Expect IT service providers to use AI to improve service delivery and automate customers' business processes this year, among other notable trends in the industry.
Artificial intelligence this year will make further inroads into how IT service providers run their businesses -- while also driving demand for their consulting and implementation offerings.
Those are among the trends poised to shape the service provider sector as it moves into 2025. Other anticipated themes include a continued focus on ROI amid cautious technology spending and an increase in mergers and acquisitions in the IT services sector.
Here's a rundown of six top trends to watch in the IT services market this year.
1. More AI in service delivery, operations management
Service providers have been incorporating generative AI (GenAI) into their operations for the last couple of years, influencing how they deliver digital transformation services. The in-house AI adoption trend, which also includes machine learning (ML) and agentic AI, will intensify in 2025. Customers will increasingly view AI use as an evaluation criterion for service providers.
"There's an emerging expectation that service providers leverage AI to produce a better service," said Brian Klingbeil, chief strategy officer at Ensono, a managed service and cloud service provider based in Downers Grove, Ill. "That needs to happen to be competitive, and those who do it will get more business."
AI will become increasingly embedded in the core of managed services.
For decades, service providers have monitored customers' IT environments for problems and responded to alerts as incidents occur. But now, the industry must shift from fixing problems reactively to addressing systems before they crash, Klingbeil said. He called the emerging approach "predict, prevent and optimize."
"The way to do all three of those things is AI," he said, noting that proactive maintenance will augment traditional monitoring.
To that end, Ensono is rolling out a proprietary predictive engine tool that uses ML at its core to predict which incidents will become major incidents and taps GenAI to automatically create service tickets. That aspect of the system, Phase 1, went live in December 2024. Phase 2, slated to launch by the end of March 2025, will identify precursor events that create the conditions for major events to prevent them from occurring, Klingbeil said.
Klingbeil said he expects the predictive engine will provide a "double benefit" of increased customer satisfaction and reduced labor expenses. The cost savings will stem from faster time to resolution and, with the arrival of phase 2, incident prevention, he noted. The latter will eliminate the need for troubleshooting.
Agentic AI is expected to see a sharp uptick this year, while more GenAI pilots move into production.
2. AI drives service provider demand
Service providers have been busy with customers' AI projects for a couple of years, training an army of consultants to meet demand. In 2025, they can expect that trend to continue as pilot deployments expand and organizations look to embed AI in their business workflows.
"We anticipate a strong focus on scaling generative AI across industries, moving beyond proofs of concept to enterprise-wide implementations," said Patrick Corcoran, global head of analyst and advisor relations at Hitachi Digital Services, in an email interview.
Within that focus, companies will integrate GenAI into core processes, including customer engagement, supply chain optimization and predictive maintenance, he added.
Justin Copie, CEO at Innovative Solutions, a cloud service provider based in Rochester, N.Y., also cited customer engagement as a top priority for GenAI deployment. Organizations view GenAI as a way to "remove friction" in customer service, he noted.
In addition, Copie pointed to agentic AI, which revolves around autonomous agents, as an opportunity. Service providers can help customers use agentic AI to build automated workflows that link data sets to accomplish a task, he said.
"Customers have large data sets and don't know how to tie these data sets together with large language models in an agentic way," Copie said.
Ken Englund, technology sector growth leader at consultancy EY Americas, said he expects agentic AI to ramp up significantly this year, with tech enterprises applying the technology to customer service and marketing. Englund works with consumer electronics, internet, social commerce and software companies, among other tech providers.
3. AI affects pricing models in IT services market
But while agentic AI could help such companies optimize internal functions, the technology also harbors a competitive risk.
For example, business process outsourcing (BPO) companies that charge for services on an hourly basis could adopt agentic AI offerings that use outcome-based pricing models. With outcome-based pricing, some or all of a service provider's fees are based on achieving business outcomes. Using that AI-based approach would provide some level of savings while also minimizing their service delivery risks, Englund said. On the other hand, agentic AI companies could compete directly against BPO providers, he added.
Tercera, an investment firm that focuses on IT services companies, also predicted an AI-driven shift from hours to outcomes, amid an uptick in value-based pricing. While BPO companies might be more at risk, the trend will affect the IT services sector overall, said Michelle Swan, chief marketing officer and partner at Tercera. AI's ability to complete projects faster with fewer resources will compel companies to revisit their pricing models this year, she noted.
"Service companies need to figure this out or they will see their revenue decline," Swan said.
4. IT spending scrutiny continues
Guarded spending was the norm for 2024, and industry executives aren't forecasting anything approaching unbridled spending this year either. The focus will remain on rigorous business justification and ROI.
There's an emerging expectation that service providers leverage AI to produce a better service.
