Gartner Research

MIPS Outsourcing: Price and Cost Lessons for All

Published: 19 July 2000

ID: G0091094

Analyst(s): Claudio Da Rold , Richard T. Matlus

Summary

Management Summary This Strategic Analysis Report was initially written to address price and cost issues for data center outsourcing (DCO) in Europe. However the findings are also valid globally. Hence, this report has been updated to apply to all countries. The outsourcing sector is one of the fastest growing parts of the IT market. Gartner evaluated that the worldwide IT outsourcing market (excluding business process outsourcing) in 1998 was a business of around $88 billion, growing at a 16 percent compound annual growth rate. By 2003, this market will be $188 billion. While other areas may be growing faster then the DCO segment, DCO is the largest percentage of the market. DCO is also the most important outsourcing area for emerging or less-mature markets where enterprises often start their sourcing strategies and service externalization from the data center or from their overall infrastructure. For example, in Italy, the main DCO providers gather around 800 billion lire from this market segment, which accounts for 50 percent or more of their outsourcing revenue in some cases. Generally, the DCO market is defined as the most mature commodity service in the outsourcing market. Nevertheless, lack of standardization, vendor market strategies and client approaches to outsourcing make it difficult to build a good deal. This report analyzes some of the concepts at the base of a DCO deal: o Client expectations and point of view compared with vendor expectations o Role of the major outsourcing factors (e.g., economies of scale, standardization and best practices) o Vendor tactics on economies of scale, and deal and service shaping o Client requirements (in terms of roles and responsibilities), retained costs, risks and processes o Usage and the role of benchmarks in this kind of deal The different concepts and analysis included in this report are a drill down into the million of instructions per second (MIPS) outsourcing realm in terms of cost...

Table Of Contents
  • Management Summary
  • The Enterprise’s Point of View
    • Outsourcing and Cost Savings
    • Comparing Costs Before and After
    • An Easy Way to Save Money
    • How to Approach the Service Provider
    • Outsourcing and Continuity
    • A Typical Case
  • The Service Provider’s Point of View
    • The Market View
    • The Single Deal View
    • The Contract Duration
  • The Data Center Outsourcing Offer Model
    • Economies of Scale, Standardization and Best Practices
    • “Doing Outsourcing” and the Outsourcing Offer
    • Economies of Scale and the Economics of Data Center Outsourcing
    • Standardization and Best Practices
    • Overhead and Profit Margins
    • Benchmarks Look at the Past, Offers Look Forward
    • MIPS Market Trends
    • Service Providers’ Offer Line
  • Data Center Outsourcing Offers, Service Contents and Tactics
    • Pricing Models and Economies of Scale
    • The Service Provider’s View: Neither Full Service Nor Full Price
    • Transitions in Outsourcing Contracts
    • The Enterprise’s View: Neither Full Service Nor Full Cost
    • Deal Preparation
    • The Enterprise’s Risk
    • The Role of Processes
  • Conclusions
  • Acronym Key

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