FT : Infosys’ New Pricing Models

Saturday, January 12, 2008

Infosys Technologies on Friday said it was developing new businesses that were moving away from the traditional outsourcing model of charging clients based on the number of staff needed for a job.  The move comes as rapidly escalating wage costs in India and an appreciating rupee are putting pressure on IT companies’ margins, forcing the sector to move away from the “body shop” model, under which it was dependent mainly on cheap labour for profits.  S Gopalakrishnan, chief executive of the Indian IT services group, who on Friday released the company’s third-quarter results, told the Financial Times the aim was “to create new growth engines”.  For example, the company was introducing a “software-assisted-services” business unit under which, rather than just developing software and then handing it over to the client, Infosys would retain ownership of the software and charge the client on a pay-per-use basis.  This saves the client the cost of maintaining and hosting the software while Infosys gets a longer-term revenue stream out of the product.  The initial software development phase is labour-intensive. But, after that, the need for large numbers of expensive software engineers trails off even as revenue rises.  “The tail is much longer – you continue [to] get revenue as long as they use the software,” Mr Gopala-krishnan said.  The company is also setting up other units that combine its skills in providing software services with back- office processing, covering areas such as procurement, human resources, staff training and education and learning outsourcing.  Infosys reported a 25% year-on-year increase in net profit to Rs12.3bn ($314m) for the three months ended December.

Reference : http://www.ft.com/cms/s/0/1d995582-c06e-11dc-b0b7-0000779fd2ac.html

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