There are dire warnings coming in over the fate of the IT industry amidst the AI revolution.
Sun Microsystems founder and prominent VC Vinod Khosla has said that IT services will “mostly disappear” because of the impact of AI. He said that firms will need to radically change their business models to remain competitive. He added that only companies that transformed themselves in this period will manage to survive.
“BPO as a business will disappear,” Khosla said on a podcast with Nikhil Kamath. “Software IT services will mostly disappear. Disappear means transform pretty radically,” he added.
Khosla clarified what he meant by disappear — he suggested that their current business models would no longer be sustainable, and they’ve had to change how they operated. “Will the incumbents transform?” Kamath asked him. “Today I see them adjusting incrementally, not radically,” Khosla replied. “Here’s the problem, right? If I can do a system integration service for one fifth the cost, the customer will always take one fifth, modulus trust,” Khosla said. “So will some of these vendors drop their prices by 80%, or at least by 60%, and then expand their services? Hard to tell. Whether some of those companies can transform or not, will determine whether they survive or not,” he added.
Khosla seemed to be suggesting that given how AI can now write code nearly instantly and at a fraction of the price compared to a human engineer, lots of new companies and agencies would begin undercutting IT companies’ prices, offering the same services at one-fifth the cost. If these companies managed to build trust with their clients, the clients would choose them over traditional IT companies.
This would force IT companies to either perish, or radically cut costs themselves. He said that IT companies would need to cut costs by 60-80 percent to remain competitive. But given the hit to their revenues, they’d need to grow their business, and enter new verticals where they can make money. Khosla said that only companies that managed to both drastically cut costs and also find new business opportunities will survive.
There might be early signs of companies which are looking to transform themselves. TCS has said that it’ll cut 12,000 jobs in the coming year because the nature of work is changing. It appears that TCS wants to build a leaner workforce to be able to cut costs for clients later on. It remains to be seen whether Khosla’s predictions come true and whether Indian IT companies transform themselves, but given recent trends, it does appear that IT services could be in some choppy waters in the coming years.