A paradigm shift: Threat is increasing for routine IT roles across services

In just a few days after its launch, Anthropic’s Claude Cowork has caused disruption across the information-technology (IT) services industry. The new artificial-intelligence (AI) assistant, with its multiple plugins, allows people to collaborate with AI in shared workplaces. As the implications were realised, investors sold down IT stocks. Cowork triggered bearish sentiment, which wiped off hundreds of billions in IT companies’ market value all over the world. India’s IT-services majors were among the badly hit. Software stocks crashed and the Nasdaq also endured a bloodbath. Anthropic Founder and Chief Executive Officer Dario Amodei claimed in Davos that “we’re six to 12 months from AI doing everything software engineers do”.

 

Anthropic released Cowork, along with 11 plugins, through a three-week period, starting mid-January. The plugins have been labelled “productivity”, “enterprise search”, “plugin create or customise”, “sales”, “finance”, “data”, “legal”, “marketing”, “customer support”, “product management”, and “biology research”. This indicates the width of the impact on workflow. Together, these mark a paradigm shift. This is open-source software that can easily be adapted to automate repetitive tasks and workflows across legal processes, sales, marketing, data analysis, and other enterprise-support functions. Cowork greatly reduces the need to add a human element to the performance of mundane, yet technically challenging, tasks. Apart from generic enterprise-support service companies, software as a service (SaaS) platforms such as Salesforce, SAP, and ServiceNow, which rely on subscription models, will be particularly badly affected. 

So it directly threatens the heads-and-hours billing model, which is the bread and butter revenue of software-services firms. It confirms that AI could soon replace much of high-value but routine services these companies provide and, thus, trigger the extinction of the ant-farm model with its armies of rank-and-file IT coders. Cowork has catapulted Anthropic into the software-service space as a new major player. Other AI companies are also working to develop tools with similar functionalities. Hence, companies in IT services have to invent business models to remain relevant. The substantial number of coders, whose current roles are heading for redundancy, will also have to develop new skills.

 

The advent of useful new technology always leads to disruption as some functions are phased out. For example, horse breeders suffered an apocalypse when the automobile arrived. However, new technology also creates new revenue streams, as indeed the automobile did.  With AI, however, the timeline has been compressed to an alarming degree, making it hard for displaced (and potentially displaced) entities to reposition and reskill to exploit new business opportunities as these arise. For example, these tools will create a need for skilled managers to guide enterprises through the process of transformation and IT re-integration, which will follow the induction of such tools.

 

IT-services companies that saw their valuations taking a hit are not only hurrying to build internal AI competencies, they are stitching together alliances with AI companies and research labs. However, it is hard for analysts and investors to assign accurate valuations to new technology. This is why it leads to exaggerated boom-bust cycles. The stock-market response may be an overreaction in the short term. But AI is turning out to offer a rollercoaster ride in the same way as early dotcom did.