Brian Klingbeil Chief strategy officer, Ensono
Indeed, Klingbeil said a lot of Ensono's AI engagements are going into production now because customers' earlier proofs of concept demonstrated business value. Yet many organizations have failed to make the case for AI deployment, he noted.
"A lot of people went around with a hammer, looking for nails," he said. "It might be cool, and the output might be cool, but what is the business problem?"
Corcoran said he expects to see balanced spending strategies among IT services customers in 2025. That is, organizations will take a cautious but strategic investment approach. The spotlight will be on transformational technologies that demonstrate a clear ROI, he noted.
But while investment in technologies such as AI is set to expand this year, that increase might come at the expense of other programs. In the technology sector, for example, companies are redirecting digital transformation funds to AI initiatives, Englund said. "For many, it's a zero-sum game."
Overall, businesses will focus their spending on IT initiatives that boost efficiency, said Steven De Maayer, chief services officer at Blue Mantis, a digital strategy and services provider based in Portsmouth, N.H.
"Customers are looking for ways to drive more bottom-line performance," De Maayer said.
5. AI fuels increase in IT services M&A
This year could see a spike in merger and acquisition activity in IT services, building upon improving economic conditions in 2024.
"There's been a lot of consolidation in the last six months as interest rates have settled down," said Martin Wolf, president of Martinwolf, an M&A advisory firm based in Scottsdale, Ariz. The Federal Reserve reduced interest rates three times in the second half of 2024.
Wolf said he expects record levels of IT services transactions in 2025 and 2026 -- with the deal volume largely driven by the increasing adoption of AI. An unforeseen external factor, such as a new geopolitical conflict, could negatively affect deal-making, he added.
Barring such an event, AI will fuel M&A in a couple of ways. First, AI provides a growth opportunity for consultants and systems integrators. Such deployments will require IT services on an ongoing basis, Wolf said. The second factor stems from IT service providers' internal use of AI and the resulting productivity gains and cost reductions. Service providers that reduce their selling, general and administrative (SG&A) expenses will become more attractive acquisition targets, Wolf said. Lower SG&A costs translate into higher profit margins -- and motivated buyers.
World Wide Technology's agreement to purchase Softchoice, announced late last year and slated to close by the second quarter of 2025, could prove a harbinger of things to come. WWT, with headquarters in St. Louis, is a technology services provider, while Toronto-based Softchoice focuses on software, cloud and AI offerings. Softchoice offers Copilot for Microsoft 365 planning and implementation, GenAI consulting and conversational AI services.
"With Softchoice on the forefront of the AI revolution, WWT will look to bolster those capabilities along with [Softchoice's] complementary software, cloud, and cybersecurity solutions," according to a Martinwolf brief on the acquisition agreement. Martinwolf didn't advise on the pending deal but has worked with Softchoice on previous transactions.
Blue Mantis, meanwhile, completed two acquisitions in the fourth quarter of 2024 and could continue down that path this year.
"The lower interest rate is going to help us do more acquisitions," De Maayer said.
One of its Q4 acquisitions, SME Solutions Group, based in Tampa, Fla., provides data enablement and analytics capabilities. That transaction bolsters Blue Mantis' AI-readiness services, he noted.
"We think that data and how to manage data, in view of AI, is going to be very important," De Maayer said.
6. Quantum computing becomes more visible in IT services
Quantum computers capable of outperforming classical systems in meaningful tasks have yet to arrive. But the technology continues to advance as quantum ecosystems -- public-private organizations focused on commercialization -- expand worldwide.
IT service providers' first forays into quantum computing services will likely emerge in post-quantum cryptography (PQC). The prospect of threat actors harnessing quantum computing to crack conventional cryptography will result in more enterprises seeking advice on how to deploy quantum-resistant algorithms.
Already, global systems integrators and consultancies such as Accenture, Deloitte, EY and PwC offer quantum security assessment services. Customer engagements are beginning to surface: In December 2024, Accenture completed a project examining PQC technologies for Banco Sabadell, a financial services firm based in Madrid.
The organizations with the greatest level of cybersecurity maturity are poised to spend on post-quantum cryptography preparedness. Info-Tech Research, a market research firm based in Toronto, found that 31% of advanced IT departments are ready to invest in post-quantum cryptography in 2025, compared with 16% of the low-maturity organizations it surveyed for its "Tech Trends 2025" report.
IT service firms might also find work advising companies as they begin exploring quantum computing applications. For example, organizations in the financial services, pharmaceutical and life sciences, and government sectors are investigating quantum computing's potential.
John Moore is a writer for Informa TechTarget covering the CIO role, economic trends and the IT services industry.
