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Even if AaronFriel's assertion is true and they received no special deal, it's a naïve view of corporate governance and SAAS v.s. in-house devleopment to say th

by avar 6y ago

Even if AaronFriel's assertion is true and they received no special deal, it's a naïve view of corporate governance and SAAS v.s. in-house devleopment to say that (as an example) if their license fee was high enough that they'd start incurring a net loss in 10-15 years that they made the wrong move. For Citibank that was US$500 million then, which they could either invest directly or return to investors. The opportunity cost of that cash has to be factored in. It's also an a large ongoing liability to have a sizable in-house development effort when it's not your main business. Departments need to be staffed and run, business plans made etc. For all of Oracle's flaws they're presumably going to have an incentive to improve the software, and more capital with which to do so from clients other than Citibank. For obvious reasons other banks would be more inclined to buy from Oracle than a direct competitor. There's also often tax reasons for why it's preferable to buy a service v.s. maintain in-house software, and naïve back of the envelope math usually doesn't account for that.

AaronFriel 6y ago
On the other hand, they also sold one of their core competencies away (managing complex financial transactions) and it just cost them half a billion dollars and who knows how much they've lost since to other errors, let alone lost productivity.
mschuster91 6y ago
> It's also an a large ongoing liability to have a sizable in-house development effort when it's not your main business. Departments need to be staffed and run, business plans made etc. This is the same ideology that led to companies outsourcing everything from facility management and cleaning services as the first victims to stuff as critical as IT operations. Yes, it is a liability and likely also a higher cost (e.g. due to collective wage agreements) to do that stuff yourself. On the other side, you have the large liability of having no direct control over staff and work quality any more - you're entirely at the mercy of your contractors (who are incentivized to find not the best people, but the people willing to be paid the least).
- yourapostasy 6y ago
  > ...no direct control over...work quality any more... This is important. Just a few days ago here on HN, there was a good discussion on how deliverables quality on seemingly "mundane" device chargers (in this example, one that was arguably for early Kindles) can vary wildly, while maintaining the same price point, with the sub-standard quality yielding more profits to the seller, and higher-quality units yielding less profits. This is a impedance mismatch between what the buyer knows and values and what the seller knows and values. With a time slippage between the time the buyer makes a decision and when the buyer's organization figuring out the real ramifications. By the time an organization has outsourced enough to lose competency to not even know the impedance mismatch and time slippage exists or scope it if they're aware of its existence, sometimes they will find might be cheaper to in-source in the first place. My personal rule of thumb going in to evaluate these decisions is if the procedural complexity surrounding such software artifacts rises above a certain level, it is likely better to keep it in-house. Where that level is lays the art of business, it is largely experience-based.

by avar 6y ago

AaronFriel 6y ago

On the other hand, they also sold one of their core competencies away (managing complex financial transactions) and it just cost them half a billion dollars and who knows how much they've lost since to other errors, let alone lost productivity.

mschuster91 6y ago

> It's also an a large ongoing liability to have a sizable in-house development effort when it's not your main business. Departments need to be staffed and run, business plans made etc. This is the same ideology that led to companies outsourcing everything from facility management and cleaning services as the first victims to stuff as critical as IT operations. Yes, it is a liability and likely also a higher cost (e.g. due to collective wage agreements) to do that stuff yourself. On the other side, you have the large liability of having no direct control over staff and work quality any more - you're entirely at the mercy of your contractors (who are incentivized to find not the best people, but the people willing to be paid the least).

yourapostasy 6y ago
> ...no direct control over...work quality any more... This is important. Just a few days ago here on HN, there was a good discussion on how deliverables quality on seemingly "mundane" device chargers (in this example, one that was arguably for early Kindles) can vary wildly, while maintaining the same price point, with the sub-standard quality yielding more profits to the seller, and higher-quality units yielding less profits. This is a impedance mismatch between what the buyer knows and values and what the seller knows and values. With a time slippage between the time the buyer makes a decision and when the buyer's organization figuring out the real ramifications. By the time an organization has outsourced enough to lose competency to not even know the impedance mismatch and time slippage exists or scope it if they're aware of its existence, sometimes they will find might be cheaper to in-source in the first place. My personal rule of thumb going in to evaluate these decisions is if the procedural complexity surrounding such software artifacts rises above a certain level, it is likely better to keep it in-house. Where that level is lays the art of business, it is largely experience-based.