It’s no secret that AI is revolutionising most industries. This includes software-as-a-service (SaaS), the industry in which I work. The digital transformation of the past few decades has given way to AI transformation, and no industry, including professional services, is immune to the power of this change.
In professional services, AI is already used to offer additional services, automate delivery and drastically improve internal operations. This means, among other things, saving time.
As AI-powered solutions start replacing human-led services, task-by-task, how should this emerging “service-as-software” category be priced: By the billable hour, the long-ingrained paradigm of consulting, or via a software subscription model?
Traditionally, the SaaS and services fields have operated with very different margins, scalability and risk profiles. The effect AI has on ways of working is upending this. As the lines between the two start to blur, the stable distinction in the financial model between the two is starting to converge. Companies on both sides of the divide must now navigate this shifting landscape to achieve the outcome they want.
AI Takes on the Grunt Work
AI is progressively automating a lot of the manual activities in these industries; consequently, liberating people to become more efficient at delivering services. In theory, for the same price charged, professional service industries should become more profitable, as their margins will increase. However, prices are also likely to decline as automation becomes the norm. In industries where they do not, the most successful firms likely hold significant pricing power through trust and/or because they can deliver greater value and not just cost savings through automation.
That’s exactly the bet many “service-as-software” firms are taking: That their software-centric DNA will enable them to build more powerful automation that delivers higher client value.
Rather than try to deliver software to professional services firms, these new disruptive entrants look to disintermediate the end-customer relationship. In disrupting this relationship, many are also disrupting the core billable hour business model that professional services firms rely on.
Instead, these companies are applying classic software business models – monthly subscriptions or output-based pricing – to their offerings. In some ways, these aren’t new. After all, retainers and fixed price models are known and used throughout the professional services industry.
Nuance in the Professional Services Industry
So, what is a traditional professional services firm to do? These industries – staffed with lawyers, consultants, architects, media, accountants and so on — have traditionally been based on trust between provider and client. A new client is won over on a promise of future value, and client relationships are often recurring and based on the trust established over time in a nuanced relationship, rather than a transactional exchange.
Some firms are betting that client relationships and brand reputation will provide them with enough pricing power for years to come. Others are taking no chances, investing in modernizing underlying infrastructure to make their operations more efficient. How long it will take before AI technology impacts the client relationship itself is still anybody’s guess.
Keep an Eye on the Dominant Business Model
The key question to watch, therefore, is how both types of vendors – the professional services firms building automation into existing operations and the new companies building service-as-software startups – price their offerings. Which models end up gaining more popularity will be a clue to how difficult it is to automate value delivery in professional services and how much the trusted client relationship truly matters. We may see more traditional firms adopt retainer and fixed price models if pressured by new competitors. We may see the new companies eventually adopting the tried-and-true billable hour. Which models end up gaining more popularity will be a clue to how difficult it is to automate value delivery in professional services and how much the trusted client relationship truly matters.
