Will Outsourcing Become The Rule?

I had drinks today with Sameer Bhatia of Octane Technologies, an IT services and software company that helps US companies outsource to India. Sameer and I are both members of the Stanford mafia, and we both ran venture-backed companies during the bubble, so we have a lot in common. He stopped by my office in Palo Alto before running off to the airport to pick up his parents.

After discussing various outsourcing projects, I said to Sameer, “I can understand outsourcing well-defined projects, but I can’t imagine developing a complex new product on an outsourced basis.” Sameer disagreed.

“All the VCs I talk with these days insist on an outsourcing strategy,” he said, “They don’t want to see their companies to blow their first $3 million on development costs before they launch.”

I’m not sure he’s right, but I’m not sure he’s wrong.