According to Stephanie Overby’s April 7 article on CIO.com, the price of some information technology (IT) services has fallen significantly based on the development of cloud-based delivery models for IT outsourcing. According to the article, although Indian IT outsourcing firms may feel the most pressure to lower prices, the drop in IT outsourcing prices is a widespread trend. The article states that “In the last few months, some providers have been submitting bids as much as 40 percent lower than their competitors thanks to the incorporation of autonomic solutions into their deals.”

Customers of outsourced IT services may see opportunities to lower the prices for the services that they consume. The article cites outsourcing firm Information Services Group, which “estimates more than $100 billion of annual outsourcing contract value will be renegotiated over the next 24 months.” IT providers that sell customizable, on-demand solutions and that rely less on labor can offer their customers lower prices and still receive higher margins, depending on the investments and design choices providers have made in their technology. IT outsourcing firms that cling to outdated models may be left out in the cold.

Although customers of IT services may welcome lower prices, the shift to automated processing and cloud-based models also presents new challenges that companies should consider when switching to lower cost models. For instance, service providers may offer IT services through proprietary solutions, which may make it difficult for customers to transition services to other providers or in-source those functions. Further, use of cloud-based solutions may have data privacy and security implications that all customers should consider.