IT Services Firms Are Losing Pricing Power and Rebuilding Around Productized AI

The evidence does not support a simple “IT services is dying” story. It supports a more precise one: the traditional labor-arbitrage, time-and-materials, discretionary-project model is under pressure, while spending shifts toward software, public cloud, AI infrastructure, platform-led delivery, and outcome-based commercial models.

Gartner’s 2025 forecast showed global IT services spending still growing, but only 4.4%, versus 10.5% for software and 42.4% for data-center systems; its 2024 forecast likewise showed software growing faster than IT services, with cloud spend a major driver. Gartner also said CIO “change fatigue” was causing hesitancy to sign new contracts or commit to long-term initiatives, while current spending favored efficiency, optimization, and clearer outcomes.

Generative AI is accelerating this break with the old model because it changes the economics of knowledge work. McKinsey estimates generative AI could add $2.6 trillion to $4.4 trillion annually across analyzed use cases, with roughly 75% of value concentrated in customer operations, marketing and sales, software engineering, and R&D; it also estimates current technologies including GenAI could automate activities that absorb 60% to 70% of employees’ time today, with software-engineering productivity impact in the 20% to 45% range of current spend and customer-care productivity gains in the 30% to 45% range.

That makes clients less willing to pay for large teams of human effort when the same outcome can be partially automated or packaged into software.

India’s IT industry is therefore not “falling” in aggregate, but its center of gravity is moving.

According to NASSCOM data reported by IBEF, India’s technology industry reached $282.6 billion in FY25, up 5.1%, and is projected to reach $300 billion in FY26, with 126,000 net new jobs in FY25 and a total workforce of 5.8 million.

The same broader ecosystem also benefits from the rise of Global Capability Centers (GCCs): PIB said India housed over 1,600 GCCs as of March 2023 and over 1,700 in 2025, with GCCs evolving from support centers into strategic hubs for engineering, R&D, and innovation.

However, listed export-heavy service majors are showing much weaker trends:

• TCS: FY26 constant-currency revenue -2.4%, headcount down from 607,979 to 584,519
• Wipro: FY26 IT services constant-currency revenue -1.6%
• Infosys: FY26 constant-currency growth 3.1%
• HCLTech Services: FY26 constant-currency growth 4.8%

In other words, the Indian tech ecosystem is still growing, but the classic export-services engine is maturing and fragmenting.

Service firms adapting best are doing three things simultaneously:

• Productizing delivery
• Moving toward fixed-price and outcome-based contracts
• Building proprietary AI/IP layers on top of cloud ecosystems

Accenture is the clearest example.

• FY25 revenue: $69.7 billion
• Consulting growth: 5%
• Managed Services growth: 9%
• Generative AI bookings: $5.9 billion
• GenAI/Agentic AI revenue: $2.7 billion
• Nearly 60% of work delivered on fixed-price contracts.

IBM’s 2025 Annual Report shows the same trend:

• Software growth: 9%
• Software contributes 45% of revenue
• Consulting remained flat
• AI business exceeded $12.5 billion

Market Trends

The global market signal is not a collapse in services spending; it is relative deceleration.

Gartner’s forecasts show:

Data-center systems are projected to grow 42.4% due to AI infrastructure demand.

Public cloud spending is forecast to increase from $595.7B (2024) to $723.4B (2025).

India’s technology sector:

• FY24: $268.8B
• FY25: $282.6B
• FY26 (Projected): $300B

India’s share of global services exports has risen to 4.3%, making it the world’s second-largest exporter of telecommunication, computer and information services.

How the Model Has Shifted

2022

• Post-pandemic hiring boom
• Large discretionary digital transformation programs

2023

• Clients reduce discretionary spending
• CIO change fatigue emerges
• Consulting slows

2024

• IT Services become the largest IT spending segment
• Software and Cloud continue growing faster

2025

• AI infrastructure and Public Cloud outgrow Services
• Productized GenAI becomes commercially significant

2026

• Indian IT leaders report weak or negative constant-currency growth
• Headcount rationalization begins

Why Traditional Services Are Weakening

The report identifies three structural reasons:

1. Generative AI

AI reduces billable human effort.

Clients increasingly expect:

• Smaller teams
• Faster delivery
• Lower prices

EPAM explicitly warned investors that customers may seek price concessions because AI reduces effort.

2. Cloud & SaaS

Public Cloud and SaaS reduce demand for:

• Infrastructure management
• Application maintenance
• Custom software development

Instead, spending shifts toward:

• Platform operations
• Integration
• Governance

3. Global Capability Centers (GCCs)

Companies increasingly keep engineering work inside their own India GCCs instead of outsourcing.

India now has:

• 1,700+ GCCs
• Strategic engineering centers
• Semiconductor R&D
• Aerospace
• Defense engineering

Causal Flow

Generative AI
↓

Less human effort

↓

Cloud & SaaS

↓

Less custom development

↓

GCC expansion

↓

More work done in-house

↓

Pricing pressure on IT Services

↓

Smaller teams

↓

Fixed-price contracts

↓

Platform-led delivery

↓

AI/IP-driven companies become winners

Client Behavior

Procurement has fundamentally changed.

Accenture reports nearly 60% of work now runs on fixed-price contracts.

Case Studies

Endava

• Revenue: -14.3%
• Margin fell from 21.3% to 8.9%

Shows vulnerability of discretionary digital projects.

EPAM

• Organic growth: -1.7%

Explicitly warned investors that AI may reduce pricing.

Accenture

• FY25 Revenue: $69.7B
• GenAI bookings: $5.9B
• AI Revenue: $2.7B
• Fixed-price work: 60%

IBM

• Software growth: 9%
• Software = 45% of total revenue
• AI business > $12.5B

Implications for India

Indian IT is not collapsing.

Rather:

• Growth is slowing.
• Headcount models are changing.
• Fresh hiring patterns will evolve.
• Pyramid structures will shrink.

Top companies:

Together these firms account for about 31.7% of India’s technology exports.

Strategic Recommendations

The report recommends becoming platformized services companies, rather than attempting to become product companies overnight.

Recommended strategies include:

• Productize delivery
• Increase fixed-price contracts
• Build proprietary AI/IP
• Partner with hyperscalers
• Invest in architecture, data and AI
• Rebalance talent toward AI and product skills
• Treat GCCs as partners rather than competitors
• Tie consulting to implementation and measurable business outcomes

Open Questions and Limitations

The report notes that direct public data on billing-rate erosion is limited because pricing is privately negotiated.

Evidence therefore relies on:

• Slower consulting growth
• Increased fixed-price contracts
• AI-driven productivity improvements
• Company disclosures regarding pricing pressure

Conclusion

India’s technology ecosystem continues to grow, but traditional export-oriented IT services are no longer the sole engine of growth. Firms that fail to embrace productized AI, platform-led delivery and outcome-based commercial models are likely to face weaker growth, increasing procurement pressure and leaner staffing models.