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And now, the misgivings have escalated, with the worldâs largest venture capital (VC) firm jumping into the debate last week. In a blog post on 13 February, California-headquartered Andreessen Horowitz argued that the mundane and repetitive work of the information technology (IT) services industry could be automated by using AI tools, and that AI startups will subsume work done by large IT services companies.
The views of Andreessen Horowitz or A16z, which has $44 billion in assets under management and has built a formidable reputation with early investments in Airbnb and Meta, have added fresh fuel to the debate about the future of the global IT industry in general, and Indiaâs $254-billion technology industry in particular.
The Indian industry (including IT services, BPO and hardware) employs 5.4 million people and is the countryâs largest job creator in the organised space.
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While analysts are divided over the views of the top VC firm, Indiaâs big IT services companies for now are portraying their ability to handle the changing situation.
The development comes in the backdrop of the homegrown IT services industryâled by Tata Consultancy Services Ltd (TCS), Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltdâgrowing revenues last fiscal at the slowest clip (3.8%) and adding the fewest employees (60,000) in a quarter of a century of its existence.
Weak demand for the industryâs services, fuelled by geopolitical shifts and macroeconomic challenges, was flagged as the reason. But there are fears that the advent of bots and other AI tools is slowly chipping away at the traditional way of deploying armies of engineers to execute client projects.
What Andreessen Horowitz said
âWe think there are many massive companies to be created that subsume the work that BPOs do,” said Kimberly Tan, an investing partner at Andreessen Horowitz, in a blog post on 13 February. BPOs refer to business process outsourcing firms.
Tan added that while BPOs do important work, the experience of working with them is not seamless for clients.
âBPOs can have prolonged turnaround times for their work output, can be prone to human error since their employees lack individual accountability, and can be incapable of completing certain tasks satisfactorily because they lack the context and authority to do so,” said Tan, adding that these factors often culminate in a frustrating experience for the end customer.
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âWith AI, startups can now give customers the best of both worlds and enable enterprises to in-house their own customer experience and back-office operations in a high-quality, scalable, and cost-efficient way,” Tan added.
To be sure, when Tan mentions BPO, sheâs referring to the IT industry at large.
What experts said
Tanâs views were backed by several experts, who said that there is a clear impact that AI has had on the IT industry.
Peter Bendor-Samuel, founder of Dallas-based consulting and advisory firm Everest Group, said that while customers are asking for lower prices and the productivity that AI promises, there have been few opportunities to make money from it for the IT services firms.
âEveryone is talking about it (AI), but it is delaying significant IT spending and slowing down the growth of the tech services market,” said Bendor-Samuel. At the same time, he pointed out that publicly, the IT services companies were on a brave face âand talking about all the work they are doing, the investments they are making and how excited they are”.
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Ramkumar Ramamoorthy, partner at Catalincs, a Chennai-based tech advisory firm, said, âIn the past 50 years, whenever there have been structural changes in technology adoption, incumbents have been at a disadvantage and a new breed of disrupters has taken outsized market share.”
âAutomation and AI in any way, shape, or form has been biting away at the IT industry,” said Siddharth Pai, founder of Bengaluru-based Siana Capital. âAutomation existed before AI and put jobs at risk, but now it is becoming more efficient, and there is greater risk to jobs.”
âWhile the potential for job replacement is evident, we must acknowledge that the industry is at a stage where we still discuss technology capabilities and various concepts but not outcomes,” said Thomas Reuner, principal analyst at Pierre Audoin Consultants (PAC), a Paris-headquartered consulting firm.
Catalincsâ Ramamoorthy said large traditional IT players must re-invent their business. âThe only way the incumbents have transitioned to the new wave is by investing their way out and playing by the new rules of the game. In the era of AI, services through software or products is the new currency. Unless incumbents readjust their business, operating and financial models to this new reality, they are bound to be challenged. The examples cited by Andreessen are early signs of the incumbents reorienting to this new reality,” said Ramamoorthy.
Industry views
Industry executives, for now, maintain that much of the promises of AI tools are overblown.
âOver the last two decades, many technologies, starting from cloud computing to blockchain to edge computing, were to be the death knell for the Industry,” said an executive at Wipro Ltd, the countryâs fourth-largest IT services firm.
The executive, who wished not to be named, said the industry had seen its strongest growth over the past decade. âSo, let us not rush to write obituaries again, as AI will not completely replace software engineers but will be more of a tool.”
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âAs Roy Amara (an American scientist) mentioned, we tend to overestimate the effect of a technology in the short run and underestimate the impact in the long run. Because of this, we typically go through the hype cycle,” TCS CEO K. Krithivasan said in an interview with Mint last year. âChatGPT created a lot of early interest. But people are slowly realizing that it is most useful for a class of problems. People are realizing that it will not take away all the jobsâhumans would be required.”
Nasscom angle
The A16z note comes less than 10 days before Nasscom kicks off its annual two-day event, which is attended by industry executives, including the chief executives of Infosys and HCLTech, Salil Parekh and C. Vijayakumar, respectively.
âThe Nasscom theme of this yearâs event, âTech Driven Human Centricâ, is a positioning designed not to frighten their own teams. AI will be hugely disruptive and bring a lot of change to everyoneâs job and the tech services industry,” said Bendor-Samuel.
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âNo one likes change,” said Bendor-Samuel. âFrankly, it (Nasscomâs flagship event) has lost its focus and prestige. It is now a big event but not a key venue for senior leaders. If Nasscom wants to recapture the prestige of a place where the influential and senior leaders gather, they probably need a different event and a more intimate setting,” he added.
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