News Analysis

Why IT service providers should offer flexible pricing now

Karl Flinders

EDS's decision to offer businesses flexible service options will help IT departments cut costs without losing service levels. EDS's new model will allow customers to take out services while not paying as much up front.

For example, a business could pay for a higher level service for one application, which is business-critical, and a lower level for an application that is not as important. In the past, service levels were not as flexible and companies could be paying more than they needed to for certain services.

Andy Gallagher, consultant at Compass Management Consulting, says all suppliers are trying to introduce flexible pricing, but the schemes so far have not been successful. "Every supplier has to prove it has the capacity to be flexible because it is the ticket to the party in the current economic climate."

Flexibility in pricing

IT departments are now seriously looking at on-demand services as an option as they try to control operating costs.

"What I hear from businesses is that although the suppliers are offering more flexible pricing, the models are too complex for businesses to be able to assess whether it isthe right decision or not," says Gallagher.

Phil Morris, European managing director of sourcing consultancy Equaterra, says a flexible model is ideal under current market conditions. "Anything that allows flexibility of pricing and service is a good idea, as long as there is real flexibility."

He says past attempts by suppliers to introduce flexible pricing have failed because the deals were not flexible enough.

Flexibility is important at the moment because businesses want to reduce spending, but not the level of service they get on business-critical services," says Morris. "They can tone down the service level agreement to fit their needs," he adds.

Gallagher at Compass says flexible pricing that is easy to understand is essential during tough times.

Flexibility in practice

One company that has been using a flexible model for two years is Indian IT service provider Infosys.

BG Srinivas, head of Europe at Infosys, says that although its model is mature,ithas yet to take off, although he believes thecurrent economic climate will change this.

The company offers services which charge companies according to the number of transactions they make. For maintenance, it can charge IT departments on the number of helpdesk calls.

Infosysalso sellsits intellectual property to clients so they can reuse certain software that has been developed.

Srinivas says the uncertain economic environment means businesses cannot predict the volumeof servicethey requireand are also trying to reduce capital expenditure. "This will increase interest inthese services."

He says that businesses have not taken up the services in large numbers because they have been doing good business and have not identified their requirements. "There are challenges for businesses moving to an on-demand model, such as letting go of what they already have."


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