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September 15, 2010

Economic uncertainty to drive businesses towards low-cost IT: Gartner

IT services market to post 10% - 25% y-o-y reduction in the average market unit price PUPM for three to five years

By CBR Staff Writer

The economic fluctuations, business uncertainty, accelerated service globalisation, and increasing competition of IT services are major factors that could drive businesses towards low-cost IT, according to a new report by information technology research and advisory firm Gartner.

The research house said that the low-cost IT as the delivery of managed IT services includes infrastructure, application, and business process services, designed and implemented to minimise IT price per-user/unit per-month (PUPM), while maximising the number of client organisations and users that adopt the services.

Gartner vice president and distinguished analyst Claudio Da Rold said that the price of IT will continue to drive decision making.

"As credit markets in the US and Europe remain challenging, end-user organisations will reduce costs by sourcing IT services from emerging countries and lower cost providers," Da Rold said.

"Cost cutting, restructuring and the move toward offshore outsourcing continue to increase while growth in emerging countries accelerates, widening the gap between high-growth areas and stagnant economies, and low and high-cost IT providers.

"This trend could drive a prolonged reduction in the unit cost of IT services, significantly affecting the IT services market by 2013."

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The report revealed that the industrialisation of IT services is enabling a greater orientation toward outcome-based and pay-per-use services.

In addition, the increase in advertising ‘IT as a service’ as a pricing model, would compel business buyers to switch from traditional providers to PUPM pricing models by 2012.

This could result in IT services market registering a year-on-year reduction of 10% to 25% in the average market unit price PUPM for three to five years, and a yearly reduction of 10% to 25% in IT services costs, affecting 30% of the market, that could cause the overall, average market price to decline by 5% to 10% yearly, Gartner said.

Gartner research vice president Frank Ridder said that the reduction is possible because, in 2009, they saw the IT services market shrink 4%, with a market loss of $42bn, with outsourcing prices plummeting.

"Such extensive reductions in price and market size would stall growth in the overall IT services market by 2013," Ridder said.

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