Russian custom software development market. TAdviser Overview

The Russian custom development market in 2021 was on the rise and, according to its results, showed positive dynamics. According to the Russoft association, the total income of Russian software companies amounted to more than 1.5 trillion rubles - 19% more than in 2020. Of these, 815 billion rubles - revenue in Russia and 745 billion rubles - abroad. The volume of orders for software development for Russian companies reached 260-300 billion rubles, an increase of 20-21% over the year. In general, 2021 was one of the most successful for the industry over the past decade.

Among the growth drivers are import substitution policy and government programs to support the IT industry, digitalization of enterprises and jobs, as well as an increase in the salary of IT specialists and the cost of IT services.

Experts also associate growth with "post-covid" deferred demand, as the economy began to recover, and projects put on pause were thawed. The "remote," preserved after 2020, also influenced the market.

After the abolition of various restrictions, for various reasons, many companies did not want to return to the usual offline format of working in offices and retained hybrid or completely remote formats of interaction with employees. As a result, the demand for project management solutions, collaboration platforms, messaging and data systems, as well as other IT solutions that allow organizing business processes in remote access mode has increased in the custom software development market.

Most Russian and international IT companies began to work with geodistributed projects. Specialists were more often involved remotely as outsourcers or contractors. Globalization from the point of view of employees is not a new trend in development, but the 2020 pandemic has strengthened this trend.

One of the main trends in 2021 was the refusal of customers from "boxed" products and orientation towards custom development. Many companies have formed digital transformation programs and actively implemented them. State organizations within the framework of the national program "Digital Economy" began to switch to departmental programs of digital transformation and develop their strategies.

Due to the general economic downturn in 2020, the popularity of MVP solutions (Minimal Viable Product), a test version of the product with a minimum set of functions, has grown. Such solutions do not require significant investments, but are able to check whether the product, service or service will be in demand on the market.

According to our estimate, the increase in orders in 2021 amounted to about 45-50% compared to the level of 2020. The key trend was the active transition to custom startup development services. Previously, they sought to create their own development teams, in the current conditions, the strategy has changed in favor of custom-made, - comments Dmitry Parshin, director of the Artezio development center (part of the LANIT group).

Two years ago, major players stuck to budgets in the second or third quarters and smoothly transferred orders to 2021. The startup market has revived, and its "reboot" due to the pandemic has generated many new ideas. Companies that have been able to successfully adapt to changing realities have occupied vacant segments and niches. Growth was primarily constrained by a shortage of IT specialists: by the end of last year, even juniors after courses lasting from three to six months were dismantled almost immediately. We can say that this was a time of personnel hunger and a race for wages.

Companies invested in business development, conducted many projects, actively solved the problem of lack of resources, primarily human capital, which could support this rapid growth, "says Yuri Ovcharenko, President of IT One Group.

The leader of the Russian custom software development market in 2021 was a group of companies. OTR Its revenue from this type of services exceeded 8 billion rubles. The top 5 also includes companies,,, and Digital Economy League I-Teco. Research Institute Sunrise CROC These companies accounted for 38.5% of the total revenue of all participants in the rating prepared by TAdviser.

In 2022, two large stages can be distinguished. The first half of the year was a period of general bewilderment. Large foreign software developers, such as EPAM and the market, left Russia for a while due to shock. Some customers froze their IT infrastructure projects and took a wait-and-see approach. Others, on the contrary, continued to conduct projects. There were also those who, against the background of news about the imminent departure of Western vendors, began to purchase foreign software. But even then, companies began to look towards import substitution of software. In the summer, it became clear that the changes would be serious and for a long time. And this meant that it was necessary either to refine already implemented products, or to develop new ones.

All these factors, according to our observations, led to an increase in custom development in the first half of 2022 by more than 35%. In the second half of the year, the adaptation of companies to the situation and defrosting of projects have already begun. However, given the dynamics of this year's events, it seems that the likelihood of changes in the market should not be ruled out and it is too early to sum up any results, "said Viktor Smirnov, director of business development in the field of creating software for CROC.

