MUMBAI: Even as investors look for pointers on the pick-up in business demand and pricing from the second quarter results of IT companies, there are trends that indicate the pricing models themselves may be undergoing a gradual change. Some of the momentum for the change has come from the recession and client pressure to share business risk. As compared to one in many deals that were seeing newer pricing models in 2007, the last few quarters have witnessed a significant increase in the number of deals based on newer models.
Some of these models have been experimented with earlier but did not become mainstream. In the current environment , analysts and IT services vendors say these deals are now becoming a lot more frequent, and may not revert to older models even post-recession . “In the last few quarters, we are seeing a lot more deals getting closed and a many contracts being re-negotiated . The newer business models are based on a risk-reward partnership and pricing based on defined outcomes,” said Karthik Ananth, engagement manager, Zinnov Management Consulting.
“About a quarter of all deals with an annual run-rate of $30 million or more are now being negotiated on these newer pricing models,” said a senior executive with one of the country’s top 10 IT exporters, requesting anonymity. “Some of the deals were structured using these models because the IT budgets of clients had frozen or vanished,” he added.
Mid-size exporter Patni Computer Services’ $40 million deal with the US-based Weyerhaeuser is learnt to be based on one of these newer models. Similarly, HCL Technologies, which bagged a seven-year $350 million contract with Reader’s Digest made an up front payment to it as part of the promised savings, pointed out an IT analyst with a brokerage, requesting not to be named.
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