AI Shakes Up India's IT Giants: Fees Shift to Outcomes

India's prominent IT outsourcing firms, including Tata Consultancy Services and Infosys, are undergoing significant business model transformations due to the disruptive influence of artificial intelligence. Clients are increasingly demanding substantial price reductions and enhanced productivity, compelling service providers to shift from traditional hour-based billing to contracts that are performance-outcome driven.

This strategic pivot means that pricing is now more frequently dictated by measurable results. For instance, approximately 80% of TCS's contracts within its business services segment are now linked to outcome performance measures, a significant increase since late 2023. Similarly, other deals stipulate that AI-related cost savings are shared between vendors and clients.

The competitive landscape has intensified, with mid-sized IT providers like Persistent Systems and Coforge experiencing double-digit revenue growth. These firms often demonstrate agility by deploying senior leaders rapidly and offering flexible pricing. In contrast, larger companies have reported more subdued growth, with some even walking away from economically unviable contracts.

As AI continues to drive productivity gains, the industry faces challenges related to shorter contract durations and clients performing tasks in-house using AI. Furthermore, the traditional advantage of a large employee base is diminishing as AI automates tasks, leveling the playing field and intensifying competition.