The "Buy Versus Build" Decision - 7investing 7investing
Stock Tips Mobile Menu Dropdown Icon

The “Buy Versus Build” Decision

The digital world moves quickly. How should companies approach innovation?

October 23, 2022

“Our customers are asking us for XYZ. So how exactly are we gonna do this?”

Companies are increasingly facing this “buy versus build” decision. They must choose between spending to build their own in-house capabilities or in sourcing them externally through partnerships.

The digital world moves quickly and it’s hard to keep up with the complexity. The cost of falling behind could mean losing share to competitors, yet being the lead husky also means facing regulatory risks or potential product failures.

The Crypto Question

Tech-savvy trailblazers like Block (NYSE: SQ) CEO Jack Dorsey have been early-adopters of the trend, equipping Cash App to buy and sell crypto and purchasing more than 8,000 Bitcoin for Block’s balance sheet. Others like MicroStrategy’s (Nasdaq: MSFT) Michael Saylor or Tesla’s (Nasdaq: TSLA) Elon Musk have made similarly bold moves in the crypto arena.

Yet others have embraced crypto at a more measured pace, allowing the heavy-lifting to be done by others. Fidelity and BlackRock (NYSE: BLK) have each recently partnered with Coinbase (Nasdaq: COIN) to give their institutional clients access to crypto, while putting Coinbase in charge of the technical details like Smart order routing or offline storage.

Artificial intelligence is another field that faces this buy versus build decision every day. Tech companies like Amazon (Nasdaq: AMZN) and Meta Platforms (Nasdaq: META) are building their own bespoke applications and designing custom chips to power them. Elsewhere, energy companies are partnering with C3.AI (Nasdaq: AI) to improve their efficiency, banks are partnering with Upstart (Nasdaq: UPST) to improve their lending, and the Department of Defense is partnering with Palantir (NYSE: PLTR) to improve its operational intelligence. These contracts can be for hundreds of millions of dollars and run for more than a decade.

The 7investing Key Takeaway

There’s no silver bullet to the ‘buy versus build’ question, yet it’s an important one for investors to consider. Our most recent 7investing recommendations are chock-full of trend-setting companies (sign in to see the full list of all 7) who are actively balancing their homegrown innovation with external partnerships.

Join 7investing's Free Email List

Already a 7investing member? Log in here.