Outsourcing: always viable?

I've been outsourcing a lot of programming work lately, because I have a lot of things I need to get done and not enough people to help me. We've got the money to do it, and I'm of the mindset that investing in our applications will not only make our own workers more productive, but give us some options for selling products which for many years we've only ever used internally.

Some of the work I've farmed out has been Ruby on Rails development, and the rest has been application development from a company where I was familiar with the developers through some of their open source projects.

The experience has been eye opening to me. I've shifted from lead developer on all of our important projects to project manager. That's another story in itself, and it's been a fascinating journey.

However, I'm questioning about the wide gap in pricing models. I have had quotes ranging from anywhere from $15 to $100 per hour for the same work. I'm sure you've guessed that the low end comes from a certain regional area of the world, and the higher end comes from another end. I have no doubt that the quality of code is probably also somewhat proportional to the hourly rate.

Someday, the shop that is charging $15 an hour is going to become just as effective as the $100 an hour shop is right now. Will the $100 an hour shop have gone forward far enough to continue to be able to charge that much? This part has me a bit baffled.

Now, don't get me wrong. $100 an hour isn't a lot of money, realistically. Our company charges considerably more than that for some of our testing services (granted, they go well beyond the scope of just writing programs and our overhead is significantly higher). I know the rate that is charged for my time is more than that. I'm proud to know that I built our entire IT structure and programming backends from scratch using free open source tools. The only expense we've ever really had in the IT department has been for the computers and my time.

Now I'm able to use some of the money we've been able to make to actually make much much nicer products - no more of this "startup" mode where we're eating Ramen and staying up late nights to get jobs done. We've been successful, and we're trying to invest in making ourselves even MORE successful.

But is the >$100 an hour model sustainable? I'm concerned.

yeah, but...

By the time the $15/hr shop is up to $100/hr standards, they are likely not to be a $15 shop anymore. Geography will always have its influence, of course, so it's unlikely they'll be up to $100/hr, but 60-75 may not be unreasonable.

Asian outsourcing is facing a problem, in that the most easily exploited talent pool is getting its act together and realizing that they needn't work for a pittance. But they also need to balance that with the reality of their situation, being that bias and inconvenience would prevent US firms from outsourcing to them if they weren't substantially cheaper.

So is the $100/hr model sustainable? I think so. It really comes down to marketing. Nobody needs a $60,000 car but people buy them because they think they're worth the price. If you are successful at managing the perceptions of your clientele, sure, $100+/hr is feasible.