Outsourcing Vs Insourcing for Video Games

 I was thinking about this a lot the last few months as some video game companies like to internally develop their own software because they can make video games or prefer to outsource their development because they want to lower their risks. 
There are many ways to outsource or insource and each type has its own factors to consider.  For this post, I will focus on the following:

• Outsourcing Vs Insourcing Development Tools (Game Engine)
• Outsourcing Vs Insourcing Game Development (Full Development of Game)
• Outsourcing Vs Insourcing Asset Development (Art, Music, QA)
• Outsourcing Vs Insourcing Publishing (Self-Publish Vs 3rd Party)

Outsourcing Vs Insourcing Development Tools (Game Engine)
When choosing to outsource versus insource game development, the first question one has to answer is whether or not your company can even develop an engine to use.  For the majority of game developers, the answer would be no.  Remember price and compatibility of the product to your team and game are the most important things to consider when deciding on an engine.
If you can develop your own engine, then you need to consider the following:

• Will you be using the engine you develop for more than one game?  Developing your own engine is very expensive and will cause a delay in the development of your game.  The payoff in developing your engine will come in the subsequent squeals of the product as the engine is continuously updated.
• Will making your own engine give you a competitive advantage?  If having your own engine does not give you a competitive advantage, it is definitely better to outsource it.  Having your own engine may give you a technology advantage, a cost advantage, or enhance the development of your product, but those benefits must outweight the costs of just using someone elses engine.

Outsourcing Vs Insourcing Game Development (Full Development of Game)
There are many things to considered when outsourcing your game development.  In my old company, the plan was too outsource safe development which carried little risks and to insource new risky products.  The argument for this was that since the outsourcer was not 100% owned giving them a low risk product gave them a better chance to succeed.  Keeping the risky product internally helped keep your internal team happy and developed their skills.  Also, because you controlled 100% of the development, it was easier for you to act if any issues arrive.  
Today, many large publishing houses use a hybrid approach.  They outsource development of non-key platforms like XBLA, PSP, or NDS and insource development of titles to low costs regions.  Outsourcing to low costs regions helps develop that team to eventually have its own IP.  For a while, Call of Duty was developed by Infinity Ward every two years while during the inbetween years, another Activision Studio like Treyarch would develop the sequal.  Ubisoft did the same thing with their Montreal and Shanghai studios were the Montreal Studio developed the main game and engine then the next year the Shanghai studio would make the squeal using the engine developed in Montreal while the Montreal worked to upgrade the engine for the next product.  Eventually the Ubisoft Shanghai studio developed their own IP as the studio matured.
Things to consider in any contract when outsourcing development is key employees, milestone, change of control provisions for both parties, the financial terms (Advance / Earnout / Royalties), and most importantly trust.

Outsourcing Vs Insourcing Asset Development (Art, Music, QA)
 Deciding to outsource or insource asset development is more straightforward than the other forms of outsourcing or insourcing discussed.  Please consider the following:

• What is the costs of Insourcing Vs Outsourcing?
• Are you outsourcing anything that is considered a key aspect of your product?
• How trustworthy is our outsourcer?
• How experienced is your team in working with outsourcers?
• How easy is it to find talent to staff your team if you are going to insource?

Outsourcing Vs Insourcing Publishing (Self-Publish Vs 3rd Party)
For many smaller developers, self-publishing vs  using a 3rd party is a very difficult choice.  Many smaller developers only consider the fact that a large publisher will take a portion of their profits to help sell their game when they can just directly sell their game themselves.  With the growth of steam, it is easier for a small publisher to sell their game directly now.  But you should only use this route if your are only selling a PC game oriented toward male users who are similar to those who currently play Valve games.  As many developers have noted, self-publishing on XBLA has many risks because a large publisher can help you get through the certification process and help you find the appropriate launch window.  Also, a large publisher can help get you a more favorable deal and wider distribution.  Self-publishing is only practical if there is a way to directly access your target market or if your brand is already so large that it is easy to sell your product.  If you do use a publisher to sell your game consider the following:

• Minimum Marketing Guarentees (A Must)
• Minimum Sales / Distribution Guarantees (Penalty if game is not sold in X Websites)
• Marketing Plan Approval (Only if you have a strong IP / Product)
• Time Limits / Renewal Periods (Allows you or the publisher to break the contract after X years)
• Opt-Out (In case of contractual breech, Acquisition, or other issues)

There are many  things to considering when choosing to outsource.  It is not an easy decision (unless you have no choice) so please do not only look at the dollars and cents.  Please consider the long-term impact it will have on your business.  Be careful to not to outsource what makes your company great because that will lead to ruin to the creation of a new rival.