The Shift from SaaS to Internal Software Development in Enterprises

A significant trend is emerging within enterprises as teams increasingly opt to build custom software tools rather than relying on traditional Software as a Service (SaaS) solutions. A report from Retool, based on a survey of 817 customers, reveals that 35% of respondents have already replaced at least one SaaS tool with a custom-built alternative, and 78% anticipate further internal development in 2026. This shift is characterized by a growing number of teams creating tools without IT oversight, with 60% of builders reporting such activities in the past year.

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David Hsu, CEO of Retool, emphasizes that the economics of software development have changed dramatically. The cost of building custom tools has decreased significantly, allowing business operations leads to develop prototypes in just days, compared to the weeks and high costs associated with traditional methods. Hsu notes, “When the cost of building drops by an order of magnitude but the cost of buying stays flat, the math changes for every company.” This shift encourages enterprises to reconsider their approach to software, moving from a mindset of purchasing to one of building.

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Despite the advantages of internal tool development, governance remains a critical concern. Hsu points out that while 51% of builders have deployed production tools, many organizations lack the necessary oversight and infrastructure to manage these tools effectively. “The most underestimated risk is what happens after deployment,” he warns, highlighting the potential for ungoverned sprawl that can lead to security vulnerabilities and compliance issues. Suraj Srinivasan, a professor at Harvard Business School, adds that organizations often face an implementation gap between AI capabilities and their deployment readiness, which can limit the full utilization of technology.

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The report indicates that about half of the builders who have launched production software report saving six or more hours per week. However, Hsu stresses the importance of measuring these gains to demonstrate return on investment (ROI). “You can't prove ROI on what you don't measure,” he states, advocating for a structured approach to tracking the impact of custom tools. As enterprises navigate this evolving landscape, the expectation for purchased software will also rise, with Hsu suggesting that the bar for SaaS solutions has been permanently elevated.

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Critics of the rapid shift to internal tool development caution against the risks associated with shadow IT, where tools are created without formal oversight. This can lead to fragmented systems that complicate governance and increase security risks. The challenge for enterprise leaders is to find a balance between encouraging innovation and maintaining control over software development processes.

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As enterprises continue to embrace internal software building, the focus will shift toward establishing robust governance frameworks. Retool's upcoming AI Governance webinar on February 24 will further explore these challenges, featuring experts like Suraj Srinivasan and Keith Enright, who will discuss the implications of this trend for the future of enterprise software development.

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• “The cost of building custom software has collapsed,” — David Hsu, CEO of Retool

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• “The most underestimated risk is what happens after deployment,” — David Hsu, CEO of Retool

Newsweek

• “You can't prove ROI on what you don't measure,” — David Hsu, CEO of Retool

Newsweek

• “The bar for purchased software just got permanently higher,” — David Hsu, CEO of Retool

Newsweek

This evolving landscape of internal software development presents both opportunities and challenges for enterprises as they navigate the complexities of governance and innovation.

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