From the point of view of software companies, the market has also undergone some changes. If earlier all projects related to custom development were given to one large contractor, now medium and small customers have begun to diversify their orders, although large companies still turn to proven counterparties. Against the background of increased demand for custom software development, new players appear who are trying to take their place in the market, but they often lack capacity and business expertise.

We can say that if earlier large companies were more often interested in custom development, now the market has expanded - interest in the topic is growing regardless of the size of the business. At the same time, many large enterprises still remain on Western platforms, since the complete transformation of the IT architecture requires significant costs. But this is only a matter of time, since they will not be able to use the products of Western vendors for a long time without proper support and updates, - says Mikhail Gedzberg, Development Director of the Logistics Department of Korus Consulting Group of Companies.

According to the interviewed experts, it is still quite difficult to assess the consequences of the departure of Western companies, since the process itself is still underway and superimposed on other events happening in the IT market. This is not to say that this created an additional volume of orders in the domestic market. Rather, withdrawal should be seen as a stabilizing process that has to some extent mitigated the negative effects on companies focused on the domestic development market.

A number of subsidized and research projects had to be paused. But, nevertheless, some of them still retain their investment attractiveness. We saw a decrease in demand for custom development, as many companies reduced the budget for digitalization. But at the same time, there is still a need for digital transformation: customers from the industry are increasingly asking for integration in production with equipment at enterprises, as well as for writing hardware and software systems. Also, companies remain active in developing software in the oil and gas industry and, most likely, this trend will continue next year, "comments Sergey Litovchenko, Head of Sales at RELEX.

On the one hand, specialists previously involved in the development of foreign solutions have been released in the personnel market. On the other hand, some of them left the country.

Most disturbing of all is the fact that specialists from the level of Tech Lead, Team Lead, Senior Developer, that is, the most valuable personnel, often left. Organizations lost not just top-level specialists, but sometimes even small teams. Since Team Lead, leaving the team, then sent out offers of employment to those employees with whom he worked before. Often with very attractive conditions that many specialists agreed to, "says Victor Burlakov, Development Director of the I-Teco Group of Companies.

Now experts are talking about cooling the labor market, especially in the junior segment. After the departure of the two largest players - Epam and Luxoft - there was a rotation of personnel between the remaining companies. They were able to take advantage of the opportunities and attract talented specialists.

Competent teams were released, which strengthened domestic developers. Their experience in international organizations can significantly upgrade Russian companies in terms of building development processes taking into account the best world practices, "says Andrey Kuzminov, head of software development practice at iFellow.

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Motivation of the staff and relocation of part of the IT specialists. Planning human resources for long projects has become more difficult. Now many IT companies are redistributing project employees to balance the number of experienced and novice specialists. It will take several more years before the average level of developers in the Russian market aligns again.

Certain categories of developers have become less in demand than before. Basically, these are just those who specialized in a certain formation of foreign software, whose representatives left Russia. Now these specialists are forced to retrain and learn other technologies that are now in demand in the IT market, "says Sergey Litovchenko, head of sales at RELEX.

Most customers want to hire only senior-level specialists, since even with an ineffective project organization, they are independent and autonomous enough to take on and solve any problems. Accordingly, it became much more difficult to get a job in a junior position, the career ladder stopped moving. Plus, this affected the growth of salaries of leading employees, which leads to an increase in the cost of development, - said Yuri Ovcharenko, President of the IT_One Group of Companies.

Many companies invest in employee training, trying to grow high-quality specialists within the company.

The amount of work we need to do now is huge. High-quality problem solving requires many talented programmers and other IT specialists. They are not easy to attract, competition among employers is high. Therefore, many market participants, including the Digital Economy League, are actively investing in corporate training, "says Sergei Shilov, President of the Digital Economy League.

There are also serious problems with the employment of specialists who previously worked on international projects. However, temporary solutions to this issue exist, including government support and the possibility of using a grant model to fund advanced research and development.

Relative immaturity of domestic solutions and low level of their compatibility. This is now being solved at the state level (by supporting subsidies, grants), as well as by joint efforts of domestic manufacturers and consortia to ensure product compatibility.

Lack of software and hardware. Temporary difficulties are associated with changing the development environment, with solutions that streamlined these processes. The tools that teams are so used to will gradually change. But since there are not convenient analogues for all development tools, specialists are forced to more actively use open source solutions and master new products.

