Mid-Tier Tech Firms Claim Stranglehold on Service Outsourcing Deals
In a surprising twist, mid-tier technology firms are snatching deals worth over $100 million, rendering the notion that smaller budgets would limit their ability to secure large orders obsolete.
Persistent Systems Sonata Software and L&T Technology Services (LTTS) have emerged as frontrunners in the services outsourcing space, leveraging artificial intelligence (AI) and generative AI (GenAI) to woo larger clients. The agility and flexibility of mid-tier firms, which enable them to offer customized deals and competitive pricing at a smaller scale, are giving way even as traditional Tier-1 IT majors struggle to capitalize on opportunities.
"Mid-tier and specialized engineering firms are winning bigger deals compared to tier-1 IT majors because, at a smaller scale, they have the agility and flexibility to offer customised deals and competitive pricing," said Gaurav Vasu, founder and CEO of analytics firm UnearthInsight. "AI hubs established by several IT firms are helping them build a better playground and framework without a lock-in solution and with custom-approach providing industry-specific solutions, all at a lesser expense than top players."
The trend is indicative of a shift in the outsourcing landscape, where mid-tier firms are now vying for large deals. Typically, companies operating in this space secure deals worth above $10 million. However, the past few years have seen an average deal size shrink to as low as $25 million.
Notably, Bengaluru-based Sonata Software recently closed three large deals across different sectors, including hi-tech, banking, and retail. The company had previously defined its mid-sized deals at $2-5 million range, while large deals were above $5 million. A significant jump in the size of their large deals has been observed.
According to Vasu, large enterprise clients are increasingly opting for mid-tier firms due to their agility and nimbleness in building customized solutions faster. This is contributing to a notable upsurge in big-ticket deals secured by these companies.
LTTS, a leading IT services provider, recently closed a $100 million deal with the Maharashtra State Cyber Department. Another mid-cap player, Xoriant, has also experienced an increase in its average deal size. The company's CEO Sukamal Banerjee attributes this rise to pent-up demand post-Covid and decreasing global recessionary worries. However, he points out that the impact of AI on business operations must not be ignored.
AI advancements are contributing significantly to the rise of mid-tier firms in securing large deals. While these companies continue to invest in AI infrastructure, their revenue generated from AI-specific services remains relatively insignificant. Nevertheless, the emergence of mid-tier tech firms as a player in the service outsourcing market has created an interesting dynamic, marking a departure from traditional industry landscape.