Infosys moves to new pricing strategy

Infosys Technologies has developed a new method of pricing software maintenance projects to make its revenues more effort-based and less manpower dependent.

Starting this quarter, the company will start offering clients ‘ticket-based pricing’ as opposed to fixed price and time and material-based pricing for software maintenance projects. The move is aimed at increasing revenues without a proportional increase in the number of employees.

Under the traditional time and material-based pricing, customers are billed based on the number of man-hours spent on a project, while under the fixed price, as the name suggests, the customer pays an agreed price that doesn’t vary with the manpower deployed on the project.

Under the new ‘ticket-based pricing’, a customer’s pay will be based on certain parameters such as whether the client request or ‘ticket’ that is raised is for a small enhancement in the software application, a big enhancement or a bug-fix.

“A software application becomes more stable with time. But if a client has opted for a fixed price model, then even after the application becomes more stable and the number of requests decrease, the same price has to be paid. Ticket-based pricing will give them the flexibility to change that and reduce the total cost of ownership,” said Infosys COO SD Shibulal.

Application development and maintenance (ADM) revenue accounted for 43.4% of Infosys’ total revenues, with maintenance being approximately half of that, in the just ended June 2007 quarter.

Infosys and other technology majors have been trying to decrease the dependence of revenue growth on manpower addition. Many of them have developed new services such as platform-based BPO and software-as-a-service, in addition to products, to do this.

But this is for the first time such an attempt has been made to bring a transaction-based pricing model to traditional ADM projects, which account for a bulk of the revenue for Indian IT service providers. For infrastructure management services as well, Infosys has come up with device-based pricing or pricing that is based on the type and number of servers, PCs and other devices.

Mr Shibulal said he expected client adoption to the new pricing-model to be very gradual. “We will offer it to new clients and existing clients, based on their comfort. Client comfort will be the most important thing,” he said. Infosys is now focusing on getting more deeply involved with clients and adding more value to them, he added, about the firm’s renewed consulting focus.

While Accenture’s better than expected results last month gave a fillip to its stock, Infosys results were shade below expectations, acting as a dampner for all tech stocks on day the overall sentiment was negative. “While it appears we address the same segments, Accenture started as a consulting and transformational services provider that now offers outsourcing and global delivery services.

Indian players started as outsourcing and global delivery service providers and are getting into transformational and consulting engagements. The two are now converging,” said Mr Shibulal on the difference between the segments the two companies address.


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