Suppliers looking for concessions in return for price cuts
Businesses can look forward to price cuts of between 5% and 20% on infrastructure outsourcing deals over the next couple of years, Gartner has forecast today.
But the analyst group has warned that “pricing concessions will likely come only with stipulations.”
These include having to agree longer-term contracts, the structuring of deals around an expanded scope of work, and/or accepting additional contractual lock-in terms.
“Clients must be ready to make concessions to get these lower prices or greater flexibility” it said.
Many organisations will be busy renegotiating existing contracts, as they try to agree new terms and conditions, negotiate different service levels or push for more use of low-cost offshore delivery locations, suggested Claudio Da Rold, VP at Gartner.
He added that Indian offshore providers have been coming under significant pressure for pricing reductions due to the Mumbai terrorist attack, the scandal at Satyam, rupee exchange rate fluctuations, and continued wage inflation and attrition levels.
The market-watchers have predicted that the price of data centre services could fall by 5% to 15%.
It said, “We expect a potential decrease in price between 5% and 15% through 2010, due to the increased use of virtualisation, standardisation, remote management and automation associated with organisations seeking lower service levels, more-lenient penalties and friendlier contract terms with providers. Organisations will also extend utilisation, postpone refresh and investments, and extend leases, which contribute to the above price range.”
It said the cost of application hosting services could decline by between 10% and 20% through to 2010.
“We expect more-significant pressure on prices due to the rise of new offerings, infrastructure utility for SAP and other packages, SaaS offerings, and cloud approaches.”