IT's billing model being disrupted by agentic AI

Agentic AI tools are beginning to reshape the commercial model of software services firms, placing increasing pressure on traditional seat-based billing structures. Industry experts say that the rollout of autonomous AI platforms such as OpenAI’s agent platform and new agent-style enterprise copilots like Claude Cowork are accelerating the shift toward productivity-led pricing and outcome-based contracts.

According to recent industry data, blended billing rates across global IT services contracts have steadily declined over the past 24 months in both the US and Indian markets. Roles including web and mobile developers, full-stack engineers, remote desktop support staff, and cyber defence professionals have all seen rate compression.

Research firm Everest Group reports that US hourly billing rates for intermediate engineers with four to six years of experience dropped to $75–$91 in the second half of 2025, compared with $77–$94 a year earlier. In India, rates declined to $21–$29 per hour from $22–$29. Even premium consulting segments, historically more resistant to pricing pressure, have softened, with US consulting rates easing to $138–$181 per hour from $141–$182 over the same period.

Analysts note that while the visible drop in rate cards appears moderate, the more significant impact comes from client demands for large productivity-linked discounts driven by AI-enabled delivery. These savings are often required to be reinvested into broader project scope or new AI-focused initiatives, reducing net contract values.

As a result, the total contract value (TCV) of a typical five-year IT services deal shrank by 20%–35% in 2025 and is projected to fall further by 32%–44% this year. Experts say this reflects a structural shift rather than a temporary pricing cycle.

HFS Research observes that traditional RFP-led competitive bidding is losing relevance as vendors struggle to differentiate in what has become a price-driven environment. Industry leaders say the core issue is no longer just rate reduction, but a fall in billable effort as AI reduces the number of human hours required per unit of work.

Analysts warn that near-term revenue growth for service providers may slow as effort-based scaling weakens. Margin outcomes, however, will vary by strategy. Firms that embed AI without revising pricing and delivery models are likely to face margin pressure, while those that redesign services around AI-enabled workflows and outcome-based pricing may sustain or even improve profitability.

Experts increasingly recommend that vendors move away from pure time-and-materials or fixed-price contracts toward usage-based or subscription-style models. This approach aligns revenue with ongoing AI-enabled capabilities rather than people-intensive project delivery, signaling a broader business model transition across the IT services sector.