The software services industry is undergoing a significant shift in its pricing model due to the increasing adoption of artificial intelligence (AI). According to Venugopal Lambu, the chief executive designate of LTIMindtree, the sixth-largest outsourcing company in India, AI adoption is changing the way companies price their services. Instead of the traditional pricing model based on the number of full-time employees (FTEs), companies are now seeking multiple price points to maintain profitability. This shift is driven by the need to adapt to changing client demands and macro uncertainties.
The $280-billion-plus IT industry is experiencing vendor consolidation, with clients focusing on reducing costs and increasing efficiency. LTIMindtree’s CEO, Debashis Chatterjee, noted that the company has passed on productivity gains to its clients, resulting in revenue cannibalization. However, he emphasized that this impact is behind them, and the company is proactively working with clients to identify areas where productivity gains can be achieved.
Despite the uncertainties, LTIMindtree has not received any material requests for project cancellations or pauses. However, the demand situation remains cautious, with clients seeking to build their technology landscape while achieving cost savings. The company’s leaders believe that AI adoption will continue to drive changes in the pricing model, with a shift towards price per engagement rather than price per FTE.
LTIMindtree has laid out a five-year plan to explore new business opportunities, and its leaders are confident that the company will adapt to the changing landscape. The company’s fourth-quarter earnings were impacted by continued uncertainties and cautious client spending, but its leaders remain optimistic about the future. As the industry continues to evolve, it is likely that other software services providers will also need to adapt their pricing models to remain competitive.
Overall, the increasing adoption of AI is driving a shift in the software services industry, with companies seeking to maintain profitability through multiple price points and a focus on cost savings. As the industry continues to navigate uncertainties, it is likely that we will see further changes in the pricing model and the way companies approach client relationships. LTIMindtree’s leaders are confident that the company will remain competitive and adapt to the changing landscape, and their five-year plan is focused on exploring new business opportunities and driving growth.