AI Practice Eats Into Revenues At IT Cos

Indian IT services providers have been traditionally dependent on time and material of pricing, wherein billing is driven by number of human resources deployed. With increasing adoption of GenAI, there is a possibility of revenue cannibalisation, especially in ongoing large engagements with clients - Pareekh Jain, Founder of Pareekh Consulting, tells Bizz Buzz

Bengaluru: Indian IT services providers are staring at the possibility of cannibalisation of their revenues through the implementation of generative AI-led solutions. This revenue reduction possibilities are more prominent in the ongoing client engagements, wherein efficiency-driven GenAI solutions hold the potential of reducing the dependency on number of human resources deployed in those projects.According to sources in the know, though such trend has not been prominent as of now, increasing adoption of GenAI could very much accelerate the cannibalisation process.

“Indian IT services providers have been traditionally dependent on T&M (time and material) of pricing, wherein billing is driven by number of human resources deployed. With increasing adoption of GenAI, there is a possibility of revenue cannibalisation, especially in ongoing large engagements with clients. This is because GenAI could bring the whole process more efficiency that will reduce requirement for human resources,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.

“The possibility of such revenue loss is more in ongoing engagements than the new ones,” he added.

Advent of GenAI has been considered as a game changer in the technology field as it is likely to automate many processes, thereby reducing dependence on headcount. The process has raised concerns over impact on traditional business model of IT firms. However, sources in the know said that as the technology evolves, it will create new streams of revenue that will compensate for the loss arising from GenAI.

Currently, Indian IT firms are betting big in the GenAI space. These companies are experimenting with several PoCs (proof of concepts), under which thousands of engagements with related to AI & Gen AI are going on. They are also setting up AI-focussed Centre of Excellences (CoEs).

Moreover, another major development has happened in the AI space as most large and mid-tier IT firms have tied up with global chip giants. Most service providers now have Nvidia units as these companies are anticipating that a lot of work will be done through Nvidia chips. Similarly, many IT companies are in the process of developing their own enterprise-AI solutions like SLMs (smalllanguage models), training modules and related other solutions for providing enterprise-specific solutions to their clients. Notably, except Accenture, no other IT firm in India and other geographies are giving therevenue coming from the generative AI space. However, most companies are providing details of number of engagements in the AI & Gen AI space in recent quarters. Sources in the know said that after initial dip, GenAI will create more revenue streams for service providers.