Competitive Bidding Hits Margins At IT Cos

Currently, IT firms are vying for outsourcing projects through reduction of bidding prices. This has certainly come to a stage wherein a lot of ‘commoditisation’ is being seen in many technology areas - Siddharth Pai, Founder & MD, Siana Capital Management, tells Bizz Buzz

Bengaluru: Indian IT services companies are outbidding each other in order to win large outsourcing contracts, leading to margin pressure. According to industry experts, new areas like generative AI are yet to contribute significantly towards the overall revenue and there is a situation of ‘commoditisation’ seen in some of the old technology areas.

“Currently, IT firms are vying for outsourcing projects through reduction of bidding prices. This has certainly come to a stage wherein a lot of ‘commoditisation’ is being seen in many technology areas,” IT industry veteran and Founder & Managing Partner of Siana Capital Management, Siddharth Pai told Bizz Buzz.

Though Indian IT firms have seen largely stable pricing environment in recent quarters; slowdown in digital projects and no meaningful uptick in the GenAI space have turned into a situation, wherein differentiating service offerings are missing for these IT companies.

“Generative AI is not proved to be a disruptor yet. It has also not yet a big revenue earner for the Indian IT industry,” Pai added.

In the second quarter of ongoing financial year, many large and mid-tier IT firms have highlighted their engagements in the GenAI space. But they have not given any monetary value of these engagements.

For instance, India’s largest IT services firm Tata Consultancy Services (TCS) said it was managing over 600 AI and Generative AI (Gen AI) projects, either in production or development stages.

“We are now helping our most mature customers set up interdisciplinary AI offices, where

business and technology come together to rapidly turn ideas to AI POCs and scale them

to production in an agile manner,” CEO of TCS, K Krithivasan had said during the Q2 results.

Similarly, Infosys said that the company was focussing on three areas in the generative AI space. The company is building an enterprise-wide generative AI platform. It is also creating small language models that can be rolled out across industries.

“On Generative AI, what we are seeing is, first, we built the capability set. So any of our large deals today are not that much focused on transformation, but more focused on cost and efficiency, so more of the GenAI focus is productivity. Any of the large deals that we are looking at, there is a Generative AI component to it. Now, is it driving the large deal, not in itself, but it is very much a part of that large deal,” Salil Parekh, CEO of Infosys said.

Analysts said that pricing pressure would continue in the near-term until digital projects pick up.