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Analyst: 'TaaS' to cut tech costs for business

'Technology as a service', a pay-by-use model for both software and hardware, will soon lower procurement costs, Gartner has said

Gartner analysts predict that "technology as a service" will play a major role in future procurement, with its pay-by-use model set to cut user upfront costs and reduce vendor margins.

According to Gartner, by 2011, 40 percent of all IT technology products will be sold as a service, with users paying to use software or hardware, rather than own it.

In an effort to lower costs and link operational expenses to their revenues, organisations are moving away from tying up capital in IT assets on their balance sheets, according to Craig Baty, group vice president of analyst house Gartner, speaking at the Gartner Symposium in Sydney. Organisations are undertaking "acquisition of access rather than acquisition of assets", he said.

Instead of paying large upfront costs to buy new technology, companies can pay for technology as a service (TaaS) in several flexible variants, including per person, usage, day, microsecond, bandwidth and storage, said Baty.

This trend will see aggregator brands trumping technology sales, with software and hardware vendors getting a lesser share of the pie, Baty continued. "Aggregators will have the better deal because they are better at fitting it all together," he said.

TaaS has implications for share price, sales and brand equity, Baty told those gathered at the event. It produces less predictable revenue streams, while undermining brand as "users don't care who, what [or] where, as long as they can get to it".

Software vendors in particular will be hard hit, according to Gartner, with TaaS and other factors such as open source, business-process outsourcing and low-cost development environments, such as China and India, converging to give negotiating power back to the software buyer.

Gartner has predicted that this will lead to software licensing costs falling and software margins reducing over the next five to 10 years.

The success of hardware and software vendors will also depend on their alignment with major aggregators' platforms and partner ecosystems, Baty said. SAP is already working to promote TaaS through aggregators, Baty said, while Oracle will offer TaaS directly, as well as through aggregators.