The selection of an appropriate pricing model is always an area of concern for enterprises that seek to outsource their IT services. Over the last few years, we have seen a tremendous growth in the adoption of next-generation pricing arrangements such as output- and outcome-based pricing. More and more enterprises are leveraging these alternate models for their outsourced IT services. Application services is one such area where these models have witnessed good traction.

Scope

This viewpoint reviews the shift in demand in the pricing arrangements of Application Outsourcing (AO) services. It showcases the prominent output-based pricing constructs witnessed in the AO contracts. It will help the reader understand the benefits as well as the pitfalls of each pricing model. This viewpoint also highlights some of the key challenges that enterprises should address while implementing the output-based pricing model. The overall scope of the viewpoint covers:

• Detailed assessment of some of the major output-based pricing constructs, including:
  • Definitions and resource units
  • Benefits and suitable scenarios
  • Challenges and pitfalls
  • Key points to consider
• Typical challenges to be addressed while implementing output-based pricing construct