The rapid adoption of generative AI (GenAI) is reshaping spending patterns in the IT services industry, however, this technological shift is intensifying pricing pressures for providers. Despite the growing demand for GenAI-related services, clients are increasingly demanding that efficiency gains be passed on to them, creating a challenging pricing environment.
“People are spending more money on new technologies like GenAI, but we now have to do more for the same amount,” said Venkatraman Narayanan, managing director and CFO, Happiest Minds.
Narayanan explained that as GenAI tools, such as copilot, enhance coding efficiency and reduce training time, clients are leveraging these advancements to demand greater value for their investments.
“For example, if 20 people were previously required for a project lasting a year, the expectation now is that the same project can be delivered by 18 people due to efficiencies from generative AI,” he said.
Further, while GenAI commands a premium as a skill set, clients are resistant to higher prices, seeing the same resources capable of delivering more, he added.
Pareekh Jain, CEO, Pareekh Consulting, said, “Clients are asking IT companies to pass on whatever efficiency benefits they’re getting from GenAI.” While clients are willing to pay more for GenAI resources on a per-hour basis, they expect overall productivity gains to translate into significant cost savings, he added.
“For instance, work that previously took 100 hours might now take 70 hours. Per-hour pricing may be increasing, but overall deal values are becoming margin-dilutive,” Jain said. This trend is particularly evident during contract renewals, where clients push for expanded scopes at the same pricing or reduced deal values.
“You can have the best pricing but still make low margins. Clients expect higher savings now, especially with GenAI. On renewals, they are coming with either the same scope at reduced values or increased scope at the same price,” Jain added.
This increasing pricing pressure compels IT companies to pivot their strategies. Instead of relying on price hikes, firms are focusing on expanding customer relationships and increasing business volumes to sustain growth.
“The demand side offers opportunities, but the supply side is witnessing an adjustment, with clients expecting companies to deliver more with fewer resources,” Narayanan said.
Julie Sweet, CEO, Accenture, also pointed to the competitive landscape during the company’s recent post-earnings call with analysts. “It’s a very competitive market, which is what we’ve been saying every quarter, and we did see lower pricing across the business, which has been pretty consistent. Clients have constrained spending, particularly on small deals,” she said.
Sweet further highlighted how Accenture is addressing these challenges by blending GenAI capabilities with initiatives to modernise. “We have the talent, the full-stack engineers, the GenAI, and a platform called GenWizard. Clients are coming to us not to take off old applications but to modernise while taking costs down.”