Infosys backs on pay-per-use model

Bangalore: Software exporter Infosys Technologies plans to have a third of its total revenues coming from new services, including cloud computing and platform-based offerings, over the next few years, even as such engagements mean lower profitability to begin with, reports Pankaj Mishra from the Economic Times.

For Senapathy 'Kris' Gopalakrishnan, the Chief Executive of India's second-biggest software exporter, the next big bet for the company is to break free from effort or time and material-based business model to an engagement wherein customers pay for what they use, and based on the business results achieved. The company has already started serving around four customers using these models of delivering services, and derives nearly five percent of its revenues from such services currently.

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"You have to take a hit on your margins to start with, and sometime you may have to invest upfront. But from third, fourth or fifth customer you start making more money," he said in an interview. "It increases the risk, and the way we can make money is when the platform is shared. We can't make money on a single deal because competition will make sure that our margins are very less. And you have to remember that we need to share this revenues with other vendors," he added.

In a cloud computing or platform-based model, Infosys can serve multiple customers using same set of services developed for an existing customer such as Royal Philips Electronics. Rivals Tata Consultancy Services (TCS) and Wipro are already offering similar services to customers who are seeking to lower their capital expenditure by adopting pay-as-you-go model.

"We are internally setting a target, we don't know, if it will happen in 3 or 5 years, but we are saying that let us get ready for a third of our business to come from these new models," said Gopalakrishnan. "I can think about at least a dozen companies, who are experimenting with such models since past six months," he said.

Infosys' top customers from Europe include ABN Amro, British Telecom and British Petroleum. However, customers in the U.S., which accounts for more than half of India's $50-billion outsourcing industry, have started outsourcing of projects. "The U.S. has come back strongly, but there are uneasiness about unemployment, and hence, because of that people actually don't want to talk about outsourcing, even if they are doing," added Kris.

While local experts are still terming it a jobless recovery, companies such as Infosys have started seeing more business from customers seeking to lower their operational costs. "They are doing it because they have a need to invest, and even though unemployment is high, there is a gap in available resources for technology that still persists," he said.

Infosys, which will announce its financial results for the year ending March 2010 next month, is seeing increased spending from the top U.S. customers that include Bank of America.