Revenue sharing is the new mantra

Technology services firms are moving to a revenue,gain share model where they get a chunk of the clients revenues or gains made due to increased productivity or reduction in processing time. Companies believe this slice of the action strategy could not only be the next differentiator but also boost revenues.

For HCL Technologies, which adopted the revenue/gain share model in 2005, less than 5 percent of revenue currently comes from such contracts.

Part of the companys,if we share the vision, we must share the risk strategy, the move towards outcome based pricing is expected to fetch returns soon. Most of these contracts are under implementation currently. We expect to see the impact on revenue in another 18 months, says HCL Technologies president Vineet Nayar.

While engineering services and infrastructure management services clients have more readily adopted this model, those in the applications space are yet to move, Mr Nayar adds. HCL has a revenue sharing arrangement with Cisco and an output-based pricing arrangement to develop software for Boeing’s 787 Dreamliner.

Infosys has also begun rolling out this model but the company says it has to be used selectively. This is a good model for some of the relationships and projects we are executing and not all. It is very small since we have just started rolling this out, says Infosys MD and CEO S Gopalakrishnan. The country’s second-largest IT services firm finds client relationships in the areas of development, R and D and consulting work in IT services as more amenable to such contracts.

Wipro uses revenue sharing mostly in its engineering services business where it helps clients with new product development, says enterprise solutions president Sudip Banerjee. These usually form a part of our end to end services delivery for our customers and only certain components of the entire services pie are on the flexi pricing model, he added.

For Accenture, business outcome-related contracts is one of its 3B strategy, the others being building assets and bundling IT and BPO services. The company, which has about 30,000 employees in India, envisages about 50 percent of deals in the next 2 to3 years to be based on business outcome. We see a fair number of clients moving to the risk-reward model, especially in areas like accounting transactions and cross-selling improvement, says PG Raghuraman, lead executive for Accenture delivery centres for BPO in India.

BPOs are beginning to move to the gain-share model as part of the shift towards providing solutions to clients, rather than doing a slice of the process for them happens, says IBM Daksh CEO Pavan Vaish. Bharti Airtel had outsourced its IT infrastructure management to IBM under a US dollar750 million revenue share contract, which was later scaled up to US dollar1.1 billion, and later signed another similar deal to build its service delivery platform.

IBM Daksh was one of the BPOs that the telecom operator outsourced its call centre functions to on an outcome based pricing model.