← External Forces: Digital & Technology (all topics)
Generative AI - IT services pricing
What it is
Clients expect a share of the productivity gains AI delivers to be returned as lower prices, since traditional contracts bill effort rather than outcomes. Pricing is shifting toward outcome-based models
One estimate puts roughly 30% of the IT services industry at risk of GenAI-led deflation, implying a $40bn India-level impact at 50% deflation
Impact on industries
- Attacks the core billing model - if fewer people deliver the same outcome, effort-based pricing shrinks revenue even as capability rises
- Deflation arrives before the offsetting demand does, so the transition compresses revenue in the first phase regardless of the eventual opportunity
- AI-led work is additive at scale, with AI revenues at leading firms already in the billions
- Outcome-based pricing, if achieved, decouples revenue from headcount and could raise margins above the linear model it replaces
- Nobody has settled what to charge for outcomes, so contracting is in flux and pricing power indeterminate