According to Forbes, the tech services market has seen eight straight quarters of essentially flat growth, a major departure from its historical 4.5% average. This stagnation is being driven by two main forces: a rapid expansion of internal “captive” centers in places like India, and AI-powered productivity gains in code generation that are already hitting 25-35%. Looking ahead to 2026, the analysis predicts the market could move from flat to actually contracting, as advanced software development teams may see productivity spikes of 60-70%. This will create severe revenue compression for traditional service providers, while segments like Business Process Outsourcing (BPO) and the midmarket are expected to keep growing. The core issue is a growing gap between belief in AI’s potential and a widespread corporate unwillingness to commit the capital and operational change needed to realize it.
The Wait-And-See Trap
Here’s the thing everyone’s quietly thinking but not saying out loud in boardrooms: nobody wants to go first. The article nails a fundamental human (and corporate) instinct. Sure, every CEO talks a big game about AI transformation. But when it comes to ripping up your proven operating model and spending serious money on an unproven path? Most would rather wait for someone else to be the guinea pig and show them the blueprint. We’re stuck in this prolonged “wait-and-see” period. The conviction that AI can deliver value is there. What’s missing is the “how.” And without a clear, proven “how” that delivers undeniable ROI, big checks won’t get written. This isn’t skepticism about the tech; it’s risk aversion about business model upheaval.
Where The Pain Will Hit
This coming recalibration won’t be a uniform downturn. It’s going to be a brutal shakeout that separates the resilient from the obsolete. Legacy application development and maintenance shops? They’re directly in the crosshairs. If your entire revenue model is based on selling programmer hours, and AI is making each programmer 30-70% more productive, your business is facing an existential math problem. You simply need fewer hours to do the same work. That’s a direct hit to the top line. Now, contrast that with Business Process Services (BPO). The article points out that AI tools for complex, nuanced business processes aren’t mature enough yet to cause the same level of revenue compression. So growth there continues. It’s a classic case of disruption hitting the most automatable, rules-based work first.
The Hidden Shift In Delivery
Beyond just productivity, there’s a sneakier, longer-term shift happening. The article hints at a potential reversal of offshoring trends. Think about it. If AI handles the grunt work of coding, the value shifts to the person who defines the problem, understands the business context, and iterates with stakeholders. That requires tighter collaboration and aligned time zones. Suddenly, the traditional labor-cost advantage of a team 12 time zones away weakens. Why manage a complex handoff when your now-super-productive in-house team or a nearshore partner can work in real-time with the business? This isn’t about nationalism; it’s about the economics of collaboration in a high-productivity environment. The geography of work is going to get reshuffled.
Who Actually Wins In 2026?
So if you’re a tech services CEO, 2026 looks pretty grim: price wars, margin compression, and a scramble for relevance. But for others, it’s an opportunity. The midmarket companies, who lack the scale to build massive internal captives, will still need external partners. They become a key growth segment. And the biggest winner? Consultants. This is the ironic twist. As companies finally realize that buying an AI software license is not a transformation strategy, they’ll need massive help redesigning their actual operating models. The demand for strategy and implementation consulting around AI will surge. Basically, the money moves from paying for outsourced *execution* of the old model, to paying for expert *design* of the new one. The firms that can guide the “how” will clean up while the old guard fights over a shrinking pie.
