Instead, Persistent Systems, Sonata Software and L&T Technology Services (LTTS) are steadily claiming their rightful place on the outsourcing high table, harnessing artificial intelligence (AI) and GenAI to rationalise smaller clients and grab a higher share of vendor consolidation deals.
“The mid-tier and specialised engineering firms are winning larger deals compared with 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 chief executive officer (CEO) of analytics firm UnearthInsight.
He adds that the 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.
Typically, large deals for the $250 billion outsourcing industry are defined as above $100 million & above for top five firms, and upwards of $10 million to as high as $100 million for mid-tier firms. And while the overall average size of deals has shrunk to as low as $25 million over the last few years, for mid-tier firms the size of their large projects is increasing.
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When small is big
Since around a year, IT midcaps are getting a look-in for large deals earlier earmarked for the megacaps given the tighter technology spends in a softer business environment raising the competitive intensity.
Bengaluru-based Sonata Software said it closed three large deals – one each in hi-tech, banking and the retail segments. The firm earlier defined its mid-sized deals in the $2-5 million range and large deals upwards of $5 million and now the large deals are bigger in size.
“The $5 million TCV (total contract value) are large deals which have gone up, sometimes as high as $100 million,” said Sonata Software’s CEO Sameer Dhir, adding that the company has grown its large deals pipeline to 49% of the overall active pipeline with 36% of the clients in Fortune 500 category.
According to Vasu, large enterprise clients are accepting mid-tier firms for projects because of their nimbleness and agility as they can build customised solutions faster.
In FY24, LTTS closed one of its large deals worth $100 million (Rs 800 crore) from Maharashtra State Cyber Department.
Larger firm LTIMindtree, just below the top five IT majors, closed its biggest deal in its history winning a $200 million-plus deal from a US-based manufacturer.
Even a relatively smaller private player Xoriant, backed by private equity firm Chryscapital, also has seen a rise in its average deal size go up as the confidence in the market and investments go up.
“Definitely, we are seeing larger deals, longer duration deals, and more significant investments coming in… our average deal wins used to be high single digit million dollars. And now we have crossed into the double digit million dollars. So that is an indicator… This is just in the last six months,” said Sukamal Banerjee, chief executive officer at Xoriant.
While Banerjee attributes some of this to pent up demand post Covid along with easing global recessionary worries, he also points out that the impact of AI cannot be ignored.
He states that every IT company makes huge investments in AI infrastructure in terms of building software, tools and software governance mechanisms although the AI-specific revenue may still remain insignificant for the industry.
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