Why is software development so expensive in Germany?
Having software developed in Germany is usually associated with high costs. Why is that? Read more in the article.
There is software in almost all devices these days. Not only on desktop PCs, but also on smartphones, cars, washing machines, watches and many more.
Almost everything is connected these days.
Classic software that used to run on a company’s computer or server now runs over the Internet. Or rather, you can call it up via the browser.
The rise of solutions like Salesforce (a cloud-based CRM system) or even Amazon are just a few of many prominent examples.
Why does programming cost so much?
Now we go to the real question 😊
The price of a service is always determined by supply and demand.
For example, if the demand for IT services is high, but the supply of IT professionals and IT service providers is low, then prices will rise. This is the simplest market theory. But of course it also makes sense, and you don’t have to have a degree in economics to do it.
Germany is an industrialized country
We must not forget that the Federal Republic is an industrialized country. Unlike, for example, say, Argentina.
In D, cars are built and sold en masse. From big companies like Volkswagen, BMW, Mercedes and many more.
In addition, there is the entire supply chain, or suppliers in German. Bosch, for example, is the largest supplier of automotive parts (approximately 46 billion euros in sales per year).
Germany is also a leader in chemistry and other innovative fields.
All need software
All of these corporate giants need software. More than ever. Even companies like Bosch, which are actually manufacturers of car parts, are increasingly calling themselves IT companies rather than manufacturers.
This means that more and more software is being commissioned. Or even set up IT departments with several thousand employees themselves.
Demand is also there for small and medium-sized companies
For example, even a small business already needs a good Internet presence. For example, a website with an online store.
However, what does the offer of IT services and programmers look like?
There is a very low supply of IT services in Germany compared to demand.
Some who will read this text here may disagree. However, this is more likely due to a poor structural distribution of IT projects. Often programmers/IT freelancers and companies just don’t find each other. Which, of course, exacerbates the supply problem.
For example, in 2021, there were just 15,791, passed exams at universities in computer science (source: Statista).
That is far too little.
There are individual companies like Siemens, with more than 300,000 employees, which are transforming themselves more and more in the direction of software companies. Such a company alone may need 5,000 to 10,000 developers a year to achieve this goal.
This means that even a single company in Germany is sufficient to accommodate a whole year’s worth of university graduates.
Prices therefore high
Therefore, the cost of software development and web development in Germany is extremely high.
Many agencies charge at least 100 euros per hour. Some even do so-called value pricing and look at what “added value” the software solution brings. Then the hourly rates, when you break them down, are much higher still.
Programmers can also choose their employers.
A programmer does not have to work as a software developer
What is also special in Germany is that a developer does not have to work in software development.
He or she may also work as a consultant in one of the large consulting firms. Many smaller consulting companies also offer interesting positions for IT graduates.
You don’t have to go to IT
Another issue in Germany is that a high school graduate or school leaver does not necessarily have to start a computer science apprenticeship.
There are several industries and companies in Germany where you can apply for a wide variety of training programs. Or even courses of study such as business administration or even studying to be a teacher.
D is a powerful country with many opportunities. (Different, for example, let’s say in Saudi Arabia. There, most of the jobs will be in the oil industry. Or China, there you will most likely find work in one of the infinite number of factories. In Thailand, you will find good jobs in the relatively large industry of computer hardware development. etc.).
Therefore: Do not be surprised about the costs
When a startup turns to an agency, it’s not uncommon to be surprised at the high prices. A small website can quickly cost 10,000 euros and more.
The answer for these high costs, as already mentioned, lies in the generally high demand. The agency doesn’t have to work for a startup if it can also build a marketing website for Mercedes-Benz or Adidas.
Of course, there are also many new IT service providers on the market who don’t yet know their way around and are basically selling themselves short. And there are quite a few of them. However, this does not mean that this is the norm.
The salaries of software developers have also risen in recent years. Programmers, for example, with good Java skills, not infrequently earn 65,000 euros or more per year. On top of that, you have to add all the overhead costs. Then it’s not uncommon to come up with 100,000 euros in salary and fringe benefits.
Of course, this also leads to the fact that software development cannot be cheap.
What does the future hold?
The demand for software services will continue to grow strongly in the future. The automotive sector is just one example. At that time, almost everything was done with levers and buttons. Today, it is not uncommon for much or almost everything to be controlled by software.
That will only increase in battery-powered cars.
From doors to windows, to lamps and much more. IT will be included everywhere.
Artificial Intelligence (AI) and Machine Learning (ML)
I myself was skeptical of AI for a long time, thinking that it would take a long time before AI could create anything sensible. In my opinion, that has already changed.
You can do a lot with AI and ML. Most likely, it will also be possible to automate the programming tasks, at least to a certain extent.
This could lead to software development becoming somewhat cheaper over time.
Software development in Germany is expensive. That’s a fact, and it’s not going to change anytime soon.
Demand will remain high in the coming years.
What are your experiences?
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Sascha Thattil ist Blogger und Geschäftsführer bei YUHIRO. Wir bauen Entwicklerteams in Indien für Agenturen, IT Dienstleister und Softwareunternehmen auf.