I’ve worked on both sides of the fence being discussed, but have chosen the custom development route. As you said, it’s a personal choice. I find it more challenging to do custom development because of the parameters I have to work within. Also, like someone mentioned, I’m always getting exposed to new business domains as well as technologies. So it keeps me fresh. All personal feelings.

Business-wise, the two are quite different. For a product company, you make a large up front investment to build a product that people may or may not buy. Large upfront investment + risk. Custom development, paychecks are rolling in consistently. I *KNOW* I’m getting paid once I’ve found the contract.

Working in a custom development environment can expose you to business domains that you wouldn’t otherwise encounter. Often-times, a “one-off” piece of software that you implement for a customer in one industry can be polished and re-deployed in another domain, as a product. The original customer is often happy to see this, since the new software doesn’t directly compete with them, and an exchange can often be worked out for updates to the original software in exchange for gifting the IP.

One of the other responses touched on products-based companies morphing into consultant shops over time. I’d be willing to bet that a lot of software shops that are now products-based, perhaps most, cut their teeth doing custom development.