Another area in which providers are offering different pricing models is content distribution services, where Web-site operators pay to have content cached in the networks of these providers and sent to local customers from nearby servers (see story). This is faster than one Web site delivering all content to all visitors. Some content-distribution providers, such as Akamai Technologies, charge by the amount of bandwidth used to deliver the content on a monthly basis, while some upstarts charge by the number of pages viewed at the servers.

Other communications service providers are offering pricing based on expected financial returns for the customer, an alternative to open bidding. Newcome Electronic Systems, a Columbus, Ohio, company that provides design and installation of voice and data networks, developed a methodology to quantify the expected returns based on a customer's expectations of the network and its financial impact on the organization, and factored in costs such as network components and cable to determine a fee.

Glomark's Melendez expects pricing based on return-on-investment calculations to become more prevalent for all types of IT products and services. "While this is seen as a threat by some vendors, others see it as an opportunity and are training their sales forces and equipping them with ROI tools to help their clients understand the ROI and economic contribution of the products," he says.

OUTSOURCING/SYSTEMS INTEGRATION It's difficult to generalize about outsourcing and systems-integration pricing models because so many deals are customized and specific terms and clauses often aren't disclosed. But experts say there's a strong trend toward unit pricing, where customers pay for individual services provided-desktop support, help desk, data-center maintenance, for example-rather than paying one large fee for all services.

"In the early days of outsourcing, unit pricing was unknown," says Geraldine Fox, outsourcing practice leader at Compass America, which helps companies negotiate outsourcing and systems-integration deals. "Now, companies want to track what services cost on a per-unit basis."

Users seem to like the option. "We tend to break out pricing of services by application; we look at help desk, desktop applications, and data-center operations separately," says Snap-on's Biland. "We can better track costs for each and find out if in some cases it makes more sense to insource rather than outsource."

Melendez agrees there's a trend toward breaking out payments for different portions of outsourcing and integration deals. "Because of increased competition, we're seeing more unbundled pricing than bundled," he says. "To show value, the service vendors today have to unbundle. In the past, they could be more arrogant; they'd say, 'Take this price or leave it.' That doesn't exist anymore."

Also becoming more common, Melendez says, are service agreements with guaranteed results. "A common approach is to pay a nominal amount for the service, and the difference, which is basically the vendor's margin, is based on the results. In this case, both the vendor and buyer of IT share the risk and rewards of the results."

Costs for some services such as data-center outsourcing have been dropping. "Outsourcing clients are doing a better job of benchmarking services and getting a better understanding of what is a fair price," says David Burkett, president of Compass America. "This puts pressure on outsourcers to offer more competitive pricing."

Regardless of whether it's software, hardware, or services, technology managers clearly have more options and flexibility in IT pricing than ever. And that, they say, is how it should be. "The successful IT suppliers of the future will be those that work on developing a basis of trust and an alliance-type relationship with their customers," says Fluor's Benner. "There's no excuse for a supplier not to have an alliance with the customer. And with all these pricing tools emerging, there's no reason it can't be done."

-with additional reporting by Martin J. Garvey, Chris Murphy, Paul McDougall, Marguerite Reardon, Aaron Ricadela, Bob Wallace, and Rick Whiting

return to page 1, 2, 3, 4

Illustration by Catherine Parr