Everything you need to know about the new trend: Services-as-Software

Investing.com -- An emerging technology model known as Services-as-Software is set to reshape the global services industry over the next several years, according to Bernstein analyst Richard Nguyen.

In a note to clients on Monday, the analyst described it as “an emerging trend that will profoundly transform the business model of services providers, and reshape the competitive landscape, over the next 3-to-5 years.”

Nguyen explained that the model involves delivering services “primarily through AI-powered software rather than through traditional human-delivered work,” with customers paying for outcomes rather than labour hours.

The shift is accelerating because “six enterprises out of ten plan to replace people-run services with software-run services by 2028,” driven by advances in AI, contract renegotiation and increased in-sourcing, Bernstein stated.

The potential market is seen as substantial. Bernstein cited Gartner figures suggesting the sector could reach “up to $700bn by 2028 from less than $20bn in 2025,” while HfS Research projects revenues of “$600bn in 2028, and $1.5tr by 2035.”

The transition is expected to significantly reshape budgets, with Services-as-Software expected to account for 20% of IT spend by 2028, compared with zero today.

For providers, Bernstein said: “Services providers need to: 1) re-organize their workforce to include digital workers (AI agents) alongside human workers; 2) move up the value chain to incorporate more consulting and intellectual property in their software-based offerings.”

Revenue prospects look favourable, with expected growth of “30%-plus” and the potential for margin expansion to “65-70% for gross margin and 15-25% for operating margin.”

Bernstein said companies such as Capgemini and Reply appear “relatively well-positioned” for this shift.

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