IT outsourcer Infosys Technologies is taking its first steps into the managed services sector by developing a business unit based on an “outcome-based” pricing model, moving away from charging per man hour toward what it calls a “software-assisted services” model.
Instead of creating software and delivering it to the client, the new model leaves ownership of the software with Infosys, and the client is charged on a pay-per-use basis, according to S.D. Shibulal, chief operating officer of Infosys. He said while the new business unit was announced last week, the change wasn't sudden. "This is not something we decided to do instantly," he said, but rather as part of a larger, gradual shift toward “software-assisted services.”
"This is a managed services play," Shibulal said, adding that the new mode should increase recurring revenue for Infosys and remove the burden of managing technology from clients. "The client doesn't have the problems of managing or servicing the software, and we generate revenue as long as they use it," Shibulal said.
The model used, however, is ultimately up to the customer, Shibulal said, noting that in cases where a customer uses Infosys software to manage highly confidential or sensitive data, they might not be comfortable relinquishing control to a service provider. In cases like that, he said, the decision about which model to use is based on the customer's level of comfort with an outside provider having access to their data.
The software applications are developed to run on third-party, industry-standard platforms, Shibulal said, meaning that it can be hosted and run either by Infosys or on the client's premises.
Paul Roehrig, an analyst at Forrester Research, said U.S. economic worries and the deterioration of the dollar are major forces pushing outsourced IT services providers such as Infosys to look for new ways to sustain their business. North American firms comprise the majority of outsourcing providers' clients, meaning that companies such as Infosys that are paid in U.S. dollars feel the economic squeeze as the economy slumps, Roehrig said.
Moving to a managed services model, or what Roehrig calls the annuity model, means outsourcers can sustain their current client base and even grow by offering more services and thus, more value to clients, he said. "There's a lot more revenue in the annuity revenue model, and they can generate that revenue over a longer term," Roehrig added.
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