IT services companies may benefit as enterprises tap AI to sunset legacy apps

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India’s top IT companies might benefit as their biggest customers look to sunset legacy applications that are only being maintained for the critical data they hold, but first a couple of other headlines that caught my attention:

One97 Communications Ltd., which operates the Paytm wallet and payments network, has formed a committee, headed by Meleveetil Damodaran, the former chief of the Securities and Exchange Board of India, the country’s capital markets regulator, to help the company meet compliance requirements.

On Jan. 31, the Reserve Bank of India, ordered the company’s Paytm Payments Bank unit to cease most of its operations after Feb. 29 for various regulatory violations.

The three-member committee includes Mukund Manohar Chitale, a former president of Institute of Chartered Accountants of India (ICAI), and Ramachandran Rajaraman, a member of the Advisory Board at Central Vigilance Commission.

Meanwhile, India’s parliamentary committee on communications and IT has urged the central government to support the growth of domestic fintech players as alternatives to the duopoly of PhonePe, a unit of Walmart, and Google Pay which accounts for more than 83 percent of India’s digital payments transactions via the unified payments interface, TechCrunch reports.

PhonePe leads, with 46.91 percent of the UPI market share by volume for the period of October to November 2023, the committee notes in its report. Google Pay held a market share of 36.39 percent in the same period.

One thing today

India’s IT services companies will likely benefit as their customers take a hard look at outdated software applications in the age of AI. Many of these applications are being maintained only for the data they hold, the consultancy ISG points out in a recent newsletter.

Enterprises have large volumes of critical data locked in legacy applications, ISG’s Stanton Jones, Sunder Sarangan and Alex Bakker, note in the company’s weekly newsletter, Index Insider, with the tagline what’s important in IT.

AI will be a forcing function for businesses to overcome the reasons that have been preventing them from sunsetting or modernizing these applications, which will serve as an important driver for ADM activity this year, they write.

ISG’s most recent Application Development and Maintenance Buyer Behavior Study showed that about one in every ten enterprise applications has been classified as “end of life.”

Most large enterprises have thousands of applications, so in most cases, this means that hundreds of applications are at the end of their life for any one company, they point out.

And, the primary reason companies continue to support these legacy applications is because of the data they hold.

According to ISG, 10 percent of enterprise applications being at end of life translates to more than 150 applications on average per company. Half of all enterprises ISG surveyed continue to support these applications because of the data stored in them.

ISG, which tracks all IT outsourcing contracts worth $5 million or more, expects enterprises to double the number of AI-enabled applications in their portfolios by the end of 2024.

This means that application optimization will be an important attribute of ADM activity in 2024. Companies will rely on their outsourcing providers for the resources required for these legacy transformation programs as well as their ability to combine cost optimization with modernization, according to the consultancy.

Even in regions like the Asia Pacific, where companies currently lag their North American counterparts in GenAI spending, for example, Infosys, India’s second biggest IT services provider, forecasts a bigger increase than in any other region – 140 percent in the next year.

This translates to an estimated $3.4 billion to be invested across Australia, New Zealand, China, Japan, India, and Singapore, according to Infosys’s Generative AI Radar APac Report, released two weeks ago.