"Artificial intelligence is the new electricity." - Andrew Ng, AI pioneer
Decline of mega contracts
The era of massive outsourcing agreements in the technology sector is facing a reset. Data indicates that the share of mega deals dropped to just 18 per cent by September 2025. Enterprises are moving away from long tenure agreements. They now prefer shorter and flexible contracts to test productivity gains before they commit to scaling up operations.
Modular agreements
Buyers are breaking down large renewals into smaller components. Consequently, deals valued under $30 million have edged up to nearly half of all total contract values. This trend highlights a preference for modular and AI assisted micro waves of modernization. Companies are opting for specific solutions rather than traditional multi tower outsourcing renewals.
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Pricing models changing
The traditional logic of billing based on headcount is disappearing. Clients realize that AI models reduce the need for many full time equivalents. This efficiency is driving a shift toward outcome assurance rather than time and material billing. Experts predict this could lead to pricing pressure of roughly 30 to 40 per cent for service providers.
Reinvesting the cost savings
Companies are not simply pocketing the savings from these cost cuts. Instead, the capital saved is being redeployed to fund new AI driven transformation programs. This cycle ensures that while traditional spending shrinks, investment in new infrastructure remains robust. The focus is on building greater efficiency into operations through advanced technologies.
Vendor consolidation arriving
The market is heading toward tighter vendor lists. Enterprises now want to work with a handful of partners rather than dozens. This consolidation means IT giants must demonstrate significant productivity upsides to win competitive renewals. As clients scrutinize value more closely, the landscape for renewals will become significantly tougher for established players.
Summary
The IT outsourcing industry is pivoting from large, headcount-based contracts to smaller, outcome-oriented deals driven by artificial intelligence. Clients are using AI efficiencies to lower costs and are reinvesting those savings into transformation. This shift is causing pricing pressures and forcing a consolidation of vendors in the market.
Food for thought
If artificial intelligence continues to decouple revenue from headcount, how will traditional IT firms that were built on labor arbitrage survive the transition to outcome-based pricing?
Check our posts on Indian IT; click here
AI concept to learn: Indian IT landscape
The Indian IT landscape
is a major pillar of India’s economy and a global hub for technology
services. It spans IT services, software development, consulting,
business process management, and increasingly AI, cloud, cybersecurity,
and data engineering. Indian IT firms serve clients worldwide,
especially in banking, healthcare, retail, telecom, and government. The
sector is known for scale, process maturity, and cost efficiency, while
steadily moving up the value chain toward digital transformation and
platform-led solutions. Talent availability, strong engineering
education, and global delivery models are key strengths, even as firms
adapt to automation, AI disruption, and changing global demand.
[The Billion Hopes Research Team shares the latest AI updates for learning and awareness. Various sources are used. All copyrights acknowledged. This is not a professional, financial, personal or medical advice. Please consult domain experts before making decisions. Feedback welcome!]
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