How AI is redrawing the map for tech services firms
One of Tercera’s long-standing mantras for tech services leaders has been to pick a lane – services or software. You can’t be both.
But in the AI era, that mantra no longer holds true.
AI is not just disrupting how services are delivered, it’s collapsing the traditional boundaries between what a services firm is and what a software company does.
AI has begun to take over tasks that once sat squarely in the domain of professional services: pulling and analyzing data, creating reports and nurture flows, developing and testing applications, migrating legacy code to modern tech stacks…you name it. More and more of those capabilities are being embedded directly into software workflows. Salesforce’s AgentForce, SAP’s Joule, and ServiceNow’s AI Now platform are great examples of this at play.
At the same time, forward-thinking services firms are starting to leverage AI to evolve their own offerings. They’re using co-pilots to move faster, and building their own agents to automate full processes that could once only be done by humans. And a growing number of firms are building their own software – not accelerators and reference architectures, but full platforms.
The rise of Services-as-Software
In our latest research report, A New Services Playbook for the AI Era, we explore the rise of a new category called services-as-software. Analyst group HFS, which coined this term, defines this category as AI-first offerings that automate traditionally people-based services, delivered through repeatable, software-like experiences, sold in a subscription or consumption model.
And we’re seeing this model everywhere.
Publicis Sapient’s AI-powered Slingshot platform promises to automate everything from prototyping to coding to maintenance. Accenture’s AI Refinery promises to help companies deploy agentic AI safely. Infosys markets a collection of solutions, including hundreds of industry-specific agents, under the Infosys Topaz brand.
It’s not just the large global firms though. Dozens of services-as-software startups are coming onto the scene to automate segments of the services space. Companies like Bridgetown Research, Auctor AI, Echelon AI and Rocket (just to name a few) are automating tasks that used to be purely human, and customers and software partners are starting to take notice.
And in between, are thousands of mid-size services firms. These firms don’t have the luxury of building from scratch, or the big R&D budgets to invest in developing sophisticated platforms from scratch. They are feeling the pressure, but also aren’t sitting still. The smart firms are getting creative with their investments. They are co-developing alongside customers and partners, extending platforms and diving into vertical use cases. They’re embedding tools and third-party services-as-software within delivery processes, and redirecting funds from stagnant areas or raising capital) to build out IP. They’re consultants – they adapt!
This blurring of lines is forcing service leaders to take a hard look at their future direction. Are they growing a services firm or building a software company? Or increasingly common, how do they successfully do both when the DNA of services and software companies is very different?
This blurring of lines is forcing service leaders to take a hard look at their future direction. Are they growing a services firm or building a software company? Or increasingly common, how do they successfully do both when the DNA of services and software companies is very different? This decision has significant repercussions on many other downstream decisions – from how budgets are allocated, to go-to-market strategies, to the types of employees that are hired, to how they engage with their partners.
When Software Players Move Deeper Into Services
There’s no question the partner playbook is evolving. We’re seeing more software and AI companies leaning more heavily on their captive professional services teams. Not to replace partners, but to drive deeper consumption of their AI capabilities and maintain proximity to the customer where models are being trained and tuned. Their ‘land and expand’ mindset now includes not just license growth, but usage, outcomes and training. All of which require more human intervention.
This trend isn’t new, but it is accelerating. Some vendors like Palantir and IBM have had a blended services and software model for years. Palantir, which started as a services company and gradually became more productized, has been winning deals for years with its white glove Forward Deployed Engineers who work alongside customers to ensure the software performs and evolves. IBM has been focused on software and services for decades. Its global consulting business generates nearly a third of IBM’s total revenue.
Some vendors, like OpenAI, are newer to the consulting game. OpenAI’s move into consulting felt like the shot heard round LinkedIn with many people suggesting this was the end of consulting. Yet OpenAI has been clear that (for now) their consulting arm will only tackle engagements that begin at $10 million. That leaves a lot of real-estate for other partners to play.
In our Tercera 30 research, one of the metrics we consider (for public companies that report it) is the percentage of revenue delivered through internal services, and how that is trending over time. We look at this metric because internal services arms can make it more difficult for services partners in the ecosystem to compete.
Typically, software firms try to keep services to a relatively small percentage of revenue. Partly because margins are lower on services and partly because it keeps the company focused squarely on building the core product. However, as services margins increase and software companies focus on consumption, we wouldn’t be surprised to see these numbers will tick up.
That in no way spells doom for external services partners. Services partners will still be invaluable to growth, and may become even more important as software firms look to drive value and consumption of their offerings. However, the partner playbook will change. Something that we tackle in our new research report.
The future belongs to the bold
This new world brings uncertainty, yes. But it also brings tailwinds for those that choose to ride them. According to our latest survey of 320+ tech services leaders:
- 90% believe that their partners’ investments in AI will create new business opportunities for their firms
- 95% say they’re already getting AI-related support from partners
- 47% tell us that a significant portion or nearly all of their revenue is coming from AI work
In other words, most firm leaders see the trend not as a threat, but as an opportunity. An opportunity to build differentiated solutions, not commoditized services. To create more value for customers and the partners that they work with. And to capture a larger share of that value as well.
We’ve said before that AI changes the game in services. It resets the scoreboard. We believe the most successful companies in the AI era will see themselves as hybrid organizations, firms that blend automation with human expertise, and product thinking with an advisory mindset. Those that focus on long-term customer value, not just successful implementations and projects. Those whose growth isn’t completely tied to how fast they can hire.
This next era of technology demands bold moves and shaking up beliefs that have held for decades. We’ve had to shift our own thinking because of this. So what long held mantras are you re-evaluating?
