IT companies face 'long curve' before revenue visibility from GenAI

Revenue from generative artificial intelligence (GenAI) or the deal pipeline in this segment in April-June of FY25 was missing in the quarterly statements of large information-technology services firms other than Accenture and Tata Consultancy Services (TCS).
 

Rather, this quarter many avoided even giving the number of proof-of-concepts (POCs) they are working on.
 

Salil Parekh, chief executive officer (CEO) and managing director (MD), Infosys, in the media briefing, said: “We are not sharing externally the value in terms of revenue or of the deals … our Generative AI approach is leading in the market.”
 

Peter Bendor-Samuel, CEO, Everest, a research firm, said there was a long curve before GenAI started generating money.
 

“With 85-90 per cent of all pilots not making it to production and large enterprises failing to see significant productivity gains in most of the use cases where they have adopted co-pilot and similar GenAI, we believe that the long-forecasted boom from GenAI is not imminent and probably will not materialise in the foreseeable future,” he told Business Standard on email.

Accenture said its GenAI-led deal pipeline had touched $2 billion, from which it had earned $500 million. This is 1 per cent of the company’s revenue.
 

Similarly, TCS said its GenAI-led deal pipeline had reached $1.5 billion. But the company did not give the revenue share. K Krithivasan, MD and CEO, TCS, in an interview to Business Standard said such deals tended to be smaller. 
 

“They do not move the needle in terms of increasing the budget,” he added.

Bendor-Samuel added in some cases large investment in GenAI was resulting in significant value, but these were few and far between and did not look like they would combine to make a significant revenue wave. This is what Krithivasan also said.

This slow pickup in GenAI is significant as the industry is hoping that GenAI-led deals will provide the required push to growth, which has been affected due to macro uncertainties. This is important because companies have invested billions in AI and GenAI capabilities.
 

A recent report by Ambit points to slowing growth in the sector. The top four IT firms’ growth in Q1FY25 was 2.7 per cent in constant currency year-on-year. This is a low from the 5.2 per cent in Q1FY24. The report also said the macro indicators suggested a modest recovery in global spending.

HFS Research CEO and Chief Analyst Phil Fersht is hopeful. “There are too many clients stuck in pilot mode, but this will change for many as proven case stories emerge, where there is significant productivity and value. There will be gradual growth in this area over the next few months and this will pick up more aggressively next year,” he said.

But the year 2024 was supposed to be one when GenAI would scale for enterprise usage too.

Pareekh Jain, CEO of EIRTrends and Pareekh Consulting, said GenAI was turning out to be better as a marketing narrative than as a revenue generator.

“At present most of them are building their GenAI narrative more. This is crucial because clients are looking at a partner who also has the ability to implement when the time comes,” he said.

The slow uptick in GenAI deals also stems from a mismatch in expectations.

Aiman Ezzat, CEO of Paris headquartered Capgemini, said GenAI was a little hyped, especially around productivity and cost cutting. “In reality it’s not happening,” he had told this newspaper.

Disappointment in Gen AI also seems to be driven by the growing realisation that it usually requires significant investment in tech and the corresponding operational organisation. “It is not a quick and easy fix in most cases; hence firms are careful about when and where they embark on these expensive journeys and want to be sure that they capture the benefits,” added Bendor-Samuel.

IN SEARCH FOR REVENUE
 

$2 bn Accenture's deal pipeline, $500 mn revenue generated
 

$1.5 bn TCS's deal pipeline, revenue not shared
 

30% of Gartner's GenAI projects will be abandoned by 2025
 

Experts say deal size still very small in GenAI to make any considerable revenue impact