Collaborative software development, through inter-organizational collaboration or outsourcing, has become increasingly attractive for organizations. However, little is known about the problems associated with collaboration. Therefore, organizations engaging in collaboration need to be aware of the potential pitfalls involved. For this purpose, this study explores problems and important factors for successful collaboration in relation to inter-organizational collaboration in software development in Nokia and Philips. The problems in collaborative software development were communication, unclear agreements, security policy issues, inflexibility over changes, adaptation to the environment, team coordination, misunderstanding of the goals, lack of human resources, difficulties monitoring the work, and commitment. The results suggest that the success factors of collaborative software development are effective communication, careful preparation, technical experts, managers and legal experts involved in contract negotiations, a clear understanding of cultural differences, clear specifications, logical architecture, efficient information distribution between the parties, and the right competences.