Unfortunately, many Western vendors whose platforms and solutions were the standard in domestic development left our market, and many did this at once, without any transition period. Of course, this creates difficulties in the moment. The industry has to be rebuilt literally by a raid, - complains Nikolai Sokornov, director of the software development department at Reksoft.

Severing the usual ties of the Russian and international community in the field of development. The community is extremely important for developing a skill, understanding and participating in global technological trends, borrowing best practices in process approaches.

The unwillingness of developers to quickly change their profile. If an IT company has worked with one business area all the time, then it cannot meet the needs of another industry. For example, often companies that develop Industrial softwares do not have any experience in e-commerce. This is working with other systems and technologies.

For example, one of the country's largest banks plans to replace Atlassian's Jira with a proprietary solution. Instead of Confluence, other wiki systems are also being introduced, since there are ready-made replacements in the domestic market. In this regard, the development teams are required to show additional flexibility and readiness for changes, - said Andrey Kuzminov, head of software development practice at iFellow.

Experts also note such problems as:

• insufficient financing of the Russian market and slower issuance of government grants;
• long (average 18 months) time frame for making decisions on the start of the project;
• the inability of most customers to work according to the time and material model;
• labor intensity of import substitution and adaptation of IT infrastructure;
• transfer of funds by large companies to their own subsidiaries, where they create products that have many analogues in the Register of Russian Software.

First, there was a need for import substitution of software in the broadest sense. Customers need a comprehensive replacement of foreign software for business automation and enterprise management. According to experts, if customers come for MVP, then as a result they want to get a full-fledged functional version, a ready-made configuration according to the type of a valid foreign system - immediately with the hope of guaranteed success. In addition, enterprises require solutions that would speed up the transition to domestic software or conduct it with minimal losses.

The most active now are customers from the public sector, industry, power, trade, banking industry. In the current conditions, digital sovereignty, independence from the vendor, compatibility with Russian software are even more important in the implementation of digital initiatives. The departure of foreign developers can lead to serious consequences, for example, loss of access to critical documents and interruptions in business processes. Therefore, for many companies, the issue of replacing software has become relevant. Although we have performed such tasks before, now there are more requests for migration from foreign systems, "says Mikhail Solomonov, director of business development at Houlmont.

Secondly, there was a request to change the IT architecture. Now it is also changing in all companies, because many are used to working with ecosystems consisting, for example, of SAP solutions. But there are no such ecosystems of compatible products in Russia yet. This raises the problem of low compatibility of available software. And this factor prompted companies to design new IT architectures, configure integrations between systems, that is, go into the custom development field.

As Victor Burlakov, Development Director of the I-Teco Group of Companies, notes, Russian customers had a very serious dependence on proprietary software in the infrastructure part, and there are not yet really full-fledged options for replacing such products in all areas. For example, if Astra Linux can quite adequately replace Windows, then in the area of ​ ​ virtualization software or management of development environments, everything is much more complicated.

I do not see Russian analogues of GitHub at all. And although the Ministry of Digital Development promises to launch a similar system by the end of 2022, we must not forget that any new product requires lengthy debugging. In addition, there is a demand on the market to ensure the continuity of corporate software development. We are talking about guarantees of obtaining source code for the product even if the vendor leaves the market, - explains Burlakov.

Customers began to plan large long-term projects, but they began to implement them only in the fourth quarter, and in the second and third they were more focused on point solutions.

Some planned to wait out this period, counting on a change in the geopolitical situation and the return of foreign players. I do not support this approach and believe that now is a good moment to develop our own products and bring them to international markets, "says Vadim Sabashny, General Director of LANIT-TERKOM (part of the LANIT group).

The developers note that today customer requests are quite diverse and relate to the integration of elements of the current IT infrastructure, ERP and MES systems, e-commerce, production and logistics management, warehouse accounting. The demand for IT audit, the development of various basic platforms, mobile applications, referral programs, as well as algorithms that track the quality of goods has increased.

