TopCoder: breaking the development cost rules

According to my friend Vinnie Mirchandani, beating US internal IT development costs is tough going. He should know, it's part of what he does day in, day out. But what if you need access to high quality development resource on an emergency project? What if you're thinking of development outsourcing but want to do it on a true partnership basis?

I recently caught up with Mike Morris, EVP software development at TopCoder and Nic Perez, technical director AOL to find out what TopCoder brings to the table. The company takes the idea of community, applies a heavy dose of competition for skills and then applies that formula to the business of development. The result is a virtual community of some 140,000 developers spread among 200 countries, all of whom can be tapped for a variety of special projects, focusing on newer technologies like J2EE, .NET. Flash and Flex. The model is particularly suited to the developer market for the following reasons:

• It provides customers with access to a high caliber of talent where quality is peer reviewed
• The competition based model provides the kind of environment that appeals to developers and so ensures thee is a thriving and growing pool from which customers can draw
• The current size of the developer pool means TopCoder can focus on core solutions yet offer a partnership style model
• Concentrating on the development of standardized components provides TopCoder with an ever growing catalog of components from which to draw and which helps to drive down the end cost to customers. The current catalog listrs some 1,100 components.

Asked where TopCoder's primary customers come from, Morris said: "We draw our customers primarily from Fortune 500 companies where there will be a decent amount of integration rather than building from scratch. This allows us to offer flexible terms, that can range from component sales, through to full projects on standalone or partnership terms. We're also looking for companies that have a high growth style as thats' a direct fir for our business model. We're currently targeting 50% growth year-on-year for the next three years."

The proof is in the eating and this was Nic Perez' cue to explain how AOL is working with TopCoder: "AOL has been utilizing TopCoder for about 18 months, focused on Java development where we've used their people for the UI and widgets. As we've been building out the Open Mobile Platform, we found the US carriers force us to do what they want so that's meant building out for around 1,700 different handsets. AOL looks at TopCoder as a captive virtual workforce where the catalog of components serve as Lego blocks for onward development."

While AOL gains significant advantages in go to market, I was interested in the cost dimension. The two companies are working towards managing the development process as efficiently as possible. This is a work in progress but AOL believes that once process has been bedded down, the savings could be as high as 50% of traditional development costs.

Morris notes that: "We've got development competitive with the likes of Wipro and yes, consulting isn't cheap because we're constrained by US market conditions. But overall, we can be very competitive when compared with US internal development costs. That will improve as our process becomes more automated."

TopCoder's model isn't new. Others like eLance offer much the same market driven approach. TopCoder differentiates itself on the way it is building out a fully engaged community that prefers the challenge of larger projects where there is plenty of potential for high earnings. The only question is whether TopCoder will safely weather what many believe is a coming recession. Its projections indicate otherwise but as always, these will need to be revisited over time.