Beyond billable hours: Intellectual property as the new currency for IT services

For decades, the IT services industry has relied on the billable-hours model, which worked well when scale was measured in headcount, when costs could be optimized through global delivery, and when clients primarily sought labor arbitrage. But the economy has always been imperfect. Today, the rise of generative AI (GenAI) is exposing those flaws more sharply than ever and accelerating the shift toward outcome-based pricing and intellectual property (IP) as the primary sources of differentiation.

Why the Per-Hour Model Was Always Broken

Consider two software engineers, each with five years’ experience in the same technology stack. One might be billed at $30 per hour in an offshore hub, while another might be billed at $150 per hour in a developed market. The differential reflects labor arbitrage, not necessarily capability. This inconsistency highlights the central weakness of hourly billing: it ties value to time spent, not business outcomes delivered.

The average EBIT margin for large IT services players has generally hovered at 18–22% recently, largely capped by wage inflation and utilization. Clients increasingly view hours as interchangeable, forcing providers into rate card competition. Growth requires proportional increases in headcount, creating a linear business model. So, the rate-card model has resulted in margin pressure, commoditization, and limited scalability.

How GenAI Widens the Gulf 

GenAI arguably makes the rate-card model unsustainable. Productivity gains are now measurable, with various estimates suggesting that GenAI can improve developer productivity by 20 to 45%, sharply reducing coding and testing cycles while maintaining or even improving output quality.

If firms continue to bill by the hour, efficiency can become self-defeating as fewer hours mean less revenue. At the same time, clients expect providers to pass on GenAI’s productivity gains through faster and cheaper delivery. This creates a widening gap between effort and value, making input-based billing models increasingly unsustainable.

The Case for Outcome- and Output-Based Pricing

In this environment, output- or outcome-based pricing better aligns incentives. Outputs could include tested code delivered, integrations completed, or features released, while outcomes might be business KPIs such as reduced downtime, faster onboarding, or improved conversion rates. 

This model allows providers to capture part of the value created through GenAI while ensuring clients see tangible results. Crucially, it rewards innovation and efficiency rather than penalizing them.

Intellectual Property as the New Currency

Outcome-based models are more powerful when underpinned by proprietary IP. In IT services, IP includes frameworks, accelerators, platforms, and industry-specific agents. Unlike labor, IP scales without linear cost and creates recurring revenue streams.

A couple of examples illustrate how this shift is already underway. Qubika, a product engineering specialist, has built the Qubika Agentic Platform (QAP), a foundation for industry-specific agents, such as the Financial Analyst Agent for financial services. QAP transforms expertise into reusable IP, reducing time-to-market while building defensibility. SDG, a cybersecurity and IAM firm, developed Clark AI, a proprietary platform that assists engineers in managed services. By automating identity management and threat response tasks, SDG reduces turnaround times and enhances quality, embedding efficiency as an IP-led capability.

Major players are moving similarly: TCS with its core banking software such as BaNCS, Infosys with its competing Financle software, Wipro with its Lab45 AI platform, and Cognizant with its Neuro AI platform. All reflect a pivot from pure services to IP-anchored platforms.

Strategic Implications for Service Providers

Shifting from hours to ideas requires significant change. The first step is R&D investment: leading IT services firms will have to significantly increase their investment in IP creation. While doing so, providers must choose between verticalized IP (e.g., BFSI compliance frameworks) and cross-industry platforms (e.g., testing accelerators). They will have to evolve their commercial models towards productized services and SaaS-like recurring revenue. Finally, they will have to safeguard defensibility with patents and trademarks. TCS, for instance, has filed 7,000+ patents globally, signaling the importance of legal protection.

The Road Ahead 

The pivot is not without hurdles. Moving from “hours billed” to “assets built” challenges entrenched incentive structures. Upfront IP investments may take years to monetize, and balancing client-specific tailoring with scalable, reusable assets requires discipline. IT services companies will need to create a compelling value proposition for their clients, combining human labor, digital labor, and IP. 

The economics of IT services are being rewritten. With GenAI compressing effort and amplifying productivity, the billable-hours model may be approaching obsolescence. Outcome-based pricing and IP-led delivery can offer a path to higher margins, scalable growth, and defensible differentiation.

For providers, the message is clear: invest in IP, rewire pricing models, and rethink delivery to align with outcomes. Those who persist with input-driven models may survive in the short term, but the long-term winners will likely be those who shift from labor to solutions—turning intellectual property into the true currency of IT services.

Soumya Ranjan Dash

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Soumya Ranjan Dash is Operating Principal at Recognize.