As the economic crisis spreads deep, companies cutting down on their IT budgets is an old story. What has also been talked about is the need to continue investment on IT to save costs and get better efficiencies. Striking a balance between companies? priority to reserve cash and vendors? need to promote the usage of IT in a way that lends to immediate cost saving is becoming difficult. Still, the current bad times are altering the way software and services are sold and executed.

?In today?s market conditions, service providers are experimenting with different models to find what will work. Before devising strategies, they need to keep in mind that companies are avoiding big-ticket investment. Who wants to block capital in these times,? points out Shiraz Ritwik, research director, ITO, Everest Research Institute. He says CIOs are also risk-averse and are looking at non-discretionary short-term solutions. ?Some CIOs are not even sure they will last the current financial year, so who is thinking in long-term now?, he asks.

Some technologies and outsourcing models evolving today have the potential to stay on once the recession is over. FE spoke to a cross-section of industry experts to zero in on a few models that could become game-changers in the future.

Pay-per-service

Be it hardware or software, pay-per-service or pay-as-you-use is becoming the preferred option for companies across the world. Software as a service (SaaS), which has been around for some time and is an extension of pay-per-service, is seeing an uptake like never before. While software companies such as Oracle and SAP are working towards enabling vendors to build, deploy and manage more of their software platforms as a service, software outsourcing giants like Infosys are equally gung ho about SaaS as the future of outsourcing.

?Faced with impending IT budget cuts, increasing business demands, and the encumbrances of legacy packaged apps, applications professionals are increasingly turning to true multi-tenant SaaS delivery options during the downturn,? notes Ray Wang, vice-president and principal analyst, Forrester Research.

Wang says that pay-as-you-go deployment options reduce the upfront capital expense of licence fees, maintenance, implementation, integration, and hardware while making the process faster. Over 46% respondents in a Forrester?s enterprise and SMB software survey, North America and Europe, Q3 2007, said the pricing model is a significant motivator for using SaaS.

It has been observed, Wang says, that SaaS vendors continue to grow quarterly revenues year over year. ?In fact, most vendors posted over 40% growth rates in the past two quarters during a period when most on-premise vendors delivered disappointing year-over-year quarterly reductions in new licence revenue,? Wang adds.

Not just in the software domain, pay-per-service is equally catching on in data centres, servers and printers; companies are outsourcing their hardware needs and evolving service-fee based models.

Remote infrastructure management

?Once, companies made huge investments for managing their storage and network. Today, one can hire everything, right from data centres to servers, printers and PCs,? says Diptarup Chakraborti, principal research analyst, Gartner. For instance, Amazon has launched Elastic Compute Cloud (EC2), which is a Web-based cloud computing model where companies can hire data centres and server space.

The advantage here is two-fold. First, companies don?t have to make upfront investment in buying servers and data centres. Second, they pay only for the capacity that is used. ?Remote infrastructure management outsourcing is a powerful way of keeping both the capital and the operational expenditure low,? adds Ritwik.

Cloud computing, like SaaS, is becoming a beneficiary of recession. According to a Gartner report, worldwide cloud services revenue is on pace to surpass $56.3 billion in 2009, a 21.3% increase from the 2008 revenue of $46.4 billion. ?Cloud-based infrastructure services probably has the largest range of possible outcomes, depending on how aggressively cloud computing is embraced by major outsourcing vendors and their customers,? says Ben Pring, research vice-president for Gartner, in the report.

Even in printing, managed services are becoming a trend, says Nitin Hiranandani, director, enterprise sales & services, imaging & printing group, HP India. The company recently launched a new printer line-up and solutions which ensure printing cost savings and energy savings of up to 50% for SMBs and potential cost savings of up to 30% with managed print services for enterprises. Companies are also increasingly consolidating their hardware and either hiring service providers to manage their existing set-up or outsourcing their new needs.

Output-based pricing

With companies asking for more value for the same cost and re-negotiating pricing with vendors, there is a need to device more attractive pricing models, with a focus on benefit-based pricing, says Ambarish Dasgupta, executive director, PricewaterhouseCoopers. Navin Agrawal, executive director, KPMG, adds that time and material pricing model is set to change as companies demand more sophisticated models that aligns their IT cost to consumption.

This is also relevant for business process outsourcing (BPO), where most contracts are priced on time and material. However, vendors are now focusing on output-based and outcome-based pricing, which reduces their dependence on headcount and leaves scope for deriving better productivity from their workforce.

Sunil Mehta, country manager at Quint India, says performance-based service management is finding greater resonance with clients now. The company is devising more specific and short-term programmes where the revenue model for Quint is based on a percentage of the actual benefits derived by the end user.

Hardware consolidation

?An interesting trend that is emerging in the hardware space is that firms are moving towards employee-owned computers,? says Chakraborti of Gartner. This way companies save on the maintenance cost and depreciation. Companies are also increasingly segregating their workforce in terms of their IT needs. This kind of profiling of employees is helping them choose effectively between high-end laptops, PDAs, netbooks etc, for usage by different employee groups.

Chakraborti observes that while environmental concerns have increased, low-cost and low-energy consuming devices cut down power bills. It can be assumed that enterprises will also be significant buyers of low-cost devices powered by Intel?s Atom processors or equivalent processors.