The Indian IT services firm is betting that AI-driven productivity gains will reshape how clients negotiate contracts, even as traditional service pricing faces structural deflation.
Hexaware Technologies CEO R. Srikrishna has laid out a surprisingly candid math problem for the IT services industry: AI can boost productivity by roughly 40%, but clients will only capture about 25-30% of that in lower pricing. The rest, presumably, stays with the firms smart enough to deploy the technology first.
The productivity-to-pricing gap #
The core argument is straightforward. When AI tools accelerate routine IT work by 40%, clients naturally want to renegotiate their contracts downward. But the reduction they can realistically extract lands in the 25-30% range, not the full 40%. The gap between productivity gains and pricing concessions is where IT services firms plan to protect their margins.
This matters because Hexaware isn’t talking about some distant hypothetical. Over 50% of the company’s revenue is now categorized as “AI-infused,” with approximately 5% qualifying as fully “AI-native.” Those aren’t aspirational targets. They’re current numbers from the company’s AI Day event.
The distinction between AI-infused and AI-native is worth unpacking. AI-infused means existing services enhanced by AI tooling, like using code generation assistants to speed up software development. AI-native means services that couldn’t exist without AI at their core, built from the ground up around machine learning workflows rather than retrofitted.
A $300 billion addressable market, and the death of SaaS subscriptions #
Hexaware has identified new AI-related market opportunities exceeding $300 billion in total addressable market. The company is targeting areas like legacy modernization, data readiness, and what it calls “Zero License” custom software.
That last concept is particularly interesting. The idea is to use AI to build bespoke software that replaces existing SaaS subscriptions. Instead of paying Salesforce or ServiceNow a recurring license fee, a company could theoretically commission AI-generated custom tools that do the same job without the ongoing subscription cost.
The company plans to launch one new AI service per month, a cadence that suggests it’s treating AI product development more like a software startup than a traditional consulting firm.
The deflation problem nobody wants to talk about #
Hexaware expects traditional IT services to experience 20-25% gross pricing deflation over the next four years. The company has already baked 2-3% annual declines into its revenue guidance, which means this isn’t a surprise scenario. It’s the baseline expectation.
Labor costs currently represent the largest line item in IT budgets for most enterprise clients. But Hexaware expects AI token costs, the compute expenses associated with running large language models and other AI systems, to become the fourth-largest budget item by 2027.
What this means for the IT services landscape #
The stock market appears to agree with Hexaware’s approach. The company’s shares have responded positively to its AI strategy announcements, suggesting investors are buying into the narrative that aggressive AI adoption can more than compensate for traditional pricing erosion.
Srikrishna’s 25-30% cost reduction figure will likely become a negotiating anchor for CIOs across the enterprise world. Once a CEO publicly puts a number on how much AI can save, every procurement team on the planet takes note. The question for Hexaware is whether it can stay ahead of the very efficiency gains it’s advertising.
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