Ex-Infosys CEO launches startup challenging IT services giants

What happened?

Vishal Sikka, who served as CEO of Infosys from 2014 to 2017, has announced the launch of a new startup seeking to transform the information technology (IT) services industry. The company, whose name has not yet been revealed, is backed by venture capital firms Mayfield and Aramco Ventures, and brings together a team of veterans from SAP, Infosys, and VianAI, the artificial intelligence startup Sikka founded after leaving Infosys. According to TechCrunch, the startup aims to offer more efficient and automated IT services, leveraging generative AI and other advanced technologies to reduce reliance on labor-intensive work, a cornerstone of the traditional model of IT consultancies like Infosys, Tata Consultancy Services (TCS), and Wipro.

To understand the magnitude of this move, it is crucial to recall the context of the IT services industry in India. This sector, which accounts for approximately 8% of India's GDP and employs over 5 million people, has grown for decades thanks to a cost-arbitrage model: highly skilled Indian engineers working for significantly lower wages than their counterparts in the United States or Europe. However, this model faces increasing pressures: automation, artificial intelligence, and the rise of low-code/no-code platforms are eroding the competitive advantage. Sikka's new startup directly targets this weak point.

Why is it important?

This move is significant for several reasons. First, Sikka is a highly respected figure in the Indian tech industry, known for his innovative vision and focus on artificial intelligence. During his tenure at Infosys, he pushed an 'AI-first' strategy but faced internal resistance and eventually resigned amid tensions with the founders. His departure in 2017 was an earthquake in the industry: Sikka, an outsider (of Indian origin but raised in the United States) with a vision of digital transformation, clashed with the historical founders who defended the traditional model. This new venture can be seen as a vindication: proving that his vision was correct and that AI can redefine IT services.

Second, the IT services industry is at an inflection point. Margins have compressed due to competition and cost pressure, while demand for AI-based solutions grows exponentially. According to Gartner, global spending on IT services reached $1.3 trillion in 2023, but growth has slowed to 3.5% annually. At the same time, investment in generative AI has skyrocketed: the generative AI market in enterprise services is expected to grow from $8 billion in 2023 to over $100 billion by 2028, according to IDC. Sikka's new startup could accelerate the disruption of a sector historically resistant to change by offering more agile, software-based alternatives.

Additionally, the backing of Aramco Ventures is notable. Saudi Aramco, the world's largest oil company, is diversifying its investments into technology as part of its Vision 2030 strategy. Aramco Ventures has already invested in AI startups like VianAI (Sikka's previous company) and automation platforms. This backing not only provides capital but also access to a Middle Eastern market seeking rapid digitalization. Mayfield, meanwhile, is a venture capital firm with a track record of investing in enterprise startups like ServiceNow and Nutanix, suggesting the startup could scale quickly in the enterprise segment.

What consequences will it have?

The potential consequences are profound. If the startup succeeds in demonstrating that IT services can be largely automated, it could erode the competitive advantage of large consultancies that rely on large teams of engineers. This could lead to a market restructuring, with increased investment in AI and reduced hiring of junior staff. Historically, each wave of automation has sparked fears of mass unemployment but also created new opportunities. For example, the introduction of offshoring in the 2000s displaced jobs in the United States but created a massive industry in India. Now, generative AI could displace junior programmers but will also demand AI experts, solution architects, and integration specialists.

A relevant precedent is the startup VianAI, founded by Sikka in 2018, which focused on AI for enterprises. VianAI was acquired by the venture capital firm to be integrated into this new company, suggesting it is building on already proven technology. However, the IT services automation platform market already has established players like UiPath (robotic process automation) and Automation Anywhere, which have struggled to scale beyond repetitive tasks. Sikka's new startup could go a step further, using large language models (LLMs) to automate cognitive tasks such as code writing, incident management, and basic consulting.

Another impact could be on the geopolitics of the industry. India has been the center of global IT services, but automation could reduce the need for large teams in low-cost locations. This could lead to a 'reshoring' of some services, where companies opt for smaller, automated teams in their own countries. However, it could also open new opportunities for Indian startups leading AI innovation, as companies like Fractal Analytics or Locus.sh are already doing.

As for the reaction of established giants, Infosys, TCS, and Wipro are likely already developing their own AI platforms. For example, Infosys launched Infosys Topaz, a suite of generative AI services, in 2023. TCS has its ignio platform for IT automation. However, these initiatives are often hampered by organizational inertia and the need to protect their hourly billing business model. Sikka's startup, as a new entity without that baggage, could move faster.

What should readers know?

It is important to note that details about the product and business model have not yet been revealed. The startup is in an early stage and there is no guarantee of success. However, Sikka's track record and the quality of the investor team indicate that the project has significant potential. The team includes veterans from SAP (where Sikka was CTO), Infosys, and VianAI, combining experience in enterprise software, IT services, and artificial intelligence.

Readers should closely follow upcoming announcements, as the startup could redefine how companies consume IT services, shifting from a managed services model to autonomous platforms. It is also relevant to monitor the reaction of established giants, which could respond with their own AI initiatives or through acquisitions. For example, if the startup shows traction, it would not be surprising if Infosys or TCS tried to acquire it, although Sikka likely wants to maintain independence.

In summary, Vishal Sikka's new venture represents a direct challenge to the traditional IT services model, leveraging generative AI to automate tasks that previously required large human teams. With solid financial backing and a top-tier team, it has the potential to accelerate the transformation of an industry that employs millions. However, the path is fraught with technical, market, and regulatory obstacles. The coming months will be crucial to see if this startup can deliver on its ambitious promises and become a turning point for the sector.