideas contained in the earlier book but with a spin on the new Web 2.0 collaborative capabilities that have recently become more popular on the web.

This book is worth a read if you are developing a new Web 2.0 application that seeks to create value from the interaction of your users. Several business models are explored and examples of several well-know companies are given.

The central concept for me is the “business web” or b-web concept which Tapscott & Williams define as “clusters of companies that come together over the Internet.” The b-web concept was introduced in Digital Capital and is also related to the more linear Value Chain concept first described by Michael Porter in 1985.

The examples given focus either on consumer websites like MySpace, Wikipedia and Second Life, or collaborative R&D business webs used by large companies like BMW and Boeing.

On a smaller scale, Accelerance has formed a business web of global partners that develop custom software for small and medium sized clients. You gain access this web through our Outsourcing Jumpstart programs and the global partners are judged on how responsive they are to your needs.

Look for announcements in the near future on changes to our global b-web including an expansion to include many more service providers that serve our clients that develop software.

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On April 30, 2008, Steve Mezak will be speaking at the Software 2008 Conference. The topic will be “Sinking Like a BRIC - Better Choices than Brazil, Russia, India and China”, and it will begin at 11:30 a.m. in Las Vegas, Nevada.

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Chris Anderson, author of The Long Tail, coined the phrase “freeconomics” back in 2006 as a pun on the surprise bestseller book Freakonomics. Both words are actually a double entendres (and homonyms, for you English majors out there)

His more recent article Free! Why $0.00 Is the Future of Business expands on the idea. Of course, you can read the article for free on the Wired.com website.

From day one of the Internet, people have been expecting information to be free.  Even before the Internet, Anderson quotes Stewart Brand (author of the 1970’s best selling Whole Earth Catalog and founder of The Well online community) from 1984: “Information wants to be free. Information also wants to be expensive … That tension will not go away.”

That tension can be a strong motivator when the information is perceived to be of high value and yet offered for free. The article offers a taxonomy of free business models and product offerings enabled by the Internet:

• “Freemium” - Free software, services and/or content for: users of the basic version. Some users pay a subscription for a premium or “pro” version
• Advertising – Free content and services. Advertisers pay to get your attention.
• Cross-subsidies - any product that entices you to pay for something else later.
• Zero marginal cost - free things that can be distributed at zero or negligible cost.
• Labor exchange – free content and services because the act of using these sites and services actually creates something of value.
• Gift economy - open source software or user-generated content.

Some of these have become known as Web 2.0 business models, especially Labor Exchange where connecting with friends in your network or participating in social bookmarking can lead to profit using some combination of these models.

Are using one of these free business models to offer your product or service?

I am sorry to disappoint you if you thought this posting was going to announce that all offshore software development is now free. Not yet.

However, Accelerance will announce some new services in the very near future.  Stay tuned!

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Bill Gates was interviewed on NPR today about the limits on the number of H1-B visas issued by the U.S. Gates says the U.S. cannot attract the best talent to come work in the U.S. Microsoft and other U.S. companies are forced to hire these smart workers offshore.

I agree. But so what?

Gates says that ultimately, hiring workers offshore makes the U.S. less competitive.

I disagree.

America will continue to compete through innovation.  The challenge we face is learning how to use this global offshore talent as a resource to implement these innovations.

In other words, you can dream up an application for software without being a programmer. The trick is to communicate with your programmers what the software should ultimately do. This was a challenge even when the programmers were in the same room.  And it still is at many companies.

Companies that are importing programmers using the H1-B visa suspect that they are being trained here and then sent back to the old country where they will continue working but at a lower wage. In other words, they are taking the job back with them.

That seems like a far-fetched scheme when you can hire programmers offshore to begin with already.

To avoid the H1B visa limits, Microsoft has opened an R&D facility in Canada which has no such limits on importing foreign born talent.

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Maybe but the number of students majoring in computer science has also cooled. There was a report on NPR this morning about this. No wonder there is a shortage of IT workers predicted for 2008.

I heard the same kind of numbers from my alma mater WPI where I am an advisor.  The number of Computer Science and Electrical and Computer Engineering majors have dropped precipitously over the last few years.

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An interesting twist on the free software business model is to include advertising in your software application and give it away for free. The article Winning with an Ad-Supported Model on SandHill Group website describes how one company named SpiceWorks is doing this with an application used by IT departments.

I think this is a very interesting idea. Is your software application focused on a specific target market that many other companies would like to reach? If so, this advertising business model could work for you too.

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