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Outsourcing prices likely to drop in 2010, but at what cost?

Stephanie Overby | Dec. 9, 2009
Outsourcing prices dropped overall in 2009, and industry watchers expect the downward trend to continue next year.

Overall, most infrastructure services--desktop, midrange and network services--will decline at single-digit percentages in 2010, according to Compass America. That excludes storage costs, which will continue to decline another 25 percent in the coming year.

Of course, the majority of cost savings that can be achieved by offshoring infrastructure support are labor-based. "Organizations should keep in mind, that if assets are included in their vendor's pricing, offshoring is unlikely to have a significant impact because the hardware and software that makes up the majority of the price is unaffected by the locale of support personnel," says Bob Mathers, senior consultant with Compass America.

IT Outsourcing Prices and Merger Mania

The biggest news in the outsourcing industry in 2009 was vendor consolidation. HP completed its integration of EDS, and new mergers were announced between Dell and Perot Systems and Xerox and ACS, among others.

So while increased offshoring, economic malaise, and customer focus on cost-cutting points to price drops, any further mergers could--in theory at least--foretell another story.

"Recent consolidation may portend upward price pressure, especially if other providers follow suit," says Trowbridge. Decreased competition rarely leads to lower prices. But, notes Trowbridge, offshore vendors continued inroads into the marketplace could serve to keep prices in check: "We anticipate that this upward pressure will be more than offset by global delivery capabilities in the marketplace. It's an area that will require reassessment as events shake out in 2010.

New IT Outsourcing Pricing Models

Amid continued economic uncertainty, outsourcing buyers will seek out pricing flexibility in the new year. "We see increased emphasis on on-demand transactional-based pricing predominantly because companies can't predict what the rebound will look like," says Bob Cecil, head of EquaTerra's business and financial process practice. "We are also seeing more outcome-based pricing."

Cloud computing will also attract more buyers. Dave Brown, head of EquaTerra's financial architecture practice, says cloud service providers and customers will begin to better understand cloud computing pricing and software as a service pricing in 2010, and that will drive organizations to adopt the new cloud delivery model.

"The downside," says Brown, "is that they are immature offerings [relative] to outsourcing transactions and will go through various iterations before the right pricing structure emerges."

 

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