AI advances and IT discovers new methods to repackage offer discounts
IT Firms Repackage AI-Driven Savings to Offset Deal Discounts as Contract Sizes Shrink
IT services providers are increasingly finding alternative ways to repackage discounts and productivity gains enabled by artificial intelligence, as more projects become AI-led — shrinking delivery timelines, team sizes and overall contract values.
Industry analysts say that for many new and renewed contracts, deal values are being marked down by 20–30%, even as service providers achieve significant efficiency gains through AI. To protect revenues, companies are reinvesting these savings into add-on products, innovation programmes and transformation initiatives, ensuring that AI adoption does not translate into revenue erosion.
Bengaluru-headquartered Wipro highlighted one such structure in its November deal with Dutch telecom operator Odido Netherlands BV.
“A key highlight of this multi-year engagement is the use of a self-funded model, where productivity-driven savings are reinvested to continuously fund new digital initiatives,” the company said at the time.
Such deal structures are becoming increasingly common as competition intensifies and pricing pressure mounts, analysts and executives said.
AI reshapes deal economics
According to Cognizant CEO Ravi Kumar S, the shift reflects a change in how services are delivered rather than a decline in client spending.
“What clients are doing is taking the savings and putting them into building agentic capital… what has changed is how we service them instead,” he said in an earlier interaction with ET.
Self-funded models also help vendors strengthen client stickiness.
“It is a new way of enhancing the overall value proposition by using AI to cut operational costs and reinvest those savings into transformation,” said Shobhit Jain, head of enterprise technology & services investment banking at Avendus Capital. “With the heightened focus on AI, companies want to demonstrate that they are strong technology partners and future-proof enterprises.”
While sharing productivity gains with clients is not new, analysts say the scale and transparency of AI-driven efficiency gains mark a shift.
“Earlier, you needed an army of FTEs to write, test and deploy code. Now you don’t need as many, and they can be assisted by AI,” said Biswajeet Mahapatra, principal analyst at Forrester. The ability to quantify productivity improvements across the software development lifecycle is prompting clients to demand a share of the benefit, he added. “All deals will now be renewed or signed through the lens of how much can be discounted.”
New deal structures take shape
Service providers are experimenting with multiple models to structure these self-funded arrangements.
At L&T Technology Services, multi-year engagements increasingly begin with phases focused on rapid-value capabilities such as AI-enabled engineering, multimodal data processing, predictive insights and cyber-secure workflow optimisation, said Amit Chadha, CEO and managing director. These early interventions generate measurable efficiency gains in throughput, engineering velocity and execution quality.
At Happiest Minds, the first year of a contract typically establishes the baseline delivery cost. Efficiency gains achieved in subsequent years — usually around 10% of that baseline — are then shared with clients. Part of these savings is reinvested to address what the company calls “innovation backlogs”, or deferred technology initiatives that can unlock future value.
“In large deals, about 5–7% of the total contract value may be carved out upfront as an innovation fund, or outcome-linked fees are channelled into new programmes once cost-reduction goals are achieved,” said Sundar Ramaswamy, head of the AI and analytics centre of excellence at Happiest Minds.
Revenue pressure looms despite productivity gains
Beyond pricing competition, analysts warn that IT firms are also racing to protect revenues as legacy service lines face structural decline due to AI automation. According to Peter Bendor-Samuel, executive chairman at Everest Group, leading technology services companies are already achieving 25–45% productivity gains through AI, with a clear path to exceeding 80% over time.
Such gains, while operationally beneficial, could translate into nearly 50% revenue compression over the next three to four years if pricing and commercial models are not restructured, he cautioned.