In addition to large-scale migration from imported DBMS to Postgres Pro , you can distinguish between replacing environments for developing, deploying and running enterprise applications. Companies are trying to replace the platform with Oracle WebLogic or WildFly other similar solutions. Open Source

The focus has shifted to creating solutions that can replace the functions of lost foreign software. In addition, a number of cloud services were unavailable, and their penetration in Russian business only grew from year to year. Many business functions - marketing and loyalty programs, HR, e-commerce, procurement - worked on the basis of cloud products of foreign development. All of them urgently needed a replacement, - comments Yuri Ovcharenko, President of the IT_One Group of Companies.

In some specialized industries, such as the fuel and energy complex, author's developments concerning the calculation of return on investment or digital modeling of oil and gas fields are quite in demand.

Among the key trends, there is also a request to reduce the cost of development, which is poorly correlated with the situation in the market, where the cost of work of developers remains quite high.

The state, for its part, is promoting the initiative to create industrial competence centers (ICCs). Their essence is that key industry players form a portfolio of orders to achieve specific business goals in industries, and companies receive a ready-made task for the development and guarantee of consumers that the solution being created is in demand and will be used.

The requirements for organizing the development process and for the IT environment used have become more mature. For example, in the field of software testing, contractors who know how to use domestic or open source tools will be preferred. Until this year, such requirements simply did not exist.

By the end of the year, the largest customers gradually increased their capacity in the field of custom development by attracting middle + and senior level employees, and such candidates in the market, traditionally, are in short supply. Therefore, we already see a trend towards strengthening interaction with integrators who have not only high competencies in the field of development, but also domain knowledge, which means they will be able to bring additional business value to the software, "said Andrey Kuzminov, head of software development practice at iFellow.

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According to experts, import substitution and technological independence, as well as state support for domestic developers and IT companies, rule the ball. The introduction of new solutions requires the preservation of historical data, so we can note another trend - the migration of data and business logic to new solutions.

The geopolitical situation now allows us to talk about an active desire for "digital independence" of the country. Import substitution is not even just a trend, it is a confident course of development of the custom development market. Cloud services have proven their irreplaceability and business is imbued with trust in them: companies from different segments are demonstrating demand for the transition to domestic analogues of cloud services, - comments Roman Gavrilov, director of the center for custom software development at RELEX.

Houlmont notes the growing popularity of open source technologies and interest in Low Code and No Code platforms. Many customers are attracted by the idea of ​ ​ cheaper projects and solving personnel issues by attracting so-called "civil developers" and using visual tools instead of traditional code.

Low Code platforms use highly specialized scripting languages, so professional developers do not want to master them. At the same time, it is still impossible to implement a large project without their participation, - explains Mikhail Solomonov, director of business development at Houlmont.

Companies not only need to support the implemented systems, but also gradually replace the usual platforms - all these areas are now at the forefront of demand.

Simultaneously with import substitution, there is a global transformation of public administration. The state acts not only as a "regulator," but also as a large customer. The market turned out to be so impressive and promising that a new direction was formed - GosTech. The creation of a single state digital platform will not only increase the speed of development of digital services, but also bring them to a fundamentally new level of client experience.

A noticeable trend is the focus on hiring experienced specialists and reducing investments in their own educational programs. With the market changing rapidly, many companies have changed their HR hiring strategy. The priority is more experienced developers who can quickly start working on projects. The demand for newcomers has decreased, while their number, on the contrary, is growing. People are striving to get into IT faster, like a stable sector of the economy.

In addition, in 2022, customers began to pay a lot of attention to information security issues. We are talking not only about the purchase of technical means of protection, certification and certification of information systems, but also about advanced training of specialists.

Many free software solutions are periodically hacked. Information security has become the most difficult area. Accordingly, the requirements for ensuring cybersecurity have grown dramatically, "says Sergei Shilov, president of the Digital Economy League.

Another trend in 2022 is a cautious and balanced approach to moving infrastructure to the clouds.

As a rule, only auxiliary systems are transferred there, and business-critical applications prefer to be left on their own server capacity, - said Victor Burlakov, development director of the I-Teco group of companies.

Some of the experts surveyed by TAdviser predict a decrease in market volume by the end of 2022. The fall, first of all, is associated with the departure of foreign players - both IT companies themselves and consumers of their services, as well as with the repeated change in project priorities during the year.

According to Konstantin Shakurov, head of analytics at SimbirSoft, the departure of technology companies and the closure of access to world IT services and products provoked technological hunger and the migration of IT specialists to other countries. But the state promptly initiated support for the industry through import substitution programs, federal IT projects and benefits, contributing, even in the current difficult conditions, to the growth of the attractiveness of the IT sector and increasing its share in the structure of the Russian economy.

Large-scale changes in geopolitics cut off the access of the Russian IT industry to some foreign markets. Russian software developers have become more interested in such macro-regions as South and East Asia, South and Central America and the Middle East. The share of those wishing to enter new markets in South and East Asia has significantly increased.

However, it is worth noting that a number of experts are more optimistic, expecting market growth at the level of 2021 by the end of 2022. They explain their position by the fact that many IT companies have reoriented from selling foreign products to developing and customizing software.

Now it is difficult to make forecasts, but if everything remains approximately as it is, then market growth can be expected within 20%. After all, there are many tasks and over time they only accumulate, - comments Yuri Ovcharenko, President of the IT_One Group of Companies.

I agree with this assessment and the president of "Digital Economy League" Sergey Shilov.

The custom development market in Russia showed growth both in 2021 and in 2022 - according to my estimate, by at least 20% per year. Of course, the departure of foreign companies and a strengthened course on import substitution affected, but already the development of custom software is a confident trend in all recent years, he notes.

Korus Consulting is also talking about market growth.

It is safe to assume that by the end of 2022 the Russian custom development market will show growth. A year ago, the revenue of many IT companies was based on the sale of licenses of foreign vendors, but today it has sharply decreased or even dropped to zero. The main revenue for IT companies is the support or creation of digital platforms, as well as the customization of software to the needs of the client. Already, many large customers are not suitable for ready-made solutions. The business is ready to pay extra for the author's development "for itself," with branded graphics, in a single digital key. I believe that in 2023 and subsequent years, current trends will continue, - notes Mikhail Gedzberg, Development Director of the Logistics Department of Korus Consulting Group of Companies.

The Russoft association suggests that the total foreign sales of Russian software companies will be below the level of the previous year. Export revenue will decrease by 10-15% in dollar terms. At the same time, according to their estimates, sales of all domestic software companies in the domestic market will increase by at least 15-20% in ruble terms by the end of the year, and the total turnover of industry enterprises - by 5-10%.

Building on forecasts for 2023, companies expect that the market will continue to be influenced by the factors of 2022 for a long time. Even if the situation in the world stabilizes, the risks that have become obvious will have to be taken into account. Therefore, interest will remain in achieving technological independence and in using Russian technologies and proven, reliable open source solutions. And the market itself will increasingly adapt to new conditions and more actively start digital initiatives.

State support will also retain its influence. It is now proposed to allocate a fairly large amount of funding both for vendors and for the implementation of software from customers. This will be strongly reflected in the growth of the market both in terms of import substitution and in terms of changing proposals in general. This approach can form subsidized demand. In addition, the development market will be influenced by the requirements for replacing foreign software with Russian software at all critical infrastructure facilities and the transfer of all GIS to the Gostech platform in the future.

The dynamics of the market will be fueled by domestic needs, but its prospects directly depend on the foreign policy situation and the health of the economy.

The domestic software development market is undergoing transformation, new chains of interaction and ways of working are being built. According to experts, the situation in Russia can significantly affect the ability of the IT sector and custom development companies to generate profit. Especially if we talk about those market participants who were guided by Western customers.

The main source of income for IT companies is the support, development and customization of software. The value of companies that have appropriate expertise, practical experience and the ability to transfer business to other technology stacks is increasing. Current realities require even greater flexibility and speed of product adoption for all participants.

The already set direction for the development of domestic solutions for all industries will prevail in the future. We can expect a large number of industry IT solutions that will reach the required level of maturity for replication and export in the next 2-3 years. But everything will depend on the geopolitical situation.

If the international market closes, and the number of orders in the domestic market does not increase in Russia, then the position of custom development will deteriorate. According to the most pessimistic forecasts, in this case, some IT companies may lose income, cut employees or completely cease to exist.