It seems, Mr. Outsourcer, that you’ve been living -two- lives…

IMHO, there are two types of outsourcing in the games industry; one type is much easier for the outsource company to get off the ground, and is therefore much much more common.

Two types…

Type 1: lowest-hanging fruit

Signs:
…”we delivered EXACTLY your spec – including the bits we knew were typos”
… managers (but none of the staff) are ex-industry people with lots of management experience
… very low-cost (often: 20% or less of the cost of doing it in-house from scratch)
… professionally managed by account directors (may be *called* project managers)
… very VERY large number of clients and portfolio pieces
… always able to fit you in (they work very fast / efficiently, and churn stuff out fast; they can “scale up” relatively easily / quickly)
… terminology is usually about “booking you in”, etc – words from assembly-line companies

Type 2: specialists

Signs:
….expensive
… less interested in the spec, more interested in the overall goals
… the staff (not the managers) are typically ex-industry people with lots of experience
… you might have to wait 3-9 months for them to become avaialble for your project
… terminology is usually about “product development”, etc – words from development studios

It’s all in the Aspiration…

Type 1 companies are either making a fast (but small) buck, or are very smart. The smart ones are growing as fast as they can, and building up a cash pile. Sooner or later they setup internal, wholly-owned studios, and build their own product – which has a much higher profit margin. They offset the risks / costs by using their own (now huge) outsource teams to do lots of the work.

Type 2 companies often drift back and forth between being outsourced dev, and being paid-by-the-hour Consultants. These companies survive or fail a lot more on their pure skill and unique abilities/experience; their profit margins are much higher, but they have way fewer contracts and growth / scaling up their team is much harder.

How should you deal with them?

Most of what you hear about “working with outsourcers” really only applies to the first group, e.g.:

write an AWESOMELY accurate + detailed spec. Triple the amount of time you normally spend speccing stuff, to make sure this one is perfect. (PS: as a side-effect, you’ll end up answering lots of design qestions you probably had been avoiding or weren’t aware of yet – that’s often hard work but helpful to you in long run)
be damn sure they’re profitable and stable – these companies often operate on tiny profit margins until they’ve scaled up. The less-smart ones never manage to increase their profit margins
don’t be afraid to hurt the business-relationship: in their business, they have to accept every project that comes along. These companies are ever-hungry for work (to fuel their growth). Bear in mind they have aggressive, skilled salespeople, and probably love to play hardball negotiation
think of them as vendors, “selling” you a pre-packaged product that you specced 6 months earlier

For type 2 companies, I feel the rules of engagement are different:

don’t waste time on detailed specs: much of these guys value is that they can and will (re-)write your specs for you to be closer to what you wanted/needed
be very careful of the relationship – you’re dealing directly with high-skilled experts, and there’s relatively few direct-alternative companies. Don’t piss them off, or underpay them, or they might not work for you again – you’re not “negotiating with a salesperson”, you’re “distracting an expert who’d much rather be off working than sitting around arguing over price / service / SLA”
think of them as freelancers (although they’re obviously a different beast – you’re paying them to do a lot more than just freelance, much more than just follow orders), working with you to build something day by day

One of these lives has a future, and one of them … does not

In my experience, the first group often have a clear goal of success and riches, and a specific business plan to take them there. Whereas the second group often operate more as a “lifestyle business” – i.e. the individuals a making a decent annual wage, they’re doing something they enjoy, and it’s low-stress. They like the work, they get enough profit per project that they can survive through “lean times” when the market goes into recession, etc.

So, in most cases, there’s a high rate of “successful” type-1 companies (high turnover, employing 50…100…or several hundred…staff, lots of cash flowing around). Successful in sales terms, but … typically struggle to make anything beyond a low profit margin.

And a very low rate of “successful” type-2 companies (most of them are just pootling along, happy in their own little world, but neither growing nor shrinking – from an investor perspective, that’s a dismal failure: you’ll never get to sell your stake for $$$).

On the other hand, it’s usually the second group that contains the really huge successes (albeit a very small minority): the companies that pivot, the teams that come up with a huge money-making idea “unexpectedly”. There’s few better ways for a group of experts to “invent” the Next Big Thing, than to service dozens of clients a year for a couple of years and bide their time till they spot a gap in the market. By that point, they’re in a perfect position to capitalize on it…