iGate CEO Phaneesh Murthy aims to shake up IT industry billing model
he teamed up with buyout firm Apax Partners for iGate's $1.2 billion purchase Indian rival Patni Computer Systems, which was more than twice its size.
Murthy has been an outspoken critic of the industry's traditional billing model, known as time-and-material. In a marketing campaign, iGate dismissed the model as a "criminal" practice that has "swindled" billions from large companies.
IGate took out an advertisement in The Economist magazine in January that read, "If this ad does not deliver results, we're not paying The Economist", marking a rare foray into mainstream media for an outsourcer.
While the company's irreverent tone is striking for an industry that tends to be staid, part of it is bluster: Outcomes-based pricing accounts for just a single-digit share of revenue. Most of its business is billed in the traditional way.
Murthy wants to grow the share of outcomes-based billing at iGate to 15-16 percent this year and 30 percent by 2017. By comparison, the industry may earn about 22.5 percent of revenues through that billing model by 2018, predicted Ray Wang, principal analyst at Constellation Research based in California.
BETTER DEAL?
India's $108 billion-a-year outsourcing industry got there by throwing hundreds of thousands of bodies at everything from selling credit cards by phone to processing mortgages and managing complex computer networks from remote locations.
Peter Bendor-Samuel, chief executive of Everest Group, a U.S. consultancy that advises clients on outsourcing, said outcomes-based pricing is more opaque than the time-and-material model.
"In the short term, that creates margin opportunities. Over the medium to long run, clients
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