Software Development Vs Product Development: Know What Your Business Need

Yogesh By Yogesh

The lines between product development and software development may seem blurred at first glance. After all, aren’t they both about crafting digital solutions? Well, not quite.

In software development you build an application tailored for internal operations and streamlining processes within an organization. The other revolves around crafting a software product destined for the market, and aims to generate revenue through sales and ongoing maintenance.

We analyze the juxtaposition between these two approaches and explain how software for internal use caters primarily to the needs of company divisions, while software products are meticulously designed to captivate external markets, requiring a different set of strategies and lifecycles.

Starting with software development, we will unearth each aspect about both the approaches that seemingly same, have subtle differences that strategically make massive impact. Subsequently, we will end by understanding how to choose between the two when multiple factors warrant consideration.

What is Software Development?

Software development is the dynamic cycle of conceiving, constructing, validating, and sustaining software applications and systems. Software developers first decipher user needs and convert them into operational software solutions via coding, troubleshooting, and ongoing optimization.

The whole process sees the use of programming languages, algorithmic structures, and software engineering methodologies. Within the business sphere, software development emerges as the linchpin propelling digital evolution, empowering enterprises to innovate, mechanize, and respond adeptly to shifting market dynamics.

From custom-built tools tailored to streamline internal workflows to market-ready software products poised for commercial distribution, and scalable SaaS platforms offering subscription-based services, software development caters to diverse needs and objectives.

What Are The Advantages Of Software Development?

To say the least, software development generates massive ROI improvements for businesses by steering their digital transformation actions. It puts them in the driving seat by offering advantages revolving around:

  • Customization

The greatest thing about software development is that you can customize the application to incorporate specific features. You can precisely design and develop a software application to address your unique business processes, user preferences, and industry demands.

The modular nature of software development allows for the creation of customizable components and modules that can be integrated or modified as needed. So, for handling more load, you can bolster the software architecture and infrastructure by taking just certain steps. These will include optimizing database queries, implementing caching mechanisms, and scaling application components horizontally or vertically to meet demand.

  • Control

Having capacity for precise customization lets you manipulate code to meet specific needs and preferences. Developers have the autonomy to design, implement, and refine software solutions according to their requirements, and they can address unique challenges by capitalizing on opportunities.

In the development lifecycle, the control extends across areas, including functionality, user experience, performance optimization, and security measures. Customization of WordPress or any open-source content management systems (CMS) is a case in point. Developers have complete control over the design, functionality, and features of websites and web applications. They create custom themes and plugins to suit branding requirements or functional needs.

  • Integration

A software needs to integrate with various tools in internal as well as external environments. You can build an application that successfully establishes interaction between different systems or components. Given the advantage, businesses can consolidate processes and assemble data from multiple sources.

When developing a CRM, the development team identifies the need to integrate with external applications to have a versatile CRM. Mailchimp API for email marketing integration, Facebook Graph API for social media integration, and Zendesk API for customer support integration are some of the APIs they desperately need in their tool. They write code and use RESTful APIs or SOAP APIs to interact with the APIs, and the CRM sends and receives data to and from external applications.

  • Innovation

In the development process developers have the scope to experiment with algorithms, data structures, and architectural patterns and optimize performance, scalability, and user experience. When you are working with an agile methodology, you can cover the endless possibilities that you want your software to offer.

The software development team can continuously refine the software to respond swiftly to changing requirements and capture user feedback. Moreover, the vast software development community has democratized knowledge and tools, which is giving a leg up to innovation in crafting unique applications.

  • Ease of Maintenance

You can always update your software, and patch and debug it and keep it in a state where it is delivering optimal performance. By using modularization, you can divide the code into smaller, manageable units, and carry out targeted updates or fixes without affecting the entire system. Then with encapsulation, you can hide the internal implementation details of modules, and make changes to one part of the codebase without impacting other parts.

So, if a banking business wants to introduce a new authentication method, it will just need to focus on updating the relevant modules while keeping the rest of the system intact. By encapsulating the data, the sensitive banking data will be protected and the changes made to one module will not inadvertently impact other parts of the system.

What are the Disadvantages of Software Development?

Despite software development being one of the most coveted initiatives in most industries, it has its own challenges which going unmanaged can turn into pitfalls that are difficult to address. Some of the common issues that plague software development and often results in unsuccessful outcomes are:

  • Resource Intensive

Software development demands substantial investments in terms of time, manpower, and finances. The necessity arises as resource requirements span various processes in the development life cycle. You need specialists for each phase and sturdy infrastructure that supports you throughout the journey.

The project size impacts the cost and the complexity of the software development project, measured by lines of code and development effort, directly impacts costs, with more complex projects requiring more resources. A small to midsize project can cost between USD 3,000 and USD 150,000, but a large-scale project with many complexities will cost around a million US dollars and more.

  • High Skill Requirement

High skill requirement is another drawback of software development, as it necessitates a deep understanding of programming languages, algorithms, and system architectures.

AI and ML technologies are becoming integral parts of many software applications. Implementing these technologies requires specialized knowledge in areas such as statistics, data analysis, deep learning frameworks, and neural networks. We are no longer in an age where certain expertise was enough. Consequently, recruiting and retaining skilled software developers has become a challenge for organizations.

  • Security Risks

Vulnerabilities can arise from diverse directions during the development process. If you are following sloppy coding practices like poor validation or hard-coded credentials, it will weaken your application. Misconfigurations and improper access controls also inadvertently introduce vulnerabilities. Insecure APIs, SQL injections, cross-site scripting (XSS), and malware are common security threats that are known to have affected software projects during development, launch, and maintenance stages.

ESG has found that more than 25% of codebase stands vulnerable even after using application security tools, and 48% of software professionals admitted that code pushed into production is always vulnerable to risks. When requisite measures are not taken to counter these risks, the consequences are serious and organizations have to incur heavy costs.

  • Compatibility Issues

Compatibility issues often arise when integrating new software with existing systems or when ensuring compatibility across different platforms and devices. The challenge stems from the diverse ecosystem of hardware configurations, operating systems, and software dependencies encountered in real-world environments.

For instance, migrating legacy systems to modern architectures or integrating third-party APIs into an existing software infrastructure can lead to compatibility conflicts and interoperability issues.

What is Product Development?

Product development in software engineering is the systematic process of creating, designing, and improving software products to meet specific user needs and market demands. It can be seen as a process of translating an idea into a tangible product that is market ready and is achieved through a series of operational and strategic steps. From ideation, development to launching, diverse stakeholders, including designers, engineers, marketers, and financial analysts collaborate in this process.

Central to product development is the understanding of market needs and the competition. Teams conduct thorough research and analysis to identify gaps in the market and craft a roadmap to guide the product’s development via prototyping that validates the product’s feasibility. The ultimate success of product development lies in its ability to deliver a solution that resonates with the target audience and establishes a meaningful presence in the market by fulfilling expectations.

What are the Advantages of Product Development?

A rightly implemented product development strategy impacts a company’s competitiveness, growth, and long-term sustainability, and you can experience gains in ROI. To detail, major perks of diving into product development will show the result around:

  • Market Expansion

A great product improves your reach in the market. By tapping into different demographics or geographical regions, you widen your customer base. As products gain traction in new markets, it generates additional revenue streams that can be reinvested into research and development. Using these influx of resources, development teams are able to innovate more aggressively.

How product development can disrupt the market is justified by Netflix, which initially operated as a DVD-by-mail service in the United States. However, in 2007, the company introduced its streaming service, which allowed users to watch movies and TV shows online. In subsequent years, the streaming service entered Canada, followed by Latin America and then the European market, launching in the United Kingdom, Ireland, and Scandinavia. By 2016, Netflix had become available in nearly every country in the world.

  • Customer Focus

By deeply comprehending the pain points, desires, and behaviors of your target audience, you can tailor the product to resonate well with your customers. The product development philosophy itself rests on the idea that right from the outset, your product development team prioritizes understanding the end-users.

The marketing team having conducted research, crafted user personas, and mapped out user journeys helps the development team with inputs for development. By delivering an apt product, you hit the bullseye and gain customer satisfaction in return.

  • Innovation

Salesforce has transformed the way businesses manage their interactions with customers. Today, we look at its success, but it has come a long way, using product development strategies that made it a giant. By developing a cloud-based platform, Salesforce enabled businesses to access customer data and collaborate in real-time, regardless of their location. Soon, the CRM software vendor created a new market for cloud-based CRM solutions and made itself a leader in the enterprise software industry.

If you are building a software product, you always have the scope to easily scale it to accommodate changing needs and demands. You can innovate rapidly by expanding the user base, introducing new features, and adapting to market shifts. All you need is a strong technological foundation to respond promptly to emerging trends.

  • Brand Differentiation

In a crowded market, software products often face stiff competition. Through product development you can differentiate your brand and own a product that stands out amidst competitors. Through a well-differentiated brand, you are communicating value to your customers.

You always have that scope to introduce innovative features and functionalities that address unmet needs or provide solutions in novel ways. You can refine and communicate your value proposition and position yourself differently in the market, showcasing how you cater to specific customer segments and address niche markets that competitors might yet have not ventured into.

  • Long-term Customer Engagement

Customers engaging with a software product over the long term develop a sense of loyalty to the brand. They become accustomed to the product’s interface, features, and functionality, making it less likely for them to switch to competitors.

Microsoft’s Office 365 suite has millions of long-term subscribers who renew their subscriptions year after year because they are deeply integrated into the ecosystem. So too is the case of Google that keeps refining its various products, and keeps users invested in the platform over the long term as they benefit from the evolving capabilities.

What are the Disadvantages of Product Development?

Challenges associated with product development can translate into disadvantages which will come with hefty costs in the long run. In any product development initiative, stakeholders must thus be careful about factors around:

  • Market Risk

Market risk in software development arises from the uncertainty surrounding the demand and acceptance of the product in the market. It can stem from rapidly changing technology trends, evolving consumer preferences, or unforeseen competitive pressures.

The software product market is highly competitive. New competitors keep emerging, offering similar or better solutions. Additionally, existing competitors keep enhancing their products or lower prices, posing a threat to the success of a new software product. Google+ is a classic reminder on how failure takes place. Positioned as a direct competitor to Facebook, Google+ aimed to build a differentiated image with its unique features and interface. However, Google+ struggled to gain significant traction as Facebook continued to innovate and expand its platform. Ultimately, in 2019, Google announced the shutdown of Google+.

  • Coordination Complexities

Complex coordination is a challenge inherent in software development due to the involvement of various stakeholders, including software product developers, designers, testers, and project managers, who must collaborate effectively to ensure project success.

The complexity can lead to communication breakdowns, delays in decision-making, and ultimately, project failure. So, if a software project encounters delays because different teams are working on separate components without proper synchronization, it causes integration issues down the line.

  • Higher Overheads

We need to see product development from a broader perspective as it requires a mix of technical expertise, design skills, domain knowledge, and business acumen. Finding candidates who excel in all these areas is a separate exercise. Having a strong technical team of expert software product developers and testers is not enough. You need project managers, product managers, and product marketers, who bring in strategic thinking and entrepreneurial mindset for ultimate success.

Marty Cagan from the Silicon Valley Product Group suggested that ideally, you should have one product manager for every 6-10 developers. Even today, the “seven, plus or minus two” principle holds valid. In a large-scale project, when there will be several members in the technical team, it translates into the need to have multiple product managers. To an experienced product manager, you have to pay an average base salary of USD 128 thousands annually. Add to it other compensation and the cost of hiring developers.

  • Capital Intensive Process

Apart from hiring, product development can be capital intensive, requiring substantial upfront investments in research, development, and infrastructure. The financial burden can be daunting for startups or small businesses with limited resources, as they may struggle to secure adequate funding to support their projects.

An illustration of this is when a tech-based startup faces difficulties in attracting investors due to the high initial capital requirements associated with developing a new product from scratch. It aims to launch a mobile app but in the wake of insufficient initial capital, the startup finds it difficult to cover expenses and the project halts.

  • Compliance and Liability

Compliance and liability issues pose significant challenges for product development, particularly in highly regulated industries such as healthcare, finance, and cybersecurity. At every point, the team has to be keen on complying with legal and industry standards to mitigate the risk of lawsuits, fines, and reputational damage.

Following GDPR, HIPAA, and ISO 27001 regulations is common in many industries. Additionally as a practice, the industry has made it a norm to follow Secure Software Development Framework (SSDF) to implement requisite cybersecurity measures in the product development process. In a nutshell, product development occurs within a spectrum of compliances before it produces a product for the target market.

Software Development Vs Product Development: Key Differences

To get a clarity on the objectives, processes, and outcomes of software development and product development takes us closer to determining the suitability of each of them. In this direction, we analyze the difference between software development and product development across the various parameters as:


Software Development

Software Product Development

Primary Goal

To create a solution

To deliver a marketable product


Involves individual projects or tasks

Involves entire product lifecycle


Primarily design, development, testing, deployment, and maintenance

Encompasses research, design, development, testing, deployment, and maintenance, and marketing.


Concentrates on coding and testing specific functionalities or features

Emphasizes aligning features with market needs, user experience, scalability, and overall product vision, often involving market research and user feedback loops.

Client Interaction

May have direct client interaction for requirements gathering

Client engagement extends throughout the lifecycle, including feedback loops and updates


May be short-term or project-based

Long-term with iterative development cycles

Risk Management

Risks typically assessed within the project scope

Risks are evaluated holistically for the product’s success in the market


Can be more adaptable to changing requirements during development

Requires a balance between flexibility and adherence to product vision and roadmap

Metrics for Success

Success may be measured by meeting project milestones

Success is measured by market adoption, user satisfaction, and business growth

Team Structure

Can be ad-hoc or project-specific teams

Typically involves cross-functional teams with diverse skills (e.g., developers, UX/UI designers, product managers)


Focuses on documenting code and technical specifications

Comprehensive documentation includes user manuals, API guides, and product roadmaps

Release Strategy

Release cycles may be frequent or irregular

Follows a strategic release plan aligned with market demands and business goals

Revenue Generation

May or may not directly contribute to revenue generation

Aimed at generating revenue through product sales, subscriptions, or licensing

Competitive Landscape

Competitors may not always be a primary consideration

Competitor analysis informs feature prioritization and market differentiation

Which is Right For Your Business Needs? Software Development Or Product Development: Considerations to Follow

The choice between software development and product development can leave you caught between two stools, when both seem same or you are not competent to judge what stands best for you. We suggest you analyze these two options against the following parameters to check which choice you must go with.

Business Objectives

It’s essential to align the chosen path with your goals. For instance, if the aim is to rapidly iterate and release new features, software development might be the preferred route due to its agility and flexibility. On the other hand, if the goal is to create a tangible, marketable product with distinct features, product development could be the better option.

Resource Availability

Assessing the resources at hand, such as skilled personnel, technology infrastructure, and financial backing determines the feasibility of either software or product development. If there’s a scarcity of certain resources needed for product development, it might be more prudent to opt for software development, which could require fewer physical resources and specialized expertise.

Market Demand

Understanding the needs and preferences of the target market guides the decision between software and product development. If there’s a high demand for innovative software solutions that address specific pain points, software development might be the way to go. Conversely, if there’s a gap in the market for a tangible product that solves a pressing problem, product development could be more advantageous.

Competitive Landscape

Analyzing the offerings, strengths, and weaknesses of competitors will help identify opportunities and threats. If the market is saturated with similar software solutions, differentiation might be challenging, whereas a unique product could stand out in a less crowded market segment.

Core Competencies

When you understand where you excel and what resources you possesses, you allocate your resources efficiently. If software development aligns more closely with the core competencies, it might make more sense to pursue that avenue rather than investing in product development. For translating your competencies into a digital product to offer unique services to your customers, product development would be the right choice. When you want to develop a generic application, going with software development would be the best choice.

On a Concluding Note

Product in software engineering differs from usual software that we are habitual of referring to any application. Software is a product or service that is built to meet process or function specific needs. But the product is developed keeping the broad market dynamics in mind. We probed these nitty-gritties and drew clear lines.

At the end of the day, whether you are building a software product or a product software, you must meticulously pick up the development lifecycle. And when you are not technically equipped, get support from a trusted software development firm that can hand-hold you throughout the development journey until you achieve the envisioned